The decision to elevate Mr. Moynihan in the face of the historic shareholder vote created a firestorm for the company. It has become front-page news virtually every day in the past week, as shareholders are now to vote again as to whether they want to undo that board decision and strip Mr. Moynihan of the chairman title.
Powerful shareholder organizations like ISS and Glass Lewis, who advise institutional shareholders how to vote on situations like this, are clear: The board has violated a shareholder demand and the two positions of chairman and CEO must be kept separate. Moreover, large pension funds like Calpers are outraged by what the Bank of America board has done.
Others argue against the joint title on the basis of conflict of interest. Moreover, some believe that boards will not act independently to protect shareholder rights if they are led by the company's CEO. The 1932 book by Berle and Means, "The Modern Corporation and Private Property," was among the first -- if not the first -- to make this proclamation.
It's a pretty compelling case. And yet, Warren Buffett, a Bank of America shareholder, has publicly stated (including in a CNBC interview with Becky Quick) that Mr. Moynihan should keep both positions.
I have to agree with Mr. Buffett.
Citigroup is the only big bank that has separated these roles and no one is complaining about any of the vast majority of other banks that have combined the two roles.
One reason is that company owners have no complaints is because, despite the reams of words spoken and written on the subject; no one has released a study that demonstrates that companies with split CEO and chairman roles operate any better or worse than companies where the roles are combined. This includes both from a profit or governance status.
It is simply a non-issue for the vast majority of American shareholders. In my close to 50 years in the business, I cannot recall even one person in the tens of thousands I have worked with who ever considered this issue to be a factor in buying or selling a stock.
There may be two reasons why this is an issue at Bank of America:
- The Board of Directors total disregard for shareholder wishes; and,
- It is Bank of America, one of the most continually attacked companies in the United States in the past 8 years.
It certainly does appear that the board has taken a step in total disregard of shareholders wishes. The board has made a decision that should have been made with the concurrence of the company's owners. Not only has the board acted with total disregard for the stated wishes of these owners but they voted themselves a hefty raise, averaging $36,000 in stock awards, without asking for shareholder approvals.
As a consequence of their ill-thought out actions, they have brought a new series of attacks against the company in the media at a time when the bank was finally recovering from these occurrences. Either through arrogance or a complete lack of understanding of the public position of this institution, this board has put the company in a bad position when it was completely unnecessary.
I think this means that there needs to be adjustments made to this board. Its leadership is flawed and its governance committee should be restructured. Bank of America shareholders, employees, and customers deserve to be led by people who have a greater understanding of their public responsibilities. This board is not the right one for this task.
Mr. Moynihan, on the other hand, has taken on the legendary Sisyphean task of cleaning up this institution when year after year, new issues keep rolling that stone downhill once again. The time for this has stopped. He should be recognized for what he has achieved. The bank is cleaner, better run, with a fortress balance sheet, and opportunities to drive its earnings much higher. He deserves to be both chairman and CEO. This issue and others like it need to go away. Concentration needs to be placed on what the company can achieve not how its leadership structure is positioned.
Commentary by Richard X. Bove, an equity research analyst at Rafferty Capital Markets and the author of "Guardians of Prosperity: Why America Needs Big Banks" (2013).