BofA Aces The Referendum On A Combined Chairman/CEO

A Few Important Take-Aways For Issuers - And A Few “Shades Of The Bad Old Days” Worth Noting

While the Special Shareholder Meeting - to ratify or reject the BofA board’s decision to ignore a binding bylaw proposal to separate the roles, and award the Chairman’s role to the CEO - generated daily attention in the financial press, the outcome - which both sides had been predicting to be a “squeaker” turned out to be something of a runaway victory for BofA - where they won 63% of the votes. Not as big as Jamie Dimon’s big 70% win at JPMC last year, but still impressive.

Here are a few observations on the “top take-aways”:

• First and foremost, as we noted following the recent dust-up at DuPont, the biggest institutional investors are still very much inclined to let boards due their duties as they themselves decide - unless, of course there have been truly egregious behaviors.

• While many activists felt that ignoring a binding bylaw without prior ‘reaching out’ WAS an egregious slap in the face, the re-vitalized BofA reaching-out team was able to reassure the biggest investors - and a lot of the small and middling ones too.

• As a 9/17 NY Times story noted, “Top bank executives and one of its board members have pounded the pavement from London to Houston, lobbying dozens of investors” - and cutting at least one “deal, to mollify one outspoken critic” - promising activist Father Seamus Finn - a consummate Irish-American politician if ever there was one - that they’d issue a report he wanted on the Financial Crash if he’d vote their way.

• They even won over crusty old hardliner and former corporate-basher Barney Frank…who now is a bank director himself. (Is anyone really surprised by this? Or by the fact that now he tells the Times that “People expect too much of boards”?)

• The same pre-meeting article noted that “As many as 40% of shareholders were expected to vote against Mr. Moynihan from the outset” - which proved to be way, way off-base. But one small take-away; thinking that one is way behind is way better than thinking it’ll be a cake-walk: For sure, it’s a great way to get energized.

• The article also opined that with ISS and Glass Lewis both recommending a vote no, “the bank most likely lost as much as 30% of the vote because certain shareholders vote automatically with the proxy firms” - according to people “briefed on the matter.” Well this should put that absurd idea entirely to rest - an idea that panicky corporate folks have been the main spreaders of by the way.

• The biggest take-away, we think, is that having someone who is perceived as being a strong and independent Lead Director is at least as good - and should be essentially the equivalent of - having a “totally independent Chairman.” While the newly designated lead director Jack Bovender (a former healthcare exec and a current trustee of Duke University, and ‘a perfect southern gentleman’ the author opined), had to catch up fast and come from way behind in this race, he ran like hell – and ultimately passed the big-investors’ sniff-tests.

• The biggest surprise… to this very long-term observer of shareholder meetings…was not just how hard the anti-BofA activists fought against ratification, but how much their lobbying efforts resembled the hard-ball tactics that shareholder activists used to protest about so loudly (and correctly so) when corporate issuers approached and leaned hard on their own key customers. If the NY Times article is to be believed, activists were “calling and writing to the largest shareholders - including some they may pay to manage money on behalf of California pensioners - urging them to vote against the combined role.” Shades of the bad old days!

• Do we think this dust-up is over now? No we don’t. This was not so much about combining or separating the Chair and CEO roles as it was about the process – and about the mindset and the composition of the board - and about how little they knew, much less thought about the likely investor reactions.

• And, sorry to say this, BofA still seems to be a little tonedeaf here, to put it kindly: According to a NY Times DealB%k article after the meeting, ISS, “which favored separating the chairman role, pointed out that only four of the bank’s 13 board members had significant experience in financial services. The firm also noted that some board members served before the financial crisis when the bank made epic stumbles, including the acquisition of Countrywide Financial in 2008… Shrugging off suggestions that the board needed a shakeup, Mr. Moynihan said the bank had asked Charles.

• K. Gifford, the former chief executive of FleetBoston, to remain on the board even though he had reached retirement age…The bank made an exception for Mr. Gifford to continue beyond the age of 72 because of his extensive expertise, Mr. Moynihan said. Mr. Gifford is seen by some as a key supporter of Mr. Moynihan.”

• Round-two we predict, will involve some serious efforts on the part of institutional investors of every stripe to see some serious “board refreshment” at BofA.