Bank of America reelects chief Kenneth Lewis to board
Bank of America Corp. shareholders flexed enough muscle Wednesday to strip the chairman’s job from beleaguered Chief Executive Kenneth D. Lewis, in a vote that reflected the bank’s recent stumbles and the growing clout of union-led activists.
The action, which came during a fractious annual meeting in the company’s hometown of Charlotte, N.C., capped a high-stakes showdown between the banking giant and dissident shareholders, who are angry over the bank’s stock performance and what they saw as an overly cozy relationship between Lewis and the company’s board.
“This is a watershed moment,” said Daniel Pedrotty, the AFL-CIO’s investments director. “You have pension funds and other shareholders finally standing up and giving a large vote of no confidence to the chairman and CEO of the nation’s largest bank, signaling that they are going to hold accountable those who have brought this economy to the brink of collapse.”
Major investors have seen their BofA shares plunge in value. The stock rose 53 cents to $8.68 on Wednesday; it had traded at about $40 a year ago. Shares have fallen 38% this year, compared with a 3% decline for the broad Standard & Poor’s 500 index.
In a sign of the significance that professional investors placed on the Bank of America vote, three major proxy advisory firms had come out in favor of taking the chairman’s title from Lewis. The recommendations of those firms are followed closely by institutional investors such as mutual funds.
Major investors “are angry and ready to rumble,” said Amy Borrus, deputy director of the Council of Institutional Investors in Washington. “This is a huge rebuke.”
In a separate vote, Lewis retained his seat on the board of directors by a two-thirds vote. The board selected director Walter E. Massey as the new chairman.
Lewis was deposed as chairman after shareholders approved -- with just 50.3% of the vote -- a measure to separate the roles of chairman and chief executive. His performance aside, many corporate governance experts and shareholder advisory firms have favored the separation of those jobs.
“The sheer complexity of running a company as large as Bank of America in today’s environment makes the bifurcation almost necessary,” said Rafael Pastor, who heads San Diego consulting firm Vistage International.
In most cases, however, the changes are voluntary. Efforts by adversarial shareholders to remove chairmen have routinely failed at dozens of companies over the years, so the Bank of America vote marked a key point in attempts to create a more democratic process for holding underperforming executives accountable.
The two-thirds vote to keep Lewis on the board was less convincing than it appeared, critics said, because the support for him included controversial ballots from brokers, who usually side with management. Such action, in effect, stuffs the ballot box with millions of votes from clients who failed to vote their own shares, Pedrotty said.
Securities regulators have indicated that they will eliminate this practice next year. Pedrotty estimated that 20% to 25% of the vote to retain Lewis on the board came from those so-called uninstructed broker votes.
Lewis has come under blistering criticism for apparent missteps that have yanked Bank of America from its perch as one of the country’s most successful banking institutions to a laggard -- one that received $45 billion in federal aid and may be required by regulators to raise more capital.
Its financial performance and reputation suffered from last fall’s hastily arranged purchase of faltering Wall Street investment bank Merrill Lynch & Co., part of a whirlwind weekend that also saw the collapse of investment banking titan Lehman Bros. Holdings Inc.
The deal has been plagued by embarrassing revelations almost from the moment it was struck.
Merrill had an unexpected $15-billion fourth-quarter loss, and outgoing executives sped up the payment of $3.6 billion in bonuses just weeks before the deal was completed Jan. 1.
More recently, Lewis has been dogged by a controversy over his failure to notify shareholders about Merrill’s pending quarterly loss and the government’s role in the Merrill takeover.
Lewis said in a sworn statement to the New York attorney general’s office that federal regulators pressured him to keep quiet about the gaping loss and to complete the Merrill purchase for fear that aborting the merger would deal another blow to the reeling financial system.
At the annual meeting, several shareholders lashed out at Lewis and the board.
“You knew what was going on,” said Judy Koenick, a shareholder from Chevy Chase, Md., who wore a T-shirt that read “Fire Ken Lewis.” “You kept it from us. You’re still keeping it from us.”
Kent Moore, a Charlotte real estate executive, said: “Leadership must accept responsibility. Your decisions are responsible for our insolvency.”
The California Public Employees’ Retirement System, the country’s biggest public pension fund, said it voted all of its 22.7 million shares against all 18 directors, citing the “poor condition of the company,” along with the company’s failure to disclose the Merrill losses and bonuses and the board’s failure to “act in the best interests of shareholders” in overseeing management.
Lewis defended the purchases of Merrill Lynch and of money-losing home mortgage giant Countrywide Financial Corp. in Calabasas, saying they contributed heavily to Bank of America’s improved first-quarter earnings.
“These acquisitions are not mistakes to be regretted,” Lewis said. “Both are looking more and more like successes to be celebrated.”
Lewis also defended his compensation, which critics have derided as out of whack with a financial services company that has required billions of dollars in government assistance.
The CEO took home nearly $25 million in 2007 and $10 million last year but said his sole compensation this year was his $1.5-million salary.
“Because of my pledges [to charity], I actually do give away more than I make,” Lewis told shareholders.
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Times staff writer Tiffany Hsu contributed to this report.
