Inside Financial Services

On Moynihan’s Role at BofA, the Proxy Advisers are Wrong

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I see Warren Buffett says he’s in favor of Brian Moynihan keeping both the CEO and chairman’s roles at Bank of America. Good for Buffett. Moynihan inherited a godawful mess when he took over as CEO in 2010, and has done a great job in cleaning it up ever since. He’s extremely capable and has an enormous amount of integrity. He’s just about the last man, now that I think of it, who needs to have someone peeking over his shoulder making sure he’s doing his job.

And yet the Wall Street Scold community persists with its weird obsession that splitting the CEO and chairman’s role somehow makes for “good governance.” The usual suspects—Mike Mayo and the gang–are lately chiming in that when BofA shareholders vote on the matter on September 22, of course Moynihan should give up the chairman title. Governance!

Really? First off, if there’s a single piece of empirical evidence that shows that splitting the CEO and chairman improves corporate governance (or plain old shareholder returns, for that matter), I have yet to see it. One would think, rather, that a separate CEO and chairman at a company is a red flag that perhaps not all is well. If a board has so little faith in its CEO that it insists he have a corporate chaperone to potentially second-guess his every move, maybe that CEO isn’t the man for the job in the first place.

Or if the Scolds–who seem to fetishize about appearance over reality in all things, anyway–prefer, how about Moynihan keep the title of chairman, and someone else be named CEO? Maybe we can go one better, and come up with a brand new title that exudes extra-good-governance vibes. How about Grand Pasha? Would that work, Mike?

My point in all this is that CEO-chairman talk is a bunch of useless navel gazing. As I say, its empirical value adds up to zero. And even in theory, it doesn’t make much sense. I can see why Glass, Lewis and ISS are always clamoring for the split. They have a racket to run. But Mike Mayo and the rest are just wrong. First, they seem to not understand what good governance actually involves. For instance, a company whose CEO keeps his board adequately informed on the key issues and risks facing the company, and whose board is in the habit of routinely asking the CEO tough, skeptical questions, can be said to practicing “good governance.” But it didn’t get that way by following some specific structure that ISS and Glass, Lewis approve of, or by ticking off some proxy adviser’s laundry list of best practices. Adequate governance arises out of the culture of a company and the strength and integrity of its leadership. Despite what the Scolds would have you believe, there are no shortcuts to get there. Sorry.

(Disclosure: the funds I manage have a position in BofA. And, yes, we favor keeping the status quo.)

What do you think? Let me know!

18 Responses to “On Moynihan’s Role at BofA, the Proxy Advisers are Wrong”

  1. Avatar Michael Cook

    OK in most cases as long as there is a very strong independent lead director…

    • Avatar Priya

      3b #118: Look, it’s a pleasant engouh town to live in. I think the schools are like #74. I will tell you that houses are selling in Wash. Twp. Yes, there’s the spec McMansion on Mountain Avenue that has been on the market for 2 years, is unfinished inside, and the builder won’t drop the price below 7 figures. But a house similar to the one in the listing, same neighborhood, fewer updates but with a dormer and 2 baths, went under contract as soon as the listing price dropped to $365K so my guess is the selling price was somewhere between $350K and $360K, which I think would probably be the ballpark for the listing I sent you given that the listing house has a new kitchen and bath and 2-car garage. Things are moving when they hit the right price. You can look at recent sales in the town at . They post sales every two weeks so you could get an idea of prices. For the most part, people in town are pretty friendly. It’s quiet, not a lot of traffic, very pretty in spring and summer. Not many civic activities outside of youth sports, but if you just want a comfortable house, not snooty, relatively low taxes for Bergen, you could do worse. I think it was more pleasant when we moved in than I do now, mostly because I know more about the clowns and thieves running the government, but what isn’t angrier than it was 15 years ago?

  2. Avatar etoleary

    Tom, I think there’s a lot more to this than you convey. In principle, the job in a big public company should be split. It makes it more likely that the independent directors will caucus among themselves and discuss issues that simply would not be adequately ventilated in a board meeting. I am a retired CEO of a large community bank and had an independent chairman who made my life a lot simpler. He handled the questions they had and if he and they didn’t agree with me, he told me about it. If he didn’t agree with the directors, he told them and I didn’t have to spend time wrestling with such issues. Banking is pretty specialized and many outside directors have little specific background in terms of preparation. They need help and a forum and an outside chairman can be that.

  3. Avatar Tom brown

    Etoleary, I appreciate your comments but I believe substance is more important than form. It wasn’t so long ago that Bank of America had a totally ineffective non-executive chairman

    • Avatar etoleary

      And a perhaps dysfunctional board?

      As a BofA shareholder (of modest proportions) I note the mess that the former CEO/Chairman/President bequeathed to his successor.

      In the many discussions in recent years about splitting the roles, I don’t recall ever hearing about an independent chairman who was “in the way” or made life difficult for the CEO. In this age of sensitivity to internal controls, I view this as a pretty basic one.

      • Avatar Kulpreet

        Simple breaking up and diozsinwng is not going to work simply because we can’t go back in time by simply rescaling. A revision and reorganization plan needs to be revised that creates something of a co-operative consortium with interdependencies built into a process that is regulated by external checks and internal balances. The middle class bankers probably could revamp a network system that would be a working proposal, but we keep hearing only from self serving interests from Big Financial monopolies.J.P. Morgan, BlackRock and Goldman are not going to give us a working model for reorganization but they will bring us back to the brink of total crisis just to prove we can’t live without them.The second thought is that aside from a middle class banking revolution, we need a PUBLIC OPTION in banking and finance to compete with the private modality. Something along the lines of a public health system that systemitizes public utility and prioritizes stability. Liquidity must be distributed if a truly capitalistic solution is to be envisioned and enacted for the 21st century. We need to stop lock stepping in line with the standardized rhetoric of collusion and exclusion and start public dialogue about authentic solutions. The reality of the schism between domestic and international economies needs to be measured and realizations that infrastructure is the priority right now in both rhelms. Considering the fact that the economy has become politics and politics has become business; it seems we need nothing short of an all out revolution to fix that arena.

    • Avatar Atul

      the city had improved Times Square by manikg it a family- and pedestrian-friendly place but said its former mix of prostitutes and colorful characters was romantic and fascinating. Clinton appeared with Mayor Bloomberg Wednesday as they announced the merger of their climate groups Climate Initiative and C40 and boasted that turning cars away from the tourist mecca in the center of the city had improved air quality. When I was 18 years in November of 1964, a freshman at Georgetown, I first went to Times Square. I bought a steak at Tad’s Steakhouse. I heard a guy ream his mother out, poor working woman, because she’d given him a hi-fi instead of a stereo speaker. I remember everything about it, he said, according to a transcript of his remarks published by The New York Times. I saw a hooker approach a man in a gray flannel suit. Pretty heavy stuff for a guy from Arkansas. My view is it’s way better now. You have to look at the overall numbers. Yes, look, I still have vivid memories of it. Romantic, fascinating. Clinton said Times Square was now a better place after the hustlers and crooks of the past had made way for the giant electronic billboards, theme restaurants and droves of wide-eyed, camera-clutching tourists of the present. It was dangerous from the point of crime and it was unhealthy from the point of public health, he said, adding later, I think you did the right thing and I think there is no question that New York is better and the tourists are better off. And I love it. Mayor Bloomberg said since the creation of the Times Square pedestrian plaza in 2009 the concentration of traffic-related pollutants nitrogen oxide and nitrogen dioxide dropped by 63 percent and 41 percent respectively. We created pedestrian plazas right in the heart of our city to straighten out some of the chokepoints in our street grid and to help traffic flow more smoothly and quickly through Midtown, he said. We also expected that by reducing the numbers of vehicles in and around Times Square, we would also improve the area’s air quality, and that’s exactly what the numbers now show. Another breath of fresh air is expected to be added to the Crossroads of the World this summer with al fresco dining areas in the works. Up to five vendors will be contracted to take orders and serve food to people sitting at the 350 red chairs and 100 tables within the car-free area, according to a request for proposals released last month.

  4. Avatar Brian H

    I agree with you in this case. Where were these guys when Ken Lewis was chairman and CEO? Maybe Wall Street could actually work on practical value creation rather than fighting past battles, for a change.

    • Avatar Edoardo

      Do the Wilponzi’s have a white knight?WSJDEALS & DEAL MAKERSAPRIL 13, 2011Cohen Makes a Pitch for MetsBillionaire Hedge-Fund Manager Joins Bidding for a Stake in Baseball TeamBy RANDALL SMITH And MATTHEW FUTTERMAN Billionaire hedge-fund maanegr Steve Cohen has joined the bidding for a minority stake in the New York Mets, as the baseball team attempts to raise about $200 million to cover losses and pay down debt, according to people familiar with the matter.Mr. Cohen, the founder of SAC Capital Advisors LLC whose net worth is estimated by Forbes magazine at $7.3 billion, is a longtime Mets fan who knows its controlling Wilpon family socially. He manages about $12 billion in assets.A spokesman for the Mets declined to comment. Jonathan Gasthalter, a spokesman for Mr. Cohen’s SAC, declined to discuss any bid.Several other Wall Street financiers also are vying to gain a minority stake in a team with heavy debt, declining attendance, and the cloud of $1 billion in claims against the Wilpons by the trustee for victims of the Bernard Madoff Ponzi scheme.The Mets recently requested that potential investors submit nonbinding letters confirming their interest in the team, including their bid price and size of the stake, which could range from 25% to 49%.Among other bidders is a team led by Steve Starker, the co-founder of Wall Street trading firm BTIG LLC. His group includes Kenny Dichter, a co-founder of Marquis Jets, and Douglas Ellin, creator of the HBO show Entourage. Another group with Wall Street credentials is the team of David Heller, an executive of Goldman Sachs Group Inc., and Marc Spilker, the president of Apollo Global Management LLC, the private-equity fund.The sale is taking place against the backdrop of the $1 billion lawsuit filed against team owners Fred Wilpon and Saul Katz and their associates by Irving Picard, the trustee in the Madoff bankruptcy case.Mr. Picard has claimed the Mets owners either knew or should have known Mr. Madoff was running a Ponzi scheme. Messrs. Wilpon and Katz have denied any wrongdoing.The Mets played their home opener Friday in front of a near-sellout crowd of 41,075 at Citifield. Since then, the team has averaged 30,600 fans, below last year’s average of 31,600 when the Mets led Major League Baseball in attendance declines. That makes it tougher for the team to regain profitability and command an attractive price for the minority stake.Write to Randall Smith at and Matthew Futterman at

  5. Avatar Anthony

    Tom, agree the splitting the roles can be cosmetic but in certain situations it does matter (debate in the board room on setting pay, reviewing the numbers, setting the meeting agenda etcetera). Investors need to have some confidence the board is independent and representing their interests. I also think it is incumbent on Wall Street banks/money center banks (particularly in light of recent history) to set the benchmark for corporate governance across the market given they are the pace-setters on this sort of stuff. They should have the highest corporate governance standards, including by having an independent chairman…I mean to take it a step further why even have a chairman or a board? why have independent directors? I think there is a point….the point of a board is that it must represent shareholders not management and we can point to many examples where their interests are not perfectly aligned…anyway love the site!!

    • Avatar Zayed

      Eric J. Higgins, a finance prfoessor at Kansas State University who wrote the report with prfoessors Charles W. Calomiris of Columbia University Graduate School of Business and Joseph R. Mason of Louisiana State University.The report examines a 27-page term sheet sent to the five largest U.S. mortgage servicers as a starting point for negotiations to settle allegations of abusive foreclosure practices. The proposals, which cover almost every aspect of servicing, would require lenders to consider reducing loan balances, freeze foreclosures while exhausting modifications possibilities and follow a timetable for the workout process, including borrower appeals.The terms set out by the attorneys general would increase mortgage defaults because current borrowers would deliberately miss payments, hoping to qualify for debt reductions, the study said. The modification requirements could add up to 280 days to the time it takes lenders to seize properties and increase the inventory of foreclosed homes by $297 billion.The costs of the delays, training and hiring of employees, and writing down principal would be passed onto consumers, according to the report, which estimates $3.7 billion in annual one-time expenses and $7 billion to $10 billion in annual recurring outlays. That would equate to an increase in mortgage rates of 0.20 percentage point to 0.45 percentage point a year. e2809cThere is substantial evidence that mandated modifications would do little to assist homeowners who would not qualify for existing modification programs,e2809d the paper said. e2809cThis limited benefit must be measured against the very real risk that a new program would backfire by creating considerably more strategic defaults than the defaults it seeks to cure.e2809d

  6. Avatar Philip Timyan

    Well said Tom! It would be hard to imagine that anyone could have stepped Ken Lewis’ mess and done a better job than Moynihan.

    To me, Jamie Dimon proves the dual title role valid.

  7. Avatar etoleary

    What makes me uncomfortable in the context of this discussion is the tendency to create a “cult of personality” around specific people such as Dimon and Monahan. One might argue that this only strengthens the argument for an independent chairman.

  8. Avatar Bob Goldstein

    Tom.

    I agree with you 100%. Anyone who has taken a bank of any size through the turmoil of a deep recession fraught with every degree of impending risk knows that the job that Brian did at BofA was one of the greatest achievements ever experienced in our industry. As long as he has a strong, independent, thoughtful board, with talented committee heads and a capable lead director there is no reason for split titles. Is it cosmetically appealing? So what, Brian deserves the opportunity with both titles to finish what he has started. More power to him.

    Bob

  9. Avatar Anthony

    I am sure Moynihan is competent enough but let’s not get carried away – all the banks have recovered pretty well since the crisis and banks tend to make money in boom markets regardless of management – the banks need to do all they can to restore market trust and this is a small thing to ensure the gold standard of corporate governance from a leader on Wall Street – real question is what sort of crass egotism is it that requires u to have both roles – also if Bank of America wants to join the roles they should set out very clear reasons for doing so rather than waffle – it’s actually a privilege for Moynihan to b leading the bank and he and the board should b a bit more humble about it

    • Avatar Lalida

      adbDo the Wilponzi’s have a white knight?WSJDEALS & DEAL MAKERSAPRIL 13, 2011Cohen Makes a Pitch for MetsBillionaire Hedge-Fund Manager Joins Bidding for a Stake in Baseball TeamBy RANDALL SMITH And MATTHEW FUTTERMAN Billionaire hedge-fund menagar Steve Cohen has joined the bidding for a minority stake in the New York Mets, as the baseball team attempts to raise about $200 million to cover losses and pay down debt, according to people familiar with the matter.Mr. Cohen, the founder of SAC Capital Advisors LLC whose net worth is estimated by Forbes magazine at $7.3 billion, is a longtime Mets fan who knows its controlling Wilpon family socially. He manages about $12 billion in assets.A spokesman for the Mets declined to comment. Jonathan Gasthalter, a spokesman for Mr. Cohen’s SAC, declined to discuss any bid.Several other Wall Street financiers also are vying to gain a minority stake in a team with heavy debt, declining attendance, and the cloud of $1 billion in claims against the Wilpons by the trustee for victims of the Bernard Madoff Ponzi scheme.The Mets recently requested that potential investors submit nonbinding letters confirming their interest in the team, including their bid price and size of the stake, which could range from 25% to 49%.Among other bidders is a team led by Steve Starker, the co-founder of Wall Street trading firm BTIG LLC. His group includes Kenny Dichter, a co-founder of Marquis Jets, and Douglas Ellin, creator of the HBO show Entourage. Another group with Wall Street credentials is the team of David Heller, an executive of Goldman Sachs Group Inc., and Marc Spilker, the president of Apollo Global Management LLC, the private-equity fund.The sale is taking place against the backdrop of the $1 billion lawsuit filed against team owners Fred Wilpon and Saul Katz and their associates by Irving Picard, the trustee in the Madoff bankruptcy case.Mr. Picard has claimed the Mets owners either knew or should have known Mr. Madoff was running a Ponzi scheme. Messrs. Wilpon and Katz have denied any wrongdoing.The Mets played their home opener Friday in front of a near-sellout crowd of 41,075 at Citifield. Since then, the team has averaged 30,600 fans, below last year’s average of 31,600 when the Mets led Major League Baseball in attendance declines. That makes it tougher for the team to regain profitability and command an attractive price for the minority stake.Write to Randall Smith at and Matthew Futterman at fc7

  10. Avatar Fred the Shred

    In principle splitting the roles is better from a corporate governance perspective. In practice it makes very little difference. All of the UK banks split the the roles as is the norm in UK plc, and all of the UK banks blew up at the same time as Bank of America did.

    • Avatar Jennifer

      3b (#88): Sorry, didn’t see this post before or I’d have rpesonded to it in my last one. No, there is not a big Tobacco Road element in town. Most of the badly-kept houses are older people who simply cannot maintain anymore. I would say this is maybe 2% of the housing stock, no more. Then there are houses like mine bought in 1996 from elderly people who had done nothing and 14 years later still fixing up a bit at a time.For a while, everyone was remodeling but that has slowed down a lot. The section of town where that listing is, is mostly capes and ranches .about 80% or more have had some degree of updating, even if only new siding, windows, or landscaping. Modest but pleasant. Lots avg. 75 x 100. This section is walking distance to the high school (about 1/2 to 3/4 mile). It’s east of the Parkway. There is the Lake Association community, which is pricey larger homes, the most expensive of which have lake frontage (and the associated goose p00p that goes with it). West of the GSP are larger bi-levels. My guess is that the eastern part of town (capes and ranches) are late 1940 s to early 1950 s vintage, with the west side being mid 60 s to early 70 s vintage. Any more questions, just ask.

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