Corporate Governance

Separation of Chairman and CEO: The Case of BofA

By J. Robert Brown

Shareholders of Bank of America will consider a binding resolution to require the separation of chairman and CEO.  According to the proposal in the proxy statement:

• 'The Chairman of the Board shall be a director who is independent from the Corporation. For purposes of this Bylaw, 'independent' has the meaning set forth in the New York Stock Exchange ('NYSE') listing standards, unless the Corporation's common stock ceases to be listed on the NYSE and is listed on another exchange, in which case such exchange's definition of independence shall apply. If the Board of Directors determines that a Chairman who was independent at the time he or she was selected is no longer independent, the Board of Directors shall select a new Chairman who satisfies the requirements of this Bylaw within 60 days of such determination. Compliance with this Bylaw shall be excused if no director who qualifies as independent is elected by the stockholders or if no director who is independent is willing to serve as Chairman of the Board. This Bylaw shall apply prospectively, so as not to violate any contractual obligation of the Corporation in effect when this Bylaw was adopted.'

Public reports suggest that the proposal will pass.  This may well pass because of the current dissatisfaction with Kenneth Lewis, the CEO of Bank of America.  But in fact, it shouldn't require a shareholder revolt.  A critical role of the board is to supervise the CEO.  It cannot happen if the board is controlled by the very person it is supposed to supervise. 

The rule in the United States, like the rule in most countries overseas, should be that the two positions are separated as a matter of course.

Full post as published by The Race to the Bottom on April 21, 2009 (boomark / email).