NEW YORK (TheStreet) -- Bank of America (BAC) - Get Report is getting ready to find out how upset shareholders are over its decision to recombine the roles of CEO and chairman, posts that investors voted to split during the financial crisis six years ago.
Two proxy advisory firms, Institutional Shareholder Services, or ISS, and Glass Lewis, have recommended shareholders vote against four directors who supported the move during next week's general meeting. Even though the election is uncontested, sufficient opposition could cost them their posts since winners are determined based on a majority of votes cast.
Further, two large investors, New York City Pension Funds and the California State Teachers' Retirement System, or CalSTRS, say they still want the chairman and CEO roles to be separate. They chose not to pursue putting the board's decision to a shareholder vote after Bank of America changed its policies to give investors with large enough holdings the ability to nominate future board members.
"Shareholders now face several questions, but whether or not the chairman should be independent is not one of them," ISS noted in a report. "That question was answered by shareholders in 2009 and nullified by the board last October."
ISS recommends voting against directors Sharon Allen, Frank Bramble, Thomas May and Lionell Nowell, who sit on the board's corporate governance committee, which paved the way for CEO Brian Moynihan to take on the additional role of chairman in October.
The roles had been split since 2009, when investors stripped then-CEO Kenneth Lewis of the chairman's title following his acquisition of investment bank Merrill Lynch near the end of 2008. Merrill announced $15 billion in fourth-quarter losses after the deal was completed.
To hear Bank of America tell it, the shareholder decision in 2009 passed narrowly, with a 50.3% majority, and reflected investor sentiment during a distressed time. Conditions now are different, the bank said in its proxy filing for the May 6 meeting in Charlotte, N.C.
Today, not only are 13 of the bank's 15 directors independent, the board attempted to adhere to shareholder wishes by creating the role of lead independent director for periods in which the roles of chairman and the CEO are held by the same person, the company said in its proxy filing.
"Our board believes the 2009 stockholder vote for an independent chairman reflected the concerns particular to the Bank of America of 2009, in the midst of the financial crisis," the bank said in its filing.
While acknowledging that some stockholders who supported that move still believe the positions should be separate, the bank said it has evolved significantly in the past six years, including by rebuilding capital, streamlining operations and settling most of its legacy mortgage cases.
"Our board believes the strength and record of this team enables Mr. Moynihan to take on the additional responsibilities of chairman and return our board to a leadership structure in line with most peers," the bank said.
Citigroup(C) - Get Report is now the only major U.S. bank in which the CEO is not also the chairman, though Wells Fargo(WFC) - Get Report investors will consider at a shareholder meeting on Tuesday whether to split the top roles there.
While neither Stringer, the New York City comptroller, nor CalSTRS has been persuaded that recombining the roles at Bank of America was the right choice, they say that allowing investors to nominate board members increases accountability to shareholders.
"The board's enactment of meaningful proxy access is hugely significant," said Eric Sumberg, a spokesman for New York City Comptroller Scott M. Stringer, who advises the city's $160 billion pension funds. "While we would like to see an independent chair and will continue to engage with the bank on this issue, the board has demonstrated its commitment to an accountable system of corporate governance that will foster long-term value creation."
CalSTRS will support the company's slate of board nominees because of that policy change, but a spokeswoman said the pension fund, which has a total portfolio of $189 billion, is still dissatisfied.
"We were and remain disappointed that the board decided not to allow shareholders to vote on the recombination of the chair and CEO roles," the spokeswoman said in an e-mailed statement. "CalSTRS has a clear, defined principle that states the chair should be held by an independent director and will continue to engage Bank of America on this important leadership issue."
Permitting shareholders to nominate directors doesn't satisfy ISS, which argues that the bank should at least have attempted to get shareholder backing before reversing the results of the 2009 vote.
"Bank of America confirmed that no such effort was made and cited as a reason the desire to avoid media attention," ISS said in its report. As for allowing shareholders a chance to ratify the move now, the bank said that "since Moynihan had already been named as chairman, such a vote could be destabilizing during a period when the company was seeking stability," ISS wrote.
Mike Mayo, a banking analyst with CLSA, took the criticism a step further. While ISS focused on the process for the change, Mayo argues that Bank of America isn't performing well enough to justify its decision. The bank missed 2014 targets, he said, and showed poor return on equity -- a measure of its performance that compares net income to book value -- from 2010 through 2014.
Bank of America's return on equity of 3.3% lagged peers including JPMorgan Chase (JPM) - Get Report, with 9.9%, and Citigroup with 3.7%, according to data analyzed by Bloomberg. The company's shares have gained 6.4% since Moynihan took over, trailing the S&P 500 Financials Index as well as the broader S&P 500(SPY) - Get Report.
"If you want to support my sell rating [on Bank of America], vote in favor of this board," Mayo joked in an interview on Monday.
Mayo said that the bank, and the CEO, fail to provide any timeline or basis for the company's goals. In contrast, rivals Citigroup and JPMorgan Chase not only share performance metrics but have also consistently justified their actions to shareholders in the face of scrutiny.
"Bank of America seems out of step," Mayo wrote in a report for investors.