Bank of America (BAC) shareholders can now look forward to nominating candidates to the Board of Directors in a deal negotiated by John Harrington, CEO of Harrington Investments, Inc., (HII) a socially responsible investment advisory firm based in Napa. The Bank adopted new “proxy access” bylaws reflecting changes driven by Harrington’s shareholder resolution.
Proxy access allows shareholders to directly nominate a limited number of candidates to the Board of Directors. Under the Bank’s new rules, as many as 20 stockholders who together have owned 3% of the company stock for 3 years, may form a group to nominate up to 20% of the Board candidates. Until Bank of America amended their bylaws, only incumbent board members selected a sole slate of candidates unless a challenger put out its own proxy and solicited votes… a very expensive process.
There have already been many news reports on proxy access at Bank of America crediting New York City Comptroller Scott Stringer, CalSTRS, CalPERS and others. Not to take anything from their efforts, which are more far-reaching than those of individual investors but we should also recognize the change at Bank of America probably wouldn’t have occurred this year without the proxy access proposal from John Harrington.
Harrington issued the following statement:
The overwhelming majority of legal owners of corporations are still unable to nominate independent directors to represent shareholders. Corporate board membership is self-selecting, self-serving, self-perpetuating, and without meaningful accountability. This success with proxy access is the first step in allowing stakeholders, as owners, to have input into the corporate board room.
Shareholders have unsuccessfully attempted to have the power to nominate directors for more than 80 years, and while proxy access was sanctioned by the Dodd-Frank Act in 2010, the conservative Chamber of Commerce and Business Roundtable won in federal court to void regulations adopted by the U.S. Securities and Exchange Commissions.
Earlier this year Harrington won a shareholder vote on proxy access at Monsanto, becoming among the first successful proxy access proposals in the country, and on March 10th the proxy access proposal co-filed with James McRitchie, publisher of Corporate Governance, at Apple won 40% of the votes. Harrington also has similar proposals before shareholders at Anthem and Coca Cola later this spring.
Harrington said the self-nominating process currently used by most boards results in the nomination and election of the same people again and again, with similar perspectives and social and educational backgrounds — statistically, mostly wealthy white men from the corporate sector.
Most boards are comprised of corporate CEOs or retired CEOs, each who sit on numerous other boards and have little time for competent, professional oversight and policy direction, Harrington said, adding:
Most board members don’t even come from important stakeholder communities, including institutional investors, employees or customers. Especially missing are stakeholder communities comprised of diverse color, ethnicity, and sexual orientation.
Harrington also sees the current process of selecting board directors as partly responsible for the denigration of a traditional understanding of fiduciary duty as a moral obligation. Simply put, there was a time when ethical behavior was an essential part of doing business.
The law required directors to be obligated to stakeholders based on an ethical relationship of trust. Today, the only loyalty or interest is absolute power, control and maximizing materialistic self-interest, and the interests of its board of directors, even if it means possibly engaging in unethical or illegal activities. I think shareholders are disgusted with that kind of conduct, which violates common decency, morality and acceptable human behavior.
I applaud John Harrington for his tenacity with Bank of America. This agreement was several years in the making. Sanford Lewis, an attorney with over 30 years of experience in securities issues, assisted Harrington in negotiations.
Harrington and Lewis got into much more detail in negotiating with Bank of America than I did with Citigroup, working out substitute and supplemental provisions. With Citigroup, I simply negotiated what it would take for them to endorse my proposal. Harrington now knows what Bank of America shareholders are getting, whereas several details of what will ultimately be adopted at Citigroup are yet to be determined. Lessons are being learned, as I pointed out in my post on Prudential.
Harrington Investments, Inc. is a 33-year old Registered Investment Advisor, managing over $190 million in assets for individuals and institutions, requiring social and environmental, as well as financial return. The company manages assets utilizing a comprehensive social criteria, engages in shareholder advocacy, and implements a policy of impact investing in for- profit as well as non-profit enterprises.
Also at Bank of America and at Citigroup are a couple of additional innovative proposal, as reported by Bloomberg:
Bartlett Naylor, 59, who commutes by bicycle 16 miles a day as a financial policy advocate for Washington-based Public Citizen, filed a proposal to compel Bank of America to consider breaking into two parts. He also got a proposal to weigh decade-long deferrals for executive pay onto Citigroup’s proxy.
Even with the agreements on proxy access, these still promise to be two very interesting meetings.