Bank of America has just given good governance a solid kick in the teeth.
The bank announced late Wednesday that its directors had voted to add on the title of chairman to Brian T. Moynihan’s duties as chief executive. The move not only puts too much power in one person’s hands, it also reduces the position to little more than a perk to be granted or taken away, depending on performance.
That’s certainly how directors at American banks treat it. In the past, about the only time a large financial institution would split the roles of chairman and chief executive was when the boss retired. He would hand over the chief executive duties to his successor and remain chairman for a year or so.
The financial crisis changed that. Stripping the chief executive of the chairman’s title became a way to punish his poor performance without firing him. Washington Mutual and Wachovia each followed that path, before ousting the chief executive anyway. And Bank of America took that route in 2009.
Those first two banks were soon subsumed into bigger firms. But Bank of America seemed to be more serious about keeping the chairman and chief executive roles separate – although Charles O. Holliday Jr., who had that role until now, was never a particularly visible chairman. But it had been more than five years since the former chief, Kenneth D. Lewis, was stripped of the chairman’s title and more than four years since Mr. Moynihan became chief executive.
Now the split looks like it was a sop to regulators and shareholders while the bank dealt with the mess Mr. Lewis left behind. Most of Bank of America’s legal difficulties have been resolved, allowing Mr. Moynihan to concentrate on trying to help earnings – and the board to reward him with another title.
Having a different person serve as chairman is not merely a “box-ticking” move to qualify for good governance standards. The position’s duties include overseeing executives, particularly the chief executive. Combining the offices creates an inherent conflict of interest that appointing an independent lead director can only partly overcome.
Mr. Holliday describes the change as the “next step in our governance responsibilities.” Shareholders would have been better served in this instance if the bank had just stood still.
Antony Currie is an associate editor at Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.