Corporate board directors have a fiduciary duty to act in the shareholders’ financial interest. What if a board’s directors think they know better that the stockholders as to their interest? In such a case, the directors would be acting like elected representatives who vote contrary to the wishes of their constituents for their own good. While valid from the standpoint of representative democracy, I’m not sure the principle has legitimacy in the corporate context, wherein property-rights are being represented. Simply put, an owner gets to decide how his or her wealth is used, within legal parameters of course. The case of Bank of America’s board may suggest that directors essentially work for their managements while being shamelessly dismissive of even binding directives from the stockholders as a group.
“At the bank’s 2009 annual meeting, shareholders passed a bylaw requiring that the board be overseen by an independent “chairman.” The bylaw passed by a whisker, but it was nonetheless binding.” In the fall of 2014, however, “the board abruptly overturned the bylaw” by electing Brian Moynihan, the bank’s CEO, as chairman of the board. In other words, the directors shamelessly dismissed a binding shareholder directive. The directors claimed that the bank’s governance structure—that is, whether to have the same person occupy both the CEO and chair positions or not—should be allowed to vary “depending on the strategy and environment in which [the bank] operates.” I’m not convinced, however, that this is a valid point.
Firstly, the duality of the chair and CEO (i.e., having the two positions held by two people) is not oriented to particular business strategies or environments; rather, the governance device is intended to prevent a CEO, whose supervisor is the board, from dominating it and thus impairing its overseeing role. Such a situation is like an employee coming to dominate his boss. It doesn’t matter what the business is, the structure itself is problematically both ethically and in terms of the performance of the board and its management. That the board brazenly contradicted the stockholders’ binding bylaw in appointing the sitting CEO as chairman of the board may suggest that the CEO already had too much power over the board responsible for holding him accountable.
The man of the hour. Brian Moynihan, Chair and CEO of Bank of America as of 2015. His power exceeded even that of the stockholders, whose concentrated wealth he managed. Lest it be maintained that a CEO with such power optimizes corporate earnings, consider that his predecessor, Ken Lewis, had the bank purchase Countrywide, whose fraudulent mortgages played a vital role in bringing about the financial crisis of 2008. Perhaps CEO/chair duality is of value simply in reducing a corporation's systemic risk. Hence, Congress may legitimately intervene.(Simon Dawson/Getty Images)
Were governance structure to be so malleable as to change according to strategy and environment, corporate governance would be more like a policy than something worthy of a corporate charter. By analogy, the argument that a corporation’s governance structure should depend on strategy and the business environment treats a constitutional clause as if it were a mere statute alterable by a legislature rather than a constitutional amendment. The structure, in other words, is too easily changed, and thus subject to the power-agenda a CEO or chair.
Lest it be objected that corporations are merely economic entities and thus subject only to the criteria of efficiency and effectiveness, I submit that power was alive and well among the directors, the CEO, and even the stockholders as the matter of the binding bylaw came to a head in 2015. “Power is the only issue here, Bob Monks, a governance expert at ValueEdge Advisors, a shareholder-activist firm. The board’s appointment of the CEO as chair “is simply saying power is with the C.E.O. and any structural arrangement that purports to dilute his power will be driven out.” The question is whether the stockholders as a group would have and be able to exercise enough power to hold the board and CEO accountable.
 Gretchen Morgenson, “At Bank of America, a Vote to Give Shareholders Due Respect,” The New York Times, September 18, 2015.