B uried inside Bank of America’s 2010 proxy statement is a shareholder resolution that requires the company’s board to give stockholders details of how they’d pick a new CEO if the current one gets sick, quits or—as CEO Ken Lewis did in 2009 with calamitous results—unexpectedly announces his retirement with no clear successor in place.
Whole Foods Market’s 2010 proxy included an almost identical resolution, put forward by the Laborers National Pension Fund, a Texas-based labor union retirement fund that owns shares in both companies.
The resolutions are among the first to surface following revisions in Securities and Exchange Commission guidance governing CEO succession planning.
In the end, neither BofA nor Whole Foods shareholders adopted the resolutions, which both companies’ boards opposed.
But while some Fortune 1,000 companies have fought the changes as unnecessary and potentially harmful, others are working with shareholder groups to make policies more transparent in an effort to stave off a proxy-vote battle.
“Succession planning is quickly moving from a staff administrative exercise to a risk management process driven by investors,” says Jeff McCutcheon, an executive pay expert with consultant Board Advisory LLC.
Historically, the SEC treated CEO succession planning as “ordinary business matters—information that companies weren’t required to share with shareholders.
But in an October 2009 legal bulletin, the agency reversed its position, saying that “recent events” underscored the importance of a board’s role in choosing a company’s top executive.
Preparing for an orderly transition from one CEO to another is an area that corporate boards agree they need to work on. In a 2009 survey, the National Association of Corporate Directors found that 89.2 percent of corporate directors ranked CEO succession as critical, while only 15.7 percent saw themselves as highly effective in that area.
One of the first resolutions put to a vote was at Whole Foods’ March 8 annual meeting. The proposal didn’t pass, but 30 percent of the food chain’s shareholders approved it. That’s not bad for a first-time resolution, according to O’Dell, who says succession planning will be the main focus of the fund’s shareholder resolutions in 2011.
BofA and Whole Foods officials did not return calls requesting comment. However, in its 2010 proxy, BofA’s board urged against approving the proposal, saying its existing corporate governance guidelines address succession planning and that information on the process “is expected to be included annually in our proxy materials.”
Given the circumstances of Lewis’ retirement and the lawsuits filed because of it, industry watchers expected—and got—fireworks at BofA’s annual meeting. In the end, 40 percent of the bank’s shareholders voted in favor of the resolution—not enough for it to pass, but enough to send a powerful message, according to McCutcheon.
The fact that so many shareholders voted for it against management recommendation indicates “substantial support for increased transparency around Bank of America’s executive succession management,” he says.
Workforce Management, June 2010, p. 14 -- Subscribe Now!