Proxy firms back splitting of chairman, CEO at Wells Fargo

Wed Apr 11, 2012 5:46pm EDT

* Split roles provide better management oversight: proxy firms

* Wells opposes proposal, saying it has lead director

* Goldman named lead director in face of similar proposal

By Rick Rothacker

April 11 (Reuters) - Two proxy advisory firms are backing a shareholder proposal to split the roles of chairman and chief executive at Wells Fargo & Co, putting pressure on another U.S. bank to revamp its leadership structure.

ISS Proxy Advisory Services and Glass Lewis & Co said an independent chairman is better able to oversee management and represent shareholder interests. Shareholders will vote on the proposal at the bank's April 24 annual stockholder meeting.

"The presence of an independent chairman fosters the creation of a thoughtful and dynamic board, not dominated by the views of senior management," Glass Lewis wrote in its report, issued last week.

Banks have been under pressure to improve their corporate governance after the 2008 financial crisis dragged down the industry and the U.S. economy, and spurred government bailouts. A broader push for independent boards began with passage of the Sarbanes-Oxley Act in 2002.

Wells Fargo's board opposes the proposal, arguing in the bank's proxy filing that the company already has a lead director who provides independent oversight. Wells shareholders have rejected similar proposals for the past seven years. John Stumpf has been the bank's CEO and chairman since early 2010.

The separation of the chairman and CEO positions gained renewed attention last month when a national union agreed to withdraw a similar proposal at Goldman Sachs Group Inc after the Wall Street bank created a lead director position.

Lead directors typically can set agendas at board meetings, call meetings that exclude management and oversee corporate governance processes.

Among the five biggest U.S. bank holding companies, Bank of America Corp and Citigroup Inc have separate chairmen. Bank of America split the positions after shareholders backed the move in 2009 as the company reeled from its troublesome Merrill Lynch & Co acquisition.

JPMorgan Chase & Co shareholders will vote at the bank's annual meeting in May on a proposal to divide the duties. ISS and Glass Lewis haven't issued recommendations for that vote. JPMorgan's board asserted in its proxy statement that the "most effective leadership model for the firm" is to have CEO and Chairman Jamie Dimon retain those positions.

"HOW BAD DOES IT HAVE TO GET?"

Wells Fargo stockholder Gerald Armstrong, who held around 39,000 shares as of November, proposed this year's resolution. A lead director does not create the same authority as a board chairman, he wrote in a supporting statement in the proxy.

In an interview, Armstrong, a long-time shareholder rights activist, said he has pushed for dividing the positions since the 1970s.

"How bad does it have to get before shareholders approve this?" asked Armstrong. "That's what happened at Bank of America."

Norges Bank Investment Management, Norway's sovereign wealth fund, has also expressed concern about governance at Wells Fargo, which Armstrong cited in his supporting statement. Norges submitted a proposal to allow stockholders to nominate director candidates at Wells, a resolution that will also be up for a vote this year.

A Wells Fargo spokesman declined to comment.

Last year, support for proposals to split the chairman and CEO roles garnered an average of 33 percent of votes cast at shareholder meetings, compared with 28 percent in 2010, ISS said in its report. As of April 1, resolutions on the topic have been proposed at more than 30 companies this year, according to ISS, although it's not clear how many will allow votes on the issue.

Citing the 2011 Spencer Stuart Board Index Report, Glass Lewis said 41 percent of S&P 500 companies have split the chairman and CEO positions, up from 33 percent in 2006. Twenty-one percent of boards have a truly independent chairman, compared with 10 percent in 2006, according to the index.

Boards that don't split the position may be less likely to fire a poorly performing CEO, Glass Lewis said, citing academic research. A recent study of 152 Swiss companies, however, found no difference in market valuations between companies that separate and don't separate the roles, Glass Lewis said.

At the beginning of this year, Wells Fargo's independent board members appointed Stephen Sanger, a former chief executive of cereal maker General Mills Inc, as lead director. He replaced Philip Quigley, a former telecommunications executive who remained on the board.

In 2011, ISS and Glass Lewis opposed Quigley's election, raising questions about his independence because his son, Scott, worked for Wells Fargo. ISS and Glass Lewis are opposing his election again this year.