CEO Succession Planning

2010 – Bank of America Corp.

 

 

RESOLVED that stockholders of Bank of America Corporation ("Bank of America" or the "Company") urge the Compensation & Benefits Committee (the "Committee") of the board of directors to adopt a policy that the achievement of goals related to succession planning will be incorporated into the formula for determining one or more elements of the chief executive officer's variable compensation.

 

Supporting Statement: Ineffective succession planning is costly to companies. Academic studies have shown that poorly managed CEO transitions are associated with lower returns to shareholders. (See Tonello et al., "The Role of the Board in Turbulent Times: CEO Succession Planning," at 3 (Aug. 2009)) Poor succession planning also has indirect costs. One study estimated that lost productivity and social costs of botched CEO transitions at U.S. companies total $14 billion per year. (Stoddard & Wyckoff, "The Costs of CEO Failure," Chief Executive, Nov./Dec. 2008, at 68) A mismanaged CEO transition can "create a snowball effect of instability within the company, taking out key executives, employees and shareholder value in its path." (Buyniski et al., "Compensation Design for Succession Planning," at 2 (Radford Surveys + Consulting undated))

 

In our view, Bank of America stockholders would benefit if CEO succession planning were handled in a more structured and disciplined manner. Former CEO Kenneth Lewis's announcement on September 30, 2009 that he planned to retire at the end of 2009 reportedly surprised the board, despite the many challenges facing Lewis and his loss of the board chairmanship earlier in the year. No clear internal successor had been identified, according to a Wall Street Journal report. (Mollenkamp & Fitzpatrick, "With Feds, Bof A's Lewis Met His Match," The Wall Street Journal, Nov. 14, 2009)

 

Incorporating performance measures related to succession planning would help ensure that the CEO focuses sufficient energy on developing talent and planning for leadership transitions. The NACD Blue Ribbon Commission Report on Executive Compensation and the Role of the Compensation Committee (2003) recommended that succession planning be a performance measure for the CEO, and The Conference Board's recent report on succession planning included in its succession planning roadmap the integration of succession planning into top executive compensation policy. (See Tonello, supra at 16)

 

This proposal does not attempt to micromanage the process of formulating succession planning performance measures; instead, recognizing that different arrangements will be appropriate under different circumstances, it gives the Committee flexibility. For example, a CEO approaching a planned retirement might be rewarded upon completion of a successful transition, while a younger CEO might be measured against periodic succession planning milestones. Similarly, the Committee has discretion to determine which element(s) of variable compensation should use succession planning as a performance measure.

 

We urge stockholders to vote FOR this proposal.