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Shareholders Reject CEO-Chair Splits at Goldman Sachs and BofA

 Goldman Sachs Annual Shareholder Meeting: A Brief

The Goldman Sachs 2024 Annual Shareholder Meeting was held on Wednesday, April 24, 2024. As we all know, the shareholder meetings at Goldman Sachs and Bank of America (BofA) are always closely watched as they often offer insights into the corporate governance and strategic direction of these financial giants. In the year 2024, one of the most significant proposals on the table was a call for a CEO-chair split, spearheaded by the National Legal and Policy Center (NLPC). This proposal aimed to separate the roles of CEO and chairman to enhance accountability and improve decision-making processes. Despite increasing support compared to previous years, the proposal was ultimately rejected by the shareholders.


The proposal for a CEO-chair split by the National Legal and Policy Center (NLPC) and the Increased Support

Goldman Sachs and Bank of America shareholders have voted against proposals to divide the CEO and Chairman positions at both the banks, Goldman Sachs and Bank of America on Wednesday due to the from influential proxy advisors to boost corporate governance. 


The Proxy advisers Institutional Shareholder Services (ISS) and Glass Lewis had requested shareholders to support and remove the chairman roles from Goldman CEO David Solomon and BofA CEO Brian Moynihan. 


At the annual shareholder meeting of Goldman Sachs, the National Legal and Policy Center (NLPC), which leans conservative, managed to secure 33% of shareholder votes with their proposal, according to an initial count. This is a significant increase from the 16% they received last year. During the meeting, Luke Perlot, the associate director of NLPC's corporate integrity project, criticized Solomon for his "poor decision-making," attributing substantial losses in the retail division to his leadership.


Just like this, a similar situation took place where the Bank of America separated the CEO and chairman roles which also led to a massive failure after getting 31% of shareholder votes which, as compared to the previous year, was more considering it was just 26%.


Goldman Sachs and Bank of America had given their thumbs up to all the management proposals counting those on executive compensation alongside rejecting all shareholder proposals.


Support for resolutions to separate the chair and CEO roles at S&P 500 companies has typically hovered around 30%, according to ISS. Analysts had expected a surge in backing for "independence chair" resolutions this year, given the escalating complexities faced by corporate leaders, including sustainability challenges and advancements in artificial intelligence.

Shareholders’ rejection to the CEO-Chair Split at Goldman Sachs and BofA

Criticisms made by Luke Perlot Regarding the Current CEO’s Decision-Making

Certainly, there were some criticisms pointed in their direction. One major and noteworthy one, as mentioned above, was by Luke Perlot, who is the Associate Director of the NLPC’s Corporate Integrity Project as he voiced his criticism to the world. He heavily criticized the current CEO’s decision-making by saying, “Mr. Solomon’s poor decision-making led to substantial losses in the company's retail banking division.”


After the failure of the votes, Perlot exclaimed that the CEO's poor judgment "may have been avoided had there been a serious counterweight to his power."


He further added, “We are pleased that voting in support doubled from last year, we are disappointed that these clear examples of excesses did not convince a majority to support our proposal."


"We took decisive action to narrow our strategic focus and play to our core strengths," Solomon told the meeting at the very beginning. "We are delivering on this strategy and putting the firm in a stronger position."


Reaction and Voting Behavior of Shareholders During the Meeting

The shareholder response and reaction to the proposal was puzzling but in the end, the majority of it was leaning towards rejection. At the time of the meeting, the individuals who were against this decision presented many key arguments. They contended that the current structure has provided a lot to the company and that the CEO’s intimate knowledge of the company’s operations made him uniquely qualified to lead the board. They argued that strong, unified leadership was needed especially in times of economic uncertainty. 


Goldman Sachs had asked shareholders to vote against the measure to separate the roles.


"A combined chair-CEO structure provides our firm with a senior leader who serves as a primary liaison between our board and management and as a primary public face of our firm," Goldman Sachs said on page 27 of its proxy statement. "This structure demonstrates clear accountability to shareholders, clients and others."


A statement from Bank of America stated "Our shareholders have repeatedly affirmed that the board should retain the flexibility to determine the most effective board leadership structure based on applicable circumstances and needs."


Norway’s $1.6 trillion sovereign wealth fund, which was one of the largest investors globally, had also hinted that they were going to support the plan.


The vote "indicates the majority of shareholders are happy with those company performances, as well as pay packages, and didn’t want to risk rocking the boat by altering oversight," said Stephen Biggar, an analyst at Argus Research. "At the same time, there was definitely traction on the proposal versus last year, so chairman/CEO separation could eventually pass in future years."


The voting behaviour reflected these sentiments, with a majority of shareholders opting to maintain the status quo. Despite the increased support for the proposal, it was clear that a significant portion of the shareholder base remained unconvinced of the need for a change in governance structure.


Key Arguments Made by Those Unhappy With the Proposal



“The chairman represents the shareholders and the CEO represents management,” said William Hunter, a portfolio manager at Neuberger Berman who oversees equity income mutual funds that hold Goldman shares. “There are a lot of reasons why it makes sense to separate those two roles. But there are instances where it makes sense to combine them. Looking at this on a case-by-case basis is important, in particular for some of these super complex companies.”


“At a market level, it’s clear that investors are not backing down” in the face of the wider corporate backlash to ESG investing, said Jessica Wirth Strine, the CEO and managing partner of advisory firm Sustainable Governance Partners. “Nor are they lowering their standards on what they want to see on core governance issues,” she adds.


A Bank of America spokesperson declined to comment.


Potential Impact of the Vote on Goldman Sachs’ Leadership and Corporate Governance

This outcome reflects a significant level of confidence in Solomon’s leadership abilities and strategic vision, despite criticisms and calls for change from some stakeholders. Solomon’s dual role enables him to steer both the executive and board functions, potentially providing a unified direction for Goldman Sachs. However, this consolidation of power is not without its drawbacks and risks.


From a corporate governance standpoint, the decision to maintain the combined roles of CEO and chairman might raise concerns about the effectiveness of checks and balances within the organization. Critics often argue that separating these roles is essential to prevent the excessive concentration of power and to ensure robust oversight and accountability. In many corporate governance frameworks, the separation of the CEO and chairman roles is seen as a best practice that fosters independent board leadership and mitigates potential conflicts of interest. By rejecting the proposal, Goldman Sachs’ shareholders may be signalling their satisfaction with the current governance structure or their belief that Solomon’s leadership outweighs the theoretical benefits of separating the roles.


This vote could also influence the company’s future engagement with its shareholders and its responsiveness to governance concerns. Increased support for the proposal compared to previous years indicates a growing segment of shareholders advocating for change. If this trend continues, it may compel Goldman Sachs to consider further reforms or enhancements to its governance practices to address shareholder concerns proactively. Ignoring these signals could lead to increased shareholder activism and potential reputational risks.


Moreover, the decision has broader implications for corporate governance in the financial sector. As a leading institution, Goldman Sachs’ governance practices are often scrutinized and emulated by other companies. The rejection of the CEO-chair split proposal might influence the governance strategies of other major firms, particularly those in the S&P 500, where similar resolutions have seen varying levels of support. Analysts had anticipated greater backing for such “independence chair” resolutions, especially given the increasing complexity of issues facing corporate leaders, including sustainability and artificial intelligence. The outcome at Goldman Sachs suggests that, despite these challenges, a significant portion of investors may still prioritize strong, centralized leadership over the perceived benefits of role separation.


Future Implications if the Shareholder Sentiments Continue to Shift

If shareholder sentiment at Goldman Sachs continues to shift toward supporting the separation of the CEO and chairman roles, the company could face significant changes in its leadership and corporate governance structure. Such a shift would indicate a growing demand for greater accountability and oversight, which might compel the board to reconsider its current governance practices.


One immediate implication would be increased pressure on the board and David Solomon to justify the combined role. Shareholders advocating for change may argue that separating these roles is essential to enhance the independence and effectiveness of the board. This could lead to heightened scrutiny of Solomon’s decisions and performance, particularly in areas where the company has faced criticism, such as the losses in the retail division highlighted by the NLPC.


If the trend continues, Goldman Sachs might need to adopt more proactive measures to address shareholder concerns. This could include implementing additional governance reforms or enhancing transparency around decision-making processes. For instance, the company might consider appointing a lead independent director with increased responsibilities to provide a counterbalance to the CEO-chairman. This role could involve more rigorous oversight and engagement with shareholders, thereby addressing some of the concerns without fully separating the roles.


Summary of the Outcome 

To sum up the discussion, the proposal at the recent Goldman Sachs annual shareholder meeting which was put forward by the National Legal and Policy Centre (NLPC) to separate the roles of CEO and chairman was not approved. 


Despite an increase in shareholder support, with 33% voting in favour this year compared to 16% last year, the proposal did not receive the majority needed to pass. This outcome signifies that a substantial portion of the shareholders still support the current governance structure, where David Solomon holds both positions of CEO and chairman.


Broader Implications for Corporate Governance in Major Financial Institutions

The rejection of the proposal to split the CEO and chairman positions at Goldman Sachs has displayed significant implications for corporate governance in major financial institutions. Despite the increase in support, the proposal’s failure suggests that a lot of shareholders still favour the current governance structure. However, the increasing support reflects growing concerns about accountability and independent oversight. 


This trend shows a shift in shareholder priorities which emphasize the requirement for robust checks and balances. It suggests that shareholders are increasingly advocating for governance reforms that prevent conflicts of interest and enhance transparency. This shift could lead to more scrutiny of leadership practices across the financial sector, prompting boards to adopt more transparent and accountable governance practices.


As shareholder activism rises, financial institutions may face increased pressure to separate the CEO and chairman roles. Proactively addressing these governance issues can enhance investor confidence and the institution's reputation for accountability. Ultimately, the financial sector may see a reevaluation of board structures, with a focus on independence and oversight to ensure sustainable growth and mitigate risks.


Our Directors’ Institute- World Council of Directors can help you accelerate your board journey by training you on your roles and responsibilities to be carried out efficiently, helping you make a significant contribution to the board and raise corporate governance standards within the organization.



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