One of the first shareholder meetings I attended in the early 1970s was Bank of America (BAC), then led by A.W. Clausen, who in responding to my question about the bank’s loan to the South African government, said that BAC would make loans to “any credit worthy customer of the bank.” Thankfully, for millions of South African victims of apartheid, that policy was changed after several years of public and stakeholder pressure. Unfortunately, however, we are still attempting to improve BAC’s corporate conduct and reduce social injury to its stakeholders, including its employees, after the bank has paid almost $57 billion in fines and penalties following the financial crisis.
Not unlike Wells Fargo, BAC has been identified as another bank exploiting its employees by constantly pushing cross-marketing products. In 2015, a consulting firm found that the top complaint of the bank’s customers was that the bank is constantly pushing products they did not want (31%). This followed the 2014 Consumer Financial Protection Bureau (CFPB) assessing BAC $727 million in consumer relief, finding the bank’s deceptive marketing of add-on products affected 1.4 million customers as it charged 1.9 million consumer accounts for credit monitoring services they did not receive.
Our resolution calls for the bank to report on:
• Whether compensation and incentive policies relating to low level employees may create pressures exposing the Company to an aggregate of material losses, and
• Disclosure of the bank’s employee incentives or activities that pose great systemic risk.
The bank has challenged our resolution at the SEC, requesting the Commission for authority to omit the resolution from the proxy statement based upon the argument that it can be excluded on the following grounds:
• The proposal is “Impermissibly Vague and Indefinite so as to be Inherently Misleading”, and
• “Because it deals with matters related to the Company’s ordinary business operations.”
The SEC agreed with Bank of America that our proposal related to the ordinary business of general compensation and did not transcend day-to-day business matters, and therefore BAC will continue to cross market, exposing the bank to systemic risk.
Shareholder Resolution 2017
“Report on Risks from Low Level Employee Compensation Policies”
A clear lesson from the financial crisis is low level employees as well as top executives of large banks can affect the stability of the economy and confidence in the banking system. Section 956 of the Dodd-Frank Act directed federal regulators to set rules examining bank employees’ “incentive-based compensation arrangements … [that] could lead to material financial loss.” The focus is on employees “that individually have the ability to expose the institution to possible losses that are substantial in relation to the institution’s size, capital, or overall risk tolerance.”
As such, the law largely neglected focus on incentives to low level employees who may not individually expose the institution to material losses, but can do so in the aggregate. Low level employees are driven to excess risk when poor compensation combines with aggressive sales goals and incentives. In a study conducted December 2013 regarding recent changes to the banking, 35 percent of surveyed workers reported increased sales pressure.
• An employee of HSBC stated workers failing to meet sales goals had the difference taken out of paychecks.
• Twenty-nine percent of surveyed workers reported issues with layoffs or turnover.
• Eighteen percent mentioned jobs shifted from full-time to part-time, or job freezes.
Another study found approximately 31 percent of families of bank tellers rely on public assistance.
The epidemic of fraudulent cross selling by low level employees at Wells Fargo may also forewarn of problems elsewhere. In 2015, a consulting firm found the top complaint of 40 percent of Wells Fargo customers surveyed was employees’ constant pushing of products the customers did not need or want. For Bank of America, this was the top complaint of 31 percent of customers.
In 2014, CFPB assessed Bank of America 727 million dollars in consumer relief, found the bank’s deceptive marketing of add-on products affected 1.4 million consumers and the bank charged 1.9 million consumer accounts for credit monitoring services not received.
RESOLVED: Shareholders request the Board prepare a public report, at reasonable cost, analyzing to the extent permitted under applicable law and the Company’s contractual obligations:
• whether compensation and incentives policies relating to low level employees may create pressures exposing the Company to an aggregate of material losses, and
• categories of incentives or activities posing greatest risk.
The Board may integrate, as appropriate, any information developed as a result of arrangements or consent orders with the CFPB.
Support for this proposal indicates your interest as a shareholder in preventing banking activities that harm consumers and create systemic risk, undermine confidence in the banking system and expose the bank to material losses. These concerns transcend the ordinary business of our Company and necessitate investor oversight.