The Securities and Exchange Commission pressed Bank of America Corp. during enforcement talks to give shareholders more power to oust directors, after years of struggling to pass similar rules covering all U.S. companies, people with direct knowledge of the effort said.
Bank of America persuaded the SEC to drop the "proxy access" provision as they negotiated a $150 million settlement of a lawsuit tied to the takeover of Merrill Lynch & Co., the people said. They declined to be identified because talks that led to the Feb. 4 accord were private.
SEC Chairman Mary Schapiro has said she will push a new rule this year to make it easier for shareholders to nominate directors at publicly traded U.S. companies. Using an enforcement case to set a precedent at Bank of America, the nation's biggest lender, would have mandated a policy the agency has struggled since 2003 to enact in the face of opposition from business groups.
"They have the whip hand over a company, they have some policy agenda that they are pursuing, and they either lack the legal authority to do it, or it would create a political backlash," said Adam Pritchard, a former SEC attorney who now teaches law at the University of Michigan in Ann Arbor. "The reason to do it to Bank of America is that the SEC could have said, 'Look we did it here and the sky is not falling.' "
Schapiro's office supported the proxy access clause; Bank of America opposed it and made counterproposals, people with knowledge of the talks said. Robert Stickler, a spokesman for the Charlotte company, said it does not comment on settlement talks. SEC spokesman John Nester declined to comment.
Last May, the SEC proposed letting groups of shareholders who collectively own 1% of the biggest U.S. companies nominate board members directly on corporate ballots. Under current rules, they must circulate their own election materials, which some dissident investors have said is too expensive.
At the time, Schapiro linked the proposed rule to the global financial crisis, saying bank losses raised "serious questions" about directors' oversight. The rule would make it easier for pension and hedge funds to replace board members picked by management.
The U.S. Chamber of Commerce, which represents more than 3 million companies, has said "activist shareholders" would use proxy access to hijack elections to pursue "political or social issues." Companies including JPMorgan Chase & Co. and Wells Fargo & Co. have also voiced opposition to a blanket rule, arguing that companies should be allowed to develop their own systems for giving shareholders influence in management picks.
Imposing the policy on Bank of America could have helped Schapiro undermine opposition, said Lynn Turner, a former SEC chief accountant.
"It would've been a stake in the ground where she could say, 'If it's a good thing for Bank of America, it's a good thing for everyone else,' " he said.
U.S. District Court Judge Jed Rakoff is due to rule Monday on whether to allow the proposed Merrill Lynch settlement, which includes at least seven corporate governance changes. Investors complained they had not been told about billions of dollars in bonus payments and spiraling losses at Merrill Lynch before they approved the deal.