Truist Financial is sharply reducing the size of its board of directors — a move that could give CEO Bill Rogers more leeway to make bigger changes as the bank faces pressure to ramp up its profitability.
Effective Jan. 1, 2024, the board will go from 21 directors to 13, the Charlotte, North Carolina, company said Monday.
Four of the directors have made the decision to "conclude their service early," the company said in a press release. A company spokesperson declined to elaborate on why those four — Anna Chablik, Paul Donahue, Easter Maynard and Frank Scruggs Jr. — are leaving early.
Four more directors will depart because they've reached the mandatory retirement age of 75: Kelly King, the former CEO of both BB&T Corp. and Truist, as well as Nido Qubein, David Ratcliffe and Thomas Thompson.
The changes come
The composition of the board, which has changed little since the December 2019 merger, is one of the areas that investors and analysts have identified as problematic in recent months.
Five of the departing directors are from legacy BB&T, while the other three are from SunTrust. That leaves six remaining directors from BB&T and seven from SunTrust, including Rogers, who was SunTrust's CEO at the time of the merger. He took over as Truist's top executive
With the majority of directors now hailing from SunTrust, Rogers "should now have more control of the board to take more forceful actions," Wells Fargo Securities analyst Mike Mayo said Monday in a research note.
Mayo, who has been especially critical of Truist, has identified the current board composition as one of several problems at the $565.8 billion-asset company. His list also includes rising expenses, missed efficiency targets and what he characterizes as a mismatch between incentive compensation and accountability.
"Time for a board refresh," Mayo wrote in a July research note, citing the fact that Truist's board was larger than those of peer banks, the 12-year average tenure of its directors and the lack of turnover since the merger was finalized.
Three weeks ago, Truist
The initiative equates to an annual spending reduction of about 5%. It should help Truist cap expense growth at no more than 1% next year, Rogers said at a recent industry conference. That's a big change from this year, when expenses are expected to rise about 7% from 2022.
It's unclear whether the decision to shrink the size of the board came in response to investor pressure, said Terry McEvoy, an analyst at Stephens Research. Because some of the investor criticism has involved expenses, "some may come to the conclusion that those are active discussions at the board level," he said.
And while King's planned departure has been known for years, some observers wondered Monday if his impending exit might lead to more changes for Truist's insurance subsidiary. That unit was largely built by BB&T while King was at its helm.
Earlier this year, Truist
If King is no longer on Truist's board, that might open the door to sell all or more of the insurance unit.
While it's hard to draw conclusions, "strategically, Truist has seriously evaluated that line of business and what was best for Truist Insurance and Truist shareholders," McEvoy said.
At the time the merger was completed, Truist had 22 directors. Then in the fall of 2021, Paul Garcia resigned, and the company did not fill his seat. At the time, Truist said the decision to reduce the size of the board to 21 was based partly on "feedback" it received from shareholders.
The company has touted the makeup of its current directors, 43% of whom are racially, ethnically or gender diverse. Of the continuing 13 directors, six are diverse, the Truist spokesperson said in an email.
Monday's board news did little to improve the company's stock price, which fell about 3.4% for the day. So far this year, it's down about 35%. By comparison, the KBW Nasdaq Bank Index benchmark is down 24% for the year.
The reduction in board size is "not a game-changer," and it won't affect earnings estimates, Piper Sandler analyst Scott Siefers wrote Monday in a research note.
Still, "we view this move as a symbolic step forward for the company," Siefers wrote. Truist "appears to be operating with a renewed sense of urgency" and "to us, reducing the size" of the board "represents another step along this path of simplification and efficiency."
