Well, maybe Bank of America shareholders are only a tad less spineless than other shareholders who have never had the nerve to yank away the title of chairman from the CEO. So now they have Walter Massey, former president of Morehouse College, and a long-time Lewis friend. Or in this case, a clone.
The Lewis chairmanship dust-up brings up two issues: one specific to Bank of America, and the other to corporate governance in general.
First, the Bank of America issues: As we all know by now, Ken Lewis buckled when the feds allegedly put the screws to him on the Merrill Lynch purchase late last year. According to testimony he gave to Attorney General Andrew Cuomo, Treasury Secretary Henry Paulson told him that if he scrubbed the Merrill deal he would lose his job and possibly bring ruin to the financial system. Lewis further asserted that he was not to disclose Merrill’s problems to shareholders. Paulson reportedly disputes that he told Lewis to deep-six the information.
No one on the board resigned over this issue. Not a single one of Bank of America’s 18 directors said, “No! That’s wrong!” They were all re-elected with comfortable majorities. Even the guys who are members of the Asset Quality Committee. (Bet you didn’t know Bank of America even had an Asset Quality Committee. I guess they weren’t available for the Countrywide Mortgage purchase.)
The Bank of America board deserves special approbation because it allowed its CEO and Chairman to bamboozle them into doing something that was patently wrong. And that includes the newly crowned chairman, Walter Massey.
Massey has served as a director at the bank since 1998. according to the bank’s proxy. Last year for services rendered, which includes hiding material information from shareholders, he earned $80,000 in cash plus stock now valued at $47,376 (the initial grant was $160,000 but the stock isn’t worth what it once was. Wonder why.). Massey holds a total of 8,000 unexercised options in BoA stock plus 4,340 restricted shares of unvested stock. He also sits on the audit committee.
This brings me round to the second issue of corporate governance. It’s an old story worth repeating: Board members tend to be friends, often mirrors, of the chairman or CEO. They shouldn’t be. They should be thorns in the side of management protecting the interests of shareholders. But shareholders aren’t getting good protection because the board members or too closely aligned with senior management. Further, people like newly crowned Chairman William Massey are on overload: He is also part of an elite crowd who surf the cushy board of directors circuit. He is currently a director at McDonald’s Corp. and served previously on the boards of Delta Airlines, Motorola and BP plc. He stepped down from Morehouse only in 2007.
How could someone with so many extracurricular activities pay close enough attention to his corporate wards? Massey, like many other directors, is multi-tasking in an area that requires focus. I don’t know about you, but I would find it hard to make the time for a bridge game if the corporation I was helping to oversee was bleeding so much money that it needed $45 billion in taxpayer funds.
And finally, let’s look at the CEO-Chairman relationship. Those are two separate jobs and they simply should never be one-in-the-same person. The chairman should be able to turn to the CEO and say, “You need to leave the room now while we discuss matters important to your investors.” The dual role inherently invites conflict. The SEC shouldn’t allow it to continue. So here’s my back-handed compliment to Bank of America shareholders: Congratulations for ending Lewis’ dual loyalties. I wish you had done much, much more.
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