Will B of A's Ken Lewis Keep His Job?
For months, Bank of America chairman and chief executive Ken Lewis has been described as "embattled." Soon, he may be described as "fired."
Lewis's bank has been deemed one of the sickest on Wall Street, its balance sheet clogged with troubled assets. Lewis has appeared close to defiant during congressional hearings and in interviews, where he seems stretched to find anything he did wrong while leading the bank.
Bank of America's beat-the-Street first-quarter earnings report issued today has done little to turn down the heat on Lewis.
Last week, two influential investor advisory groups called on shareholders to strip Lewis of his chairman title.
Today, The Ticker talked to Nell Minow, editor and co-founder of the Corporate Library, an influential group that studies corporate governance, rating the performance of boards of directors and evaluating the compensation of executives.
Of Lewis, Minow said: "I don't think he's going to last."
Reports from RiskMetrics Group Inc. and Glass Lewis & Co. released on Friday called for investors to strip Lewis of his chairman's title at the bank's annual meeting April 29 in its hometown of Charlotte, N.C.
Big institutional investors look to RiskMetrics and Glass Lewis -- and Minow -- before casing their votes for new directors.
The complaints against Lewis: The bank's stock has lost 80 percent of its value since this time last year, even as his compensation is more than than 20 percent higher than the median for heads of other companies the same size as Bank of America, according to analyses of corporate proxies.
Also, Lewis executed a hasty merger with troubled brokerage Merrill Lynch last fall which resulted in $16 billion in fourth-quarter losses for B of A and the bank has received $45 billion in government bailout money since last fall -- $20 million of it to help it swallow Merrill.
And, investors complain, multi-million-dollar bonuses for Merrill executives were pushed through before the big fourth-quarter losses were revealed.
The two investor groups are calling for a "no" vote for returning Lewis to the board and for the board to separate the chairman and chief executive job in two.
We asked Minow about the process of splitting the chairman and chief executive jobs. Does it make any difference?
Minow said the trend started in the 1990s in England, when chocolate titan Sir Adrian Cadbury came up with the idea, largely because boards of directors in the U.K. were packed with insiders.
If the chairman and chief executive jobs reside in one person, Minow said, it amounts to "grading your own papers."
"When the CEO controls who's on the board and sets the agenda and the access to information, it's all a closed loop," she said.
The job-splitting idea caught on in America in the early part of this century, and was applied in a high-profile fashion in the U.S. in 2004, when the Walt Disney Co., which was fighting off an unsolicited takeover bid from Comcast and struggling with bad earnings, stripped the chairman title from chief executive Michael Eisner. This act sped Eisner's retirement, Minow said.
Though the job-split has worked to great effect in the U.K., Minow said, it has been less effective here because she said it usually amounts to simply "changing name plates around."
As such, Minow says she places more blame for the plight of Bank of America on its board, which followed Lewis's lead, than on Lewis himself.
Since the Merrill merger, Bank of America's board of directors has swollen to 19 seats, and big boards are "always a terrible idea," Minow said, from a corporate governance point of view.
"They're too unwieldy," Minow said. "When a post-merger board is too big it suggests that letting too many directors continue to serve was a trade-off for getting them to approve the deal, regardless of what was best for the combined entities. A board is optimally eight to 12 people, big enough for diversity of experience and perspective, small enough for everyone to know everyone else well enough to promote candid communication."
April 20, 2009; 2:19 PM ET
Categories: The Ticker | Tags: Bank of America, Ken Lewis, Michael Eisner, Walt Disney
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