Musings on whether a troubled bank’s head should vacate his post or not
Bank of America just reported $4.2 billion in earnings for the 1Q09. It’s a timely reply to the bank’s critics who lashed out at the recent Merrill Lynch acquisition in January. With more than $9 million in total compensation last year, Ken Lewis may have been doing his job pretty well to earn the bank’s top post and receive accolades from his peers and the industry.
But not everything’s in the right place for the two-time Banker of the Year. Groups with a common goal of ousting him from his post are growing, citing mismanagement on his part. The Change to Win Investment Group, which manages 33 percent of the bank’s shares, is accusing Lewis of not informing them about Merrill Lynch’s true asset values. Lewis is also notorious for giving away $3.6 billion in bonuses to Merrill executives.
Here’s a short video about the complaint.
In his defense, Lewis testified to the New York attorney general that Ben Bernanke and Henry Paulson pressured him into acquiring Merrill Lynch. If he didn’t acquiesce, then the board of directors and the management will get the ax.
Lewis has always stayed defiant against his critics. In fact, his February announcement that BofA’s stronger now unlike what most analysts are thinking boosted the company’s stocks by 34 percent. Then we get to see him point his fingers at two government officials and start a long scandalous legal battle. But his failure to act on behalf of his shareholders’ welfare is clearly a travesty of corporate ethics (then again, America has not learned any ethics since the beginning of the crisis). Lewis should’ve not relented to the pressure instead.
On the other hand, replacing him might add to the current problem now that BofA’s management is in shambles. As Douglas MacIntyre of Time Magazine puts it, “The most significant risk in replacing the current bank CEOs is that the new people coming in may or may not be better selections than the people whom they replace. The most convincing argument for keeping Lewis in his job is that he is now recognized as the Emperor without any clothes. Whatever hubris he had about the success of his tenure running Bank of America has been removed.”
Retaining Lewis may send BofA’s shareholders in further distress but this may also prove him right if he stays in his office. Bernanke and Paulson would surely retaliate and it would do no good for Lewis to step down and leave the future of the bank to another executive who would still be succumbing to government regulation. Since the mess began with him, it’s also fair for the shareholders to watch him find solutions for the bank at his expense this time.