by Deb Cupples | Corporate governance being what it is (in reality as opposed to theory), the boards of big public companies' tend to be packed with rubber-stamping lapdogs that lick the CEO's feet. Unfortunately, CEOs don't always strive to protect shareholders' interests, which is (in theory) the job of both execs and board members.
We need look no further than the financial meltdown that became obvious in 2008 for evidence that corporate execs and board members often ignore shareholders' longer-term interests -- that is, when execs and board members aren't outright working against shareholders' interests.
Yesterday, Bank of America shareholders voted Ken Lewis out of his Board chairmanship. He is still CEO, however, and the Board reportedly expressed unanimous support for Mr. Lewis -- meaning that the Board may be inclined to keep Mr. Lewis on as CEO.
As a BofA shareholder (albeit a tiny one), I'm not happy with the Board's declaration of support. Mr. Lewis, after all, was the one doing the steering while Bank of America was being driven into a ditch.
Mr. Lewis' ousting might compel some people to believe that corporate execs and board members really are accountable to shareholders. I question the validity of any such conclusion.
Timing is an essential component of accountability. It was October of 2008 when Bank of America took its first $15 billion in TARP funds from us taxpayers -- an indication that something had gone terribly wrong at Bank of America while Mr. Lewis (and the current Board) was in charge.
A full six months passed before Mr. Lewis was finally removed as Board chairman. Six months is a long time for accountability to manifest: an incompetent or misguided (or malfeasant) corporate leader could do a lot of damage in six months.
Apparently, Mr. Lewis did do hefty damage while shareholders were waiting to hold him accountable.
As the New York Times reported in January, for example, shareholders were angry at Mr. Lewis for persuading them to vote for the Merrill Lynch deal:
"Four months ago, as turmoil swept Wall Street, Mr. Lewis’s bank bought the foundering brokerage for $50 billion in stock. Today, the two companies are worth $40 billion combined."
Mr. Lewis' comment:
"In the timeline provided by Mr. Lewis on the conference call with investors and Wall Street analysts in mid-January, he [Mr. Lewis] said he was surprised to learn of the magnitude of the [Merrill Lynch's] losses himself in December and considered walking away from the deal."
If Mr. Lewis had been truly "surprised," then one of three things likely happened:
1) Mr. Lewis and his highly paid team of accountants, lawyers, and finance whizzes failed to diligently looked into Merrill's books;
2) Merrill's highly paid team of accountants, lawyers, and finance whizzes falsified the books; or
3 Mr. Lewis' team did review Merrill's books, but Mr. Lewis chose to not disclose the bad news to us shareholders.
It seems to me that Mr. Lewis should have called off the deal -- or negotiated a far better price for Merrill -- in order to protect us shareholders' interests. But he didn't.
Last week, Mr. Lewis claimed that government regulators forced him to go through with the Merrill deal -- which amounted to a breach of his duty to us shareholders. I don't know how valid that defense really is.
The Merrill Lynch deal aside, the shaky state of Bank of America (e.g., losses from mortgage-backed securities) seems to have been at least in part Mr. Lewis' fault.
As Board chairman and CEO, Mr. Lewis was encouraged, allowed, or failed to stop his underlings from taking huge risks with shareholder dollars -- starting at least a couple of years ago: risks that anyone with a solid business-education should have known were not in the shareholders' long-term interests.
Mr. Lewis was far too handsomely paid (by us shareholders) to have allowed Bank of America to come anywhere near as close to the proverbial ditch as it did. Check out Mr. Lewis' recent compensation:
|
Year |
Total Compensation |
|
2008 |
$9.9 million |
|
2007 |
$24.8 million |
| 2006 |
$27.8 million |
|
2005 |
$22.0 million |
|
2004 |
$22.7 million |
|
Total |
$107.2 million |
* Compensation figures are based on data from company proxy statements.
Yes, during just the past five years, Mr. Lewis got more than $100 million in compensation -- and that doesn't include the value of all stock options that we shareholders (more accurately, BofA's Board) had bestowed upon Mr. Lewis.
Wait a minute: until yesterday, Mr. Lewis was on the Board -- as chairman, no less. Does that mean that Mr. Lewis played a part in deciding his own compensation? You betcha!
Given how poorly Bank of America is doing, Mr. Lewis (and a whole slew of other execs and managers) should give back to us shareholders a large percentage of the money they took out of our company over the past few years -- those years during which said execs and managers were enriching themselves through enormous risks and smoke and mirrors, while driving our company into a ditch.
Memeorandum has commentary.
Other Buck Naked Politics Posts:
* Laughing them Out of the Bank: CitiGroup wants Bonuses?
* BofA CEO Surprised by Extent of Merrill's Losses?
* Real Bonuses Based on Fake Profits
* Are Bailout Funds Being Misused?
* Save Jobs by Cutting Executive Pay
* Execs Made Millions While Driving Companies into Ditch
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