Felix Salmon

Where does John Mackey get his power?

Felix Salmon
Dec 28, 2009 15:15 UTC

Nick Paumgarten’s 9,000-word profile of John Mackey, the CEO of Whole Foods, obviously went to press too late to incorporate the news that he’s finally stepping down as chairman of the company.

The move comes a good two-and-a-half years after the sockpuppet scandal which should have cost Mackey both of his jobs but which instead ended in nothing but a narrow and pathetic amendment to the company code of conduct.

Mackey has built Whole Foods up largely by acquisition, which means that his personal stake in the company is tiny — less than 1%, and less than the average daily volume in the stock. All the same, Paumgarten describes Mackey as “not always an accidental accumulator or practitioner of power”, and it’s pretty clear that if there’s any threat to his complete control over the company, it’s going to come from his newest investors, rather than from any other executive. When Mackey buys a rival grocer, its executives often take on a senior role in Whole Foods — but after that, they rarely last long.

Still, Mackey stands out among founders of multi-billion-dollar companies for the relative modesty of his wealth and income. His 1.1 million shares are worth $31 million today, and have provided him with zero dividend income since August 2008. And yet he’s much more powerful, charismatic, and important than most other corporate founders and leaders — and has survived multiple episodes which would have cost virtually any other CEO their job. Could it be that somehow Mackey has swapped money for power, and that better-paid CEOs get held to a higher standard?


“The move comes a good two-and-a-half years after the sockpuppet scandal which should have cost Mackey both of his jobs but which instead ended in nothing but a narrow and pathetic amendment to the company code of conduct.”

Wow, you’re a bitter, defeated partisan, aren’t you? The guy is obviously a good operator and obviously has good ideas about how to bring down the cost of health care. I wish Mackey would have kept talking. You can’t treat your customers like they are all stupid, just because some are.

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Ken Lewis and the regulators

Felix Salmon
Nov 9, 2009 14:40 UTC

The WSJ has an interesting Ken Lewis profile today:

If there was a bank executive who seemed to have the mettle to withstand today’s regulatory and market pressures, it was Ken Lewis. The Mississippi native clawed to the top of Bank of America. After succeeding his mentor, Hugh McColl Jr., as chairman and CEO in 2001, Mr. Lewis kept up a blistering pace of acquisitions and tight control of operations at the bank, which expanded to $2.3 trillion in assets from some $620 billion.

But I think this misses a crucial point. Ken Lewis was always a momentum play, as most acquisitive CEOs are. So long as things are going well, they’re going great. But the minute their stock starts dropping and they lose that sense of inevitable global domination, things can fall apart very quickly indeed.

This is partly a function of scales dropping from the board’s eyes, as Carrick Mollenkamp and Dan Fitzpatrick explain. But it’s also a question of character: some CEOs are emboldened when their companies go through a rocky patch, while others are weakened — and Lewis is clearly one of the latter. (John Mack, who famously told Tim Geithner to “get fucked” at the height of the crisis, would be one of the former.)

In other words, Lewis never had the mettle to withstand regulatory pressure, should it ever arise. Other acquisitive CEOs like Sandy Weill are the same way. They’re like central banks intervening in currency markets: they can push regulators to move further in the direction they’re already moving, but they can’t push back once regulators become aggressive. That’s why Weill stepped down, and that’s why Lewis stepped down too.

John Reed apologizes

Felix Salmon
Nov 6, 2009 19:00 UTC

John Reed wasn’t even on the list of people who I thought should apologize for their role in creating the bubble which led to the financial crisis. But good for him for doing so:

John S. Reed, who helped engineer the merger that created Citigroup Inc., apologized for his role in building a company that has taken $45 billion in direct U.S. aid and said banks that big should be divided into separate parts.

“I’m sorry,” Reed, 70, said in an interview yesterday. “These are people I love and care about. You could imagine emotionally it’s not easy to see what’s happened.”

Reed is a bit like Gerry Levin, looking back on a merger gone horribly wrong; it’s understandable that he has many regrets and might be more prone to apology. But still, it’s a start. Sandy? You’re up next!


What was the industru activity doing to get the Glass-Steagall Act repealed? Was big money paving the way for the repeal by our “Trusted Lawmakers” like it is being done today?

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Headless BofA

Felix Salmon
Nov 6, 2009 16:57 UTC

Mark DeCambre is right: it seems that BofA is going to remain headless at least until Thanksgiving. No outsider seems to want the job — the list of people who have turned it down seems to include everybody who works or has ever worked at JP Morgan, plus former BofA executive Michael O’Neill, who went on to head up both Barclays and Bank of Hawaii. Meanwhile, the leading insider, Brian Moynihan, can’t conceivably be tapped until after his Congressional testimony on November 17.

It’s not as if Ken Lewis’s reputation needed to take another hit, but here it is anyway: he’s created a monster with no succession plan and no ability to hire a CEO. At least when Hugh McColl was building the monster it was always clear that Lewis would be there if he ever fell under a bus. Lewis, by contrast, made sure to throw any potential rivals out of their top-floor windows on a regular basis. And now the BofA board is struggling with the consequences of those decisions.


It’s too big to fail and it has no head?

It’s a hydra!

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CEOs: Founders beat out managers

Felix Salmon
Nov 5, 2009 16:33 UTC

We’re less than two months from a New Year’s where a 9 ticks over into a 0, and so that means all manner of decade retrospectives. (And still we haven’t come up with a name for this decade!) Fortune is getting into the game early, naming Steve Jobs its CEO of the decade, for his work at Apple.

What’s more interesting to me is the list of 12 “also-rans” for the title: Larry Page, Sergey Brin, Warren Buffett, Bernie Madoff, Carlos Slim, Ken Lay, Jeff Skilling, Andy Fastow, Bill Gates, Oprah Winfrey, Alan Greenspan, and Martha Stewart. Five of the 12 aren’t CEOs at all (Page, Brin, Skilling, Fastow, Greenspan); and not a single one of the 12 is a CEO who was hired to run a company by its board of directors.

Jobs, by contrast, is such a CEO, in a manner of speaking: although he did found Apple, he sold all his shares when he was ousted in the 80s, and was hired back by Apple’s board. (As a result, he’s made more money from Pixar than he has from Apple.)

It’s natural for company founders to give themselves the CEO job. But how come all of Fortune’s top CEOs seem to be founders, and none of them are in the much more common position of having been hired, by the board, to run the company?


Probably because there’s a vaccuum of true leaders in this planet now, evident from the crisis we’ve just been. No wonder founders/entrepreneurs have that intrinsic leadership in them that lifts them to Fortune 500 group.

The men with Geithner’s ear

Felix Salmon
Oct 8, 2009 19:34 UTC

The AP tallies Tim Geithner’s phone calls:

In the first seven months of Geithner’s tenure, his calendars reflect at least 80 contacts with Blankfein, Dimon, Citigroup Chairman Richard Parsons or Citigroup CEO Vikram Pandit…

Ken Lewis appears on Geithner’s calendars only three times. Morgan Stanley CEO John Mack also appears three times.

Why would Geithner speak to Paulson Blankfein so much more frequently than Mack? Well, there’s always this:

Mack was on the phone with Mitsubishi’s chief executive, Nobuo Kuroyanagi, and a translator trying to nail down the letter of intent. His assistant interrupted him, whispering, “Tim Geithner is on the phone—he has to talk to you.”

Cupping the receiver, Mack said, “Tell him I can’t speak now. I’ll call him back.”

Five minutes later, Paulson called. “I can’t. I’m on with the Japanese. I’ll call him when I’m off,” he told his assistant.

Two minutes later, Geithner was back on the line. “He says he has to talk to you and it’s important,” Mack’s assistant reported helplessly.

Mack was minutes away from reaching an agreement. He looked at Ji-Yeun Lee, who was standing in his office helping with the deal, and told her, “Cover your ears.”

“Tell him to get fucked,” Mack said of Geithner. “I’m trying to save my firm.”

Geithner should, in the interest of listening to the people who are going to tell him something he doesn’t already know, have made extra effort to talk to Mack after being told by him to get fucked. But the guy’s only human, and it’s understandable that he might not have.

Update: I thought “Blankfein” when I was posting this, but wrote “Paulson”. Wonder what that means. Many thanks to Justin Fox for noticing.


straight-talkin AND chivalrous, hmmmm? who could have guess? did he slam his fist down on a desk, too? god, nothing is more tedious than the macho narratives of capitalism……

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The defenestration of Bill Winters

Felix Salmon
Oct 7, 2009 23:26 UTC

Why did Jamie Dimon fire Bill Winters as head of JP Morgan’s investment bank? According to Bloomberg, it’s because he felt Winters shouldn’t be CEO of the bank as a whole. And so, by the inexorable up-or-out logic of Wall Street, Winters was out.

Winters is one of the best risk managers on the street, and saved JP Morgan countless billions of dollars when he refused to let his group join the structured-product gold rush. But there’s much more to being a CEO than risk management, especially today, when you need to be able to charm not only institutional investors but also Washington regulators.

In a way it’s sad that no role could be found for Winters at JP Morgan — but he’s had a long and hugely successful run at the bank, and he’s surely happier dreaming of being CEO elsewhere than being stuck in JP Morgan without any hope of achieving the top job. This is how succession planning should work. For an example of how it shouldn’t work, of course, you just need to look at Bank of America.

If Winters had worked for Ken Lewis, not only would he never have been in line for the CEO job, but he would also have been fired years ago for being altogether too competent. Lewis didn’t like promoting potential rivals; Dimon, by contrast, loves surrounding himself by the smartest and best-qualified professionals he can find.


Nice try to change the facts, though.

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Why give Ken Lewis a break?

Felix Salmon
Oct 3, 2009 18:07 UTC

Tom Lindmark says I should give Ken Lewis a break:

Felix Salmon made a good point in a post yesterday when he said that running a mega bank was not something that any individual was capable of doing…

While Felix thinks that bank CEO’s cannot positively influence the outcome of their institutions, he seems perfectly willing to assert that they can destroy the bank. This makes no sense logically but it does typify the sort of disparagement that has been dealt out to Lewis and others.

I do think that the importance of CEOs is often overrated, but of course Ken Lewis is and was entirely capable of destroying shareholder value. One of the ways he did that was by growing Nationsbank, by acquisition, into a bank which is now too big to manage or effectively run. Another way he did that was by buying Countrywide and Merrill Lynch.

Conversely, there are ways for bank CEOs to protect shareholder value. In an interest-rate environment like the one we have right now, banks will be steadily and highly profitable on a week-to-week basis. The job of senior management is to keep an eye on the risk book, and make sure that no one is taking outsize risks which can’t be managed. Goldman Sachs and JP Morgan are both very good at this. Ken Lewis was always very bad at that aspect of the job: when things started heading south in the housing market, he decided the best thing to do was to redouble his housing bets by buying Countrywide.

Lindmark suggests that the disparagement of Lewis is snobbish NYC elitism:

Lewis’s real problem was never about his ability to run a bank but rather about his looks, demeanor, background and geographic location. He isn’t Jamie Dimon smooth and he looks like a man either in a permanent state of confusion or one about to rip out a subordinates throat. He never made any bones about his middle class background nor about his strong desire to succeed and running a bank based in Charlotte automatically knocks you down a lot of pegs in the viewpoint of the New York crowd.

Jamie Dimon bought Bear Stearns and got a sweetheart deal from the government to make it work. Ken Lewis bought Merrill Lynch and went back after the fact to get their backing. Little is said of Dimon’s deal while Lewis is vilified for everything connected with the Merrill acquisition.

This is ridiculous. People hate Lewis because he’s middle class? Er, no. Because he’s ambitious? (And Dimon isn’t?) Because he’s based in Charlotte? Come on. They hated on Stan O’Neal and Dick Fuld and Jimmy Cayne and Chuck Prince just as much, and they were based in New York.

As for Ken Lewis getting more grief for buying Merrill than Dimon has got for buying Bear, well, yes. Lewis overpaid massively for his failing investment bank, while Dimon got the Federal Reserve to subsidize his purchase to the tune of $29 billion. Both CEOs are ambitious, but only one let his ambition get the better of him. And he’s the one who just resigned.


Those running index funds can’t add much value, but they can destroy value by poor and expensive execution.

CEO’s can’t add much value, but they sure can destroy value.

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Choosing BofA’s CEO

Felix Salmon
Sep 30, 2009 23:06 UTC

Running a bank the size of BofA is impossible. So long as the Fed does its best to make the banking system profitable, you could put a baked Alaska in charge and the bank would throw off billions of dollars a year in profits. The job of the CEO is not really about managing down, so much as managing out — repairing relationships with Andrew Cuomo, Sheila Bair, Barney Frank, Mary Shapiro, Elizabeth Warren, and other Washington VIPs. The board will want an experienced manager, to be sure. But they’ll really want someone with political skills, who can calm the savage beast that has woken up DC and which is eyeing the giant of Charlotte.

Which is one reason it’s not so ridiculous that Sallie Krawcheck is being talked of as a serious contender for the top job at BofA. She has the kind of credibility as a straight-shooter that the company desperately needs, and she might be able to mollify some of the bank’s more antagonistic foes.

Meanwhile, if the board starts looking at external candidates, all such candidates must be thinking in the back of their head that a very similar opening is likely to appear at Citigroup sooner rather than later. Vikram Pandit has done amazingly well just to outlast Ken Lewis — his ability to stay in his job is impressive, even if it’s largely a function of the fact that Citi has no succession plan. But as the last of the great destroyers of value still to be drawing a paycheck, he can’t last much longer.

It’s a good time, then, to be a potential megabank CEO. But it’s still a thankless job. Both banks are too big to manage, and both are likely to be broken up eventually. And that kind of decision can’t come from a new CEO: it has to come from the board.


With regard to Pandit – yes he and Shiela Bair may not be getting along. But Citibank was the first to pull the toxic stuff onto its balance sheet, (and may still be the only one), so it is likely it looks a lot worse than the others simply because it is not running a smoke and mirrors operation.

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