New BofA chairman must prove independence
Shareholders in Bank of America must be hugging themselves at their sheer audacity. They have plucked up the courage to say boo to Ken Lewis, the bank’s all-powerful chairman and chief executive.
A shareholder vote on April 29 forced Lewis to relinquish the first of those roles to an “independent chairman”. This role will now be taken by Walter Massey.
Their celebration, however, should be muted. Massey doesn’t seem very independent. He has been a director of BofA since 1998 and therefore participated in all the contentious decisions the board took during Lewis’s tenure as CEO, especially the financially crippling acquisitions of Countrywide Financial and Merrill Lynch.
So shareholders should put Massey under pressure to demonstrate whose side he is really on. And here are two suggestions as to how they might go about this.
First, shareholders should insist that the board cut Lewis’s compensation now that he has given up part of his responsibilities. Lewis has a base salary of $1.5 million, and notched up a further $275,000 in compensation last year, largely for personal use of a corporate jet. That could easily come down by a third or more.
Second, Massey and the board should conduct an independent review of the disastrous Merrill acquisition. In particular, he should get to the bottom of the dispute between BofA and former Merrill chief John Thain about the payment of $3.6 billion in accelerated bonuses to Merrill bankers. If Lewis has abused his position or lied, he must go at once.
The point is that Massey needs to remember why he was appointed. Against the board’s wishes, shareholders have insisted on an independent chairman. Massey needs to show that he is capable of fulfilling that role.