US: Bank of America Board Under Gun From Critics
Gen. Tommy R. Franks, the former chief of the Public Broadcasting System and the publisher of a Spanish newspaper would seem to have nothing in common - except for one thing. They all sit on the board of Bank of America.
But as they and 13 of their colleagues meet Wednesday to discuss how to steer the bank through its troubled merger with Merrill Lynch, they are likely to be united by something else: a reluctance to undermine the bank's embattled chief executive, Kenneth D. Lewis.
Less than a week after Mr. Lewis dismissed John A. Thain, the former chief of Merrill Lynch, contending he failed to reveal billions in bonus payouts and losses that led to a second round of taxpayer support for the bank, shareholders have turned up the pressure on Mr. Lewis to explain why he did not publicize the figures once he learned of them.
Their scrutiny has also turned an unusual spotlight on the oversight role played by the board members, many of whom were picked by Mr. Lewis from several companies that the bank, based in Charlotte, N.C., absorbed as he molded it into a sprawling financial giant.
"This board, historically, has been viewed as a board that was there on paper," said Charles M. Elson, a corporate governance expert at the University of Delaware, who owns shares in Bank of America and voted against the Merrill merger. "But the question has been how active they have been in overseeing the C.E.O.?"
Bank of America's board is an eclectic group, and it will grow larger this week when it adds three members from the board of Merrill. The bank's two most powerful directors, O. Temple Sloan Jr. and Meredith R. Spangler, are close to Mr. Lewis's predecessor, Hugh L. McColl Jr., who began building the company into the banking giant that it is today. Mr. McColl, still an influential pillar at the bank, has said in recent days that he supports Mr. Lewis. But if he changed his mind, Mr. Sloan and Mrs. Spangler would likely follow his lead, according to people with knowledge of the board's thinking.
Four of the current members were around a decade ago when the bank took its current name after acquiring a California rival. Another handful joined in 2004, when Bank of America acquired FleetBoston. Another was an executive at MBNA, the credit card company the bank acquired, aiming to build the bank into a credit card powerhouse.
Aside from Mr. Lewis, only two people on the board - the former chief of FleetBoston and a former senior executive of MBNA - have roots in banking. While Wall Street is rife with tales of bank and brokerage directors who deferred to executives seeking faster growth through ever-riskier business, Bank of America's shareholder advocates have grown increasingly concerned about the board's ability to understand financial risks and rein in managers.
Until recently, Mr. Lewis was hailed as one of the saviors of Wall Street. He bought the troubled mortgage lender Countrywide and agreed to buy Merrill at the height of the financial crisis with no federal support. But by the time the merger closed, Merrill's losses were larger than expected. The government soon handed Bank of America another multibillion-dollar cash infusion.
Initially, investors criticized Mr. Lewis for overpaying for the brokerage firm. Now, however, other questions have been raised. The office of the attorney general of New York said Tuesday it was investigating $4 billion in bonus payments made by Merrill to its employees before the deal closed. It is also examining what Bank of America's chief administrative officer, J. Steele Alphin, and Mr. Thain knew about the payments.
Also Tuesday, the Service Employees International Union, one of the nation's largest service sector unions, started a "fire Ken Lewis" campaign and called on the bank to replace him, claiming he had turned "a blind eye" to the bonuses doled out by Merrill.
While critics charge that Bank of America's board has been little more than a rubber stamp in the empire-building campaign of Mr. Lewis, others describe it as independent and willing to push back against the chief executive.
"I don't think the board would be intimidated by Ken and I don't think he would take the board anyplace where it was uncomfortable," said Paul Fulton, a former Bank of America director.
Members of the board, many of whom are paid upward of $200,000 a year for their service, declined to comment or did not return calls. A Bank of America spokesman declined to comment.
Its members are expected to vote Wednesday on the addition of three directors from Merrill Lynch: Charles O. Rossotti, who was the commissioner of the Internal Revenue Service in the 1990s; Joseph W. Prueher, also a retired Navy admiral and former ambassador to China; and Virgis W. Colbert, a former executive at Miller Brewing, according to two people briefed on the agenda.
Their approval would raise the number of board members to 20, and would tighten the web that already binds many of the board's current representatives. Mr. Prueher, for example, met Mr. Franks in the 1990s, when he was commander in chief of the United States Pacific and Mr. Franks was a division commander in Korea. And Mr. Colbert is a member of Augusta National, the Georgia-based golf club, where Mr. McColl, the bank's former chief, is also a member.
Bob Morgan, the president of the Charlotte, N.C., Chamber of Commerce, said the board had a diverse makeup. Among its members are Monica Lozano, who publishes La OpiniÃ³n, a Los Angeles daily, and Patricia E. Mitchell, the former PBS chief. "The perception that Bank of America's board is provincial and insular does not hold up when you look at the composition," he said.
Yet some board members are connected in other ways that reveal strong cross-pollinations with other company boards. For example, two of Bank of America's directors serve as trustees at NStar, a utility company in Massachusetts that is headed by yet another Bank of America board member, Thomas J. May. And the Lowe's Companies, the home improvement retailer, counts one of Bank of America's directors as its former chief executive, and another as a current member of the Lowe's board.
Bank of America's two most influential members hail from North Carolina. The board's independent lead director, Mr. Sloan, the founder of an auto parts company, lives in Raleigh. Mrs. Spangler is married to a well-known local businessman, C. D. Spangler, a former president of the University of North Carolina who once shared an apartment in the city with Mr. McColl, the former leader of the bank.
Like Mr. Lewis, the Spanglers live in the Charlotte area. They are large donors in Charlotte and to the Harvard Business School, have been shareholders in the bank since the early 1980s, when they sold a local bank to the predecessor of Bank of America. But in the last year they have lost more than $1 billion on their Bank of America holdings.
"If institutional investors choose to re-elect the board, then they should stop blaming the bank," said Orin Kramer, a hedge fund manager and chairman of the New Jersey pension fund. "They should look in the mirror."
- 106 Money & Politics
- 185 Corruption
- 201 Executive Compensation
- 208 Regulation