Management Turnover as Change Agent

Wednesday, April 29, 2009

CEO Watch - Ken Lewis, Bank of America, Update #6

Ken Lewis lost his battle today to continue as both CEO and chairman of Bank of America. Shareholders voted to rest the chairmanship away from Lewis. Lewis has been under a cloud ever since the Bank of America acquisition of Merrill Lynch and in some people's minds since the bank's acquisition of Countrywide the mortgage company. The real question many people are asking is whether or not Lewis will continue as the bank's CEO much longer. According to a story by Louise Story for The New York Times,

... the vote to separate the chairmanship from the company’s executive leadership raised questions about how much longer Mr. Lewis could steer the bank as shareholder anger mounts over his handling of the bank’s takeover of Merrill Lynch.
Mr. Lewis has worked at the bank and its predecessors for 40 years and run it as chief executive since 2001.
It is very unlikely this is the end of the story. The bank replaced Lewis as Chairman with Walter E. Massey, a longtime board member and former president of Morehouse College.

For more:

SEIU blog
Economic Times
Wall Street Journal
Huffington Post
Financial Times
Los Angeles Times

Friday, April 24, 2009

CEO Watch - Vikram Pandit, CitiGroup, Update #1

As the government’s bank stress test results come closer to being released, rumors continue to fly that Citi’s CEO Vikram Pandit may be forced to become a sacrificial lamb. While not over impressed with the results he has had over his short stint as CEO, Pandit was never dealt a good hand from the beginning of his tenure. He has certainly made a serious effort to address the bank’s problems. Mark DeCambre wrote a story that appeared in today’s New York Post entitled CEO STRESSED OUT, TREASURY’S TEST MAY FORCE OUSTER OF CITI’S PANDIT. According to the story,

… sources tell The Post that regulators think they might have to make the bold move of removing Pandit to signal Washington is taking as hard a line with the banks as it did with General Motors when it effectively ousted GM CEO Rick Wagoner.

While DeCambre may be correct, I suspect Pandit will keep his position for awhile. The risks of changing him right now while his tenure has been so short may actually make the situation worse. Time will tell. Stay tuned.

Thursday, April 23, 2009

Recommended Reading - CEO attrition gives directors chance to step up , Financial Times

Scheherazade Daneshkhu wrote a piece for the Financial Times entitled, CEO attrition gives directors chance to step up. According to the story,

Plucking a CEO from among a company’s existing directors is becoming a trend, says Marc Sangl√©-Ferri√®re, head of the Paris office of Russell Reynolds, the US executive search company, who says traditional succession planning does not work in a time of crisis.

“The new CEOs have tended to come from outside or to have been a recently-recruited board member. We are seeing that, as part of succession planning, companies are increasingly looking to put on the board one or two non-executive directors who could have the potential to become the CEO,” he said.

While the focus of the story was on European companies, Liberum has seen some of the same circumstance crop up in the United States. It is not a large trend but there have been a number of cases.

Tuesday, April 21, 2009

Recommended Reading - Vikram Pandit to Get The Heave-Ho?, Dealbreaker

Dealbreaker early today, prior to Citi’s shareholder meeting, talked about speculation that Vikram Pandit, Citgroup’s CEO, could be forced out should the bank have to go back to the government trough for further funds. According to a story in the Financial Times referred to in the Dealbreaker piece,

… senior officials at the FDIC have been talking Pandito replacements, in the event the bank needs more cash-money. Apparently successors include new CFO Ned Kelly, old CFO Gary Crittenden, and an unnamed new board member.

I suspect Pandit will be around at Citi for a while. Unlike Lewis at the Bank of America, Pandit while not demonstrating extraordinary leadership talent has not made the kind of blunders Lewis has been saddled with. Time will tell.

For more:


Wednesday, April 15, 2009

Recommended Reading - Judge Posner Wrote What?, Slate

Eliot Spitzer, you remember him, just wrote a piece for Slate that examined a recent opinion by Richard Posner, a federal judge for the 7th circuit court, on executive compensation. Posner, a well known conservative judge, shocked Spitzer with regard to what he wrote about CEO executive compensation. According to Spitzer,

Posner wrote that there are growing indications that CEO compensation “is excessive because of the feeble incentives of board of directors to police compensation. … Directors are often CEOs of other companies and naturally think that CEOs should be well paid. And often they are picked by the CEO.” He then examined the conflicts inherent in the process of CEO compensation determination, concluding that “[c]ompetition … can’t be counted on to solve the problem because the same structure of incentives operates on all large corporations and similar entities, including mutual funds” [emphasis added].

Anyone interested in the issue of executive compensation should read Spitzer’s piece and check out Judge Posner’s opinion.

For more:

Freakonomics (NYT)

Wednesday, April 8, 2009

Government Body Suggests Top Management Change Might Help With Financial Crisis

The Congressional Oversight Panel (COP) released its latest report, Assessing Treasury’s Strategy: Six Months of TARP. In what might be considered a surprising conclusion, the COP proffered that the U.S. Government might want to jettison top management from some of the largest and most troubled banking institutions. According to a story by Robert Schmidt for Bloomberg The COP,

… suggested that getting rid of top executives and liquidating problem banks may be a better way to solve the economic crisis (then what the government has been doing).

The Congressional Oversight Panel, in a report released yesterday, also said the Treasury may be relying on too rosy an economic scenario to guide its $700 billion bailout, and declared that the success of the program after six months is “mixed.” Three of the group’s members disagreed with at least some of the findings.

The COP, excluding a number of its Republican members, appears to be somewhat closer to the ideas of the highly vocal Nobel economists Paul Krugman and Joseph Stiglitz than to the top economic leaders of the current administration. The panel’s report will only serve to increase the pressure on top management of some of the country’s largest and most troubled banks (CitiGroup and Bank of America). I continue to believe Ken Lewis’ time at the top of Bank of America may be short-lived.

Stay tuned.

For more:

American Public Media's Marketplace

LA Times

Daily Finance 4/9

CEO Watch - Ken Lewis, Bank of America, Update #5

Ken Lewis gets a surprise vote of confidence from highly regarded analyst, Meredith Whitney. Whitney, who recently formed her own company, was quoted in Sean B. Pasternaks’s Bloomberg story,

Lewis “has done a great job” except for the Merrill Lynch deal, said Whitney, speaking to reporters today before appearing at a panel discussion in Toronto sponsored by Sprott Asset Management Inc. She called the Merrill Lynch purchase Lewis’s “one major mistake acquisition.”

Whitney was also quoted in SmarTrend in which she stated,

… she thought Lewis’ one mistake (Merrill acquistion) was due to his error in acting like a good citizen than a good chief executive with shareholder interests as his first priority.

While one may understand where Whitney may have come to her conclusion about Lewis, considering what was happening to the financial markets particularly Lehman at the time of the Merrill acquisition, her conclusion appears misguided. Lewis deserves to take full responsibility for his decision to acquire Merrill and, more importantly, for his subsequent failure to follow-up the initial decision with adequate due diligence as regards to Merrill Lynch.

Whitney’s latest pronouncement of support has come out at the same time that rumors have been growing about potential successors to Lewis. According to a story by Debra Cassens Weiss for the ABA Journal,

The lawyer (Brian Moynihan) who is leading Merrill Lynch & Co. could end up replacing Bank of America Corp. chief executive Kenneth Lewis.

Lawyer Brian Moynihan took over at Merrill Lynch in January after the ouster of John Thain…

We will just have to wait and see how this all plays out.

Monday, April 6, 2009

Recommended Reading - Not All Employee Turnover is Bad - Celebrate "Losing the Losers",

Dr John Sullivan wrote a worthwhile piece that appeared today in the website. Liberum is always focused on executive turnover and most people look at employee turnover with a negative impression. Dr. Sullivan has attempted to examine turnover from different perspectives to explain why it is often a positive. Anyone interested in management and company performance should read Dr. Sullivan’s brief but cogent piece.