When Things Got Tough, Hank Paulson Went Skiing

Includes: BAC, MER
by: Mark Sunshine

Hank Paulson said the unimaginable last week. He testified that he was off skiing when he had his famous telephone call with Ken Lewis where he strong-armed Lewis and Bank of America (NYSE:BAC) to complete the acquisition of Merrill Lynch (MER). Lewis had previously testified that he thought that Paulson was on a bike ride but as it turns out Lewis was wrong and Paulson corrected the record.

During his testimony Paulson made it clear that in December the United States financial system was teetering on the edge of collapse and that if Bank of America didn’t follow through with its planned acquisition of Merrill Lynch the economy could have been destroyed. According to Paulson it was impossible to underestimate the stakes involved in a bad outcome for Merrill Lynch.

But, with the nation’s financial survival in question, Hank Paulson, Secretary of the Treasury, went skiing. He wasn’t in Washington leading his staff, briefing the President or figuring out a good solution to the problem. When he was needed most, Hank Paulson was hitting the slopes.

I almost fell off my chair when I heard Paulson correct the Congressman that was questioning him about where he was when he spoke to Ken Lewis. Paulson had to repeat it a few times; after all everyone “knew” that he did the call from a bike ride and was only out of the office for some quick exercise.

Of course, Paulson was in good company on the slopes. Apparently neither Ken Lewis nor John Thain thought the merger needed their full time attention. John Thain, CEO of Merrill Lynch was off skiing in Vail for most of the last half of December. Thain defends his decision to not be in the office because he was able to stay in touch through a Blackberry. It’s a wonder he wasn’t fired by Blackberry while enjoying himself at après ski.

Ken Lewis spent time during this critical period in December at Reynolds Plantation, a Ritz-Carlton hotel in rural Georgia. He also wasn’t a full time CEO during this critical time in Bank of America’s history.

Unbelievably, neither Ken Lewis, John Thain or Hank Paulson stayed at their desks until January when the merger would have been closed. I guess they decided that their leisure time was more important than the economic future of a few billion people.

I believe that if Hank Paulson was in Washington and was working with his staff trying to figure out what to do about the Merrill Lynch problem he never would have lashed out and threatened Ken Lewis. And, I believe that if Ken Lewis and John Thain were working together, in the same office at the same time, they would have been able to work out their differences. Instead, we got absentee leadership and communication through Blackberry and e-mail. No wonder the merger got messed up and the recriminations keep on flying around.

Leadership is a contact sport and can’t be done remote control through a Blackberry and a lap top. Leadership requires a personal connection and a ton of effort. Apparently, a lot more effort was required than the trio of Paulson, Lewis and Thain were prepared to give to their companies or their country.

It was bad leadership and uncontrolled hubris that got us into the current economic crisis and it is going to take a lot of cultural change to get us out. Let’s all pray that we have started to write a new chapter in U.S. history so that our leaders intuitively understand that when the nation’s future is at stake it’s not a good time to go on vacation.