If you think I’m having trouble resisting the temptation to go on one last, extended, triumphal rant on what an all-season disaster Ken Lewis’s CEO-ship at BofA (NYSE:BAC) has been, you don’t know the half of it ( . . . Fleet . . . LaSalle . . . US Trust . . . dilution . . . restatements . . . “recognition” awards . . . brawkkk!).
Oh, forget it. Let’s just leave it that a) Lewis’s idiotic get-big-by-doing-deals strategy chronically diluted shareholders for years and finally ended in one last, spectacular, entirely avoidable disaster, b) his management “style” had the effect driving BofA’s top talent out the door with regularity, and c) he leaves an organization that has no coherent strategy or obvious successor as CEO, and that’s been forced to suck on the federal teat. Nice legacy.
But as Lanny Davis used to say, let’s move on!
Let’s move on, in particular, to who should take Ken Lewis’s place. As it happens, BofA’s board has gone through a meaningful upgrade in recent months, with some excellent additions, including Susan Bies, Bill Boardman, and Paul Jones. This board really might be capable of taking the first step in repairing what is one of the most prominent companies in the financial services industry, and setting it on a path that will benefit shareholders, employees, and customers.
I’ve followed BofA and its predecessors for 30 years. Over that time, I’ve gotten to know the company pretty well, and have gotten to know a number of the people on most short lists of candidates, too. So as a public service to BofA’s board of directors, its shareholders, and the citizens of Charlotte, North Carolina, here are my thoughts on what the board should do next.
First, if the board were honest with itself, it would see the company’s past strategy for what it is: a colossal, value-destroying failure. No internal candidates are qualified to lead the sort of transformation needed at BofA. Only an outsider can. Think if this as the start of the deMcCollification of Bank of America--and not a moment too soon.
In particular, BofA’s board must reject the core strategic premise on which the company has been run under Hugh McColl and Ken Lewis: the idea that size equals success. In banking, size does not equal success. As Dick Kovacevich likes to say, “Big is not better; better is better.” The board needs to understand that. Instead, it should look to install a management that can improve the operating performance at each of the company’s business lines. A relentless pursuit of operating excellence, as opposed to a relentless pursuit of deals, is what separates the best-run institutions in the industry –companies like JPMorgan Chase, US Bancorp, and Wells Fargo—from Bank of America and Citigroup.
If the board does accept that a dramatic change in strategy, toward operating excellence, is in order, I can think of three outstanding candidates. In no particular order, they are:
- Mike O’Neill: Mike is an outstanding banker with a long track record of success, including success at turning around troubled institutions. He spent most of his career at Continental Bank in Chicago, where he worked both on both the domestic and international sides, in various capital markets businesses. After Continental was acquired by the (old, California-based) BankAmerica, Mike spent several years as CFO of the combined company. He was a key architect, along with Dave Coulter, of the merger between BankAmerica and NationsBank.
After the merger, Mike left BofA and became CEO of Barclays Bank, but soon after resigned after a short-lived health scare. The following year, 2000, he was named CEO of Pacific Century, the Hawaiian-based bank that was foundering following a misguided strategy of acquiring a string of banks throughout the Pacific.
On the day Pacific Century announced Mike as new CEO, its stock rose by 10%. By the time he retired from the bank (now called Bank of Hawaii) in 2004, the stock had risen by a total 230%, during a period when the overall market fell by a third. The stock’s massive outperformance was a direct result of his turnaround strategy, his ability to execute, and his expertise in capital deployment.
Mike has been retired since 2004, but was recently named to Citigroup’s board.
- Al de Molina. Al is a former BofA CFO, and among the best things that can be said of him is that while he was at BofA, the Charlotte mafia there hated him. Al was unique among BofA executives in that he was actually willing to stand up to Ken Lewis and question some of his decisions. Perhaps not coincidentally, when he was in charge of NationsBank’s balance sheet management, he made more money for the company than anyone else.
After the merger with BofA, Al served as treasurer of the combined company, and then CEO of Bank of America Securities. After that, he was president of the Global Corporate Investment Bank. As I say, he was essentially the only member of senior management who would question Ken Lewis, or who would try to get Lewis to hold other top executives accountable. His rabble-rousing apparently eventually became too much. In 2007, Al left to become COO, and then CEO, of GMAC.
Al’s extensive background in international finance and capital markets, plus his long history of emphasizing operating performance and accountability, make him an ideal candidate.
- Charlie Scharf. Charlie is just 44 years old, but in many ways he is to Jamie Dimon what Jamie was to Sandy Weill. Charlie began working with Jamie at the old Commercial Credit back in the late 1980s, and has held various financial jobs under him ever since. Charlie was CFO at Bank One, and was running Bank One’s retail unit when the company was acquired by JPMorgan Chase. He now runs Chase’s retail banking business.
When Jamie named Charlie to head retail at Bank One, I thought he’d made a huge mistake. This was a hands-on operating job, I believed, and Charlie was a finance guy. But I turned out to be incredibly wrong: Bank One’s retail business improved by leaps and bounds under Charlie. Similarly, he’s presided over a notable turnaround in Chase’s retail banking operation.
I should say that I haven’t talked about the BofA job with any of these three guys. For all I know, they’ll be ticked off at me for throwing their hats into the ring. Still, if any of these three were appointed to run BofA, the change would be immediate and dramatic. The company’s toxic corporate culture would quickly be transformed. A fixation on playing politics would diminish, and be replaced with a healthy fixation on accountability.
If the Board selected any of the three individuals mentioned above, I would buy the stock on the announcement.
Who Will the Board Pick?
However, I don’t have a lot of confidence that the board will bring in the new management blood that BofA so desperately needs. Too many legacy members are stil around. They’ll surely be reluctant to acknowledge the damage their oversight has done, and will be slow to recognize that dramatic changes are needed.
Plus, my understanding is that Hugh McColl (perhaps the root cause of all the company’s problems in the first place) is working hard behind the scenes to ensure that a “southerner” is put in a position to lead the company, rather than the only serious internal candidate I’ve heard mentioned, Bryan Moynihan. Moynihan comes from the Fleet side and still lives in Boston, which by definition makes him unacceptable to the Charlotte lifers.
I suspect that, in the end, some sort of political, far-less-than-optimal compromise will be reached. In particular, I expect former BofA CFO, Jim Hance, a McColl true believer, will be brought out of retirement to become Chairman and CEO, while Brian Moynihan will named as president, where he can be “groomed” to succeed Hance.
Any experienced BofA watcher will predict what will happen next. Look for Hance to conclude over time that Moynihan is not the “right guy” to become CEO. Hance will then pick someone from the old NationsBank to take over.
A Huge Decision
I hope my prediction turns out to be way off base, but am not optimistic. Based on what I am hearing, I think the board is going to whiff on a great opportunity. I can only hope the new board members will make a stand, call for a repudiation of the company’s past strategy, and bring in a CEO from the outside who will elevate Bank of America’s operating performance to the level of other large, well-run banking companies.