Bank of America’s Ken Lewis Should Resign

Ken Lewis should be so ashamed of himself that he should resign immediately. He must really think that the stockholders are stupid if he believes that we will buy the allegation that the Secretary of the Treasury and the head of the Federal Reserve had any role in his failure to make adequate disclosures relative to the Merrill acquisition. Even if one wants to believe that he was pressured, the fact remains that his first and only obligation was to the shareholders. He and his lawyer’s knew that by failing to disclose material information, the law was being broken. If someone told him to break the law such is no defense for doing so.

It is very clear that the Bank of America shareholders, not the U. S. Government, are paying for the “bailout” of Merrill. If the U.S. Government, by it’s action, forced that result, then all shareholders should be reimbursed for thair losses by the U. S. government. However, it is very doubtful that the government mandated a withholding of critical information from shareholders that would have resulted in a no vote on the acquisition. The fact is that Ken Lewis and the Board should have walked away from the deal once they learned how bad the financial situation was or they should have insisted that a deal be structured where the shareholders of Merrill got nothing for their stock and the Treasury guaranteed the B of A against loss, if it was in the best interests of the financial system to have B of A take over Merrill.

10/10/09 – Our wishes have been answered. He has resigned. Now, lets hope that a more sane, newly constituted Board of Directors can guide the Bank back to the lofty position it once had and restore shareholder faith.

Executive Compensation

The Wall Street Journal today noted that an increase in shareholder sponsored resoultions limiting executive cokmpensation should be anticipatd. However, the mentioned target was banks and financial firms. Obviously, their failures have attracted attention. But, the problem is not confned to the financial sector. It cuts across a wide section of corporate America.

As the 10 K’s begin to arrive, look at the compensation disclosures carefully and take steps to protest the excesses that will be obvious. Either become a sponsor of shareholder resolutions or take on an e-mail campaign to force these greedy CEO’s to recognize that they are employees of the shareholders and not vice versa. And, if you live nearby, attend the annual meeting and ask embarrasing questions about executive compensation.

Particular attention must be paid to companies where the stock price has substantially declined over the past 12 months. Sure, the decline may not be the fault of corporate executives but the decline doesn’t justify the same levels of executive compensation as when the stock prices and/or earnings were much higher. With declining earnings and declining stock prices all executive level compensation should be ratcheted down by the same percentage as the shareholders value decline.

If executives want to be specially rewarded for good results they should be happy to take a hit for bad results. Most importantly, there should be no reward for failure and the “golden parachuttes” should be changed to “tissue paper parachuttes”.

Finally, there must be limits to executive compensation. No one person, working for a publically held company, is really worth a compensation package in excess of seven figures except under the most unusual of circumstances..

BANK OF AMERICA WAKE UP

Today, all shareholders of Bank of America should be more than totally indignant – they should be absolutely and unequivocally furious. The stock dropped more than 18% on the announcement that BofA needed more bail-out funds to support the Merrill acquisition. This after earlier assurances that no such step would be necessary.

The evidence seems to suggest that BofA executives have known all along that these added bail-out funds would be needed and, in particular, knew about it before the shareholders voted on the merger. But, BofA executives apparently decided to keep it a secret from the shareholders. Never mind that Treasury Secretary Paulson also knew the situation and didn’t disclose it to Congress or the public. It is the Bof A executive suite and Board of Directors who are fully accountable to the shareholders.

Now, in view of current circumstances, there are stories circulating that BofA may have to cut its already greatly reduced dividend further because they are precluded from using TARP funds to pay dividends.

If the shareholders had known all of this before the merger vote, it is very doubtful that they would have approved the merger. But, this merger was apparently necessary to serve the monstrous ego of Ken Lewis and his merry band of corporate executives.

The people that the shareholders hired to steer the ship (the CEO, the Executive Suite, the Board of Directors, the Corporate attorneys, and the accountants) permittred this gross failure to disclose and should be held accountable.

The Merrill acquisition has turned out to be a disaster for the shareholders. But, it is not like some shareholders didn’t see it coming. BofA summarily dismissed their concerns and apparently just went full speed ahead just “because the train was on the tracks” and that decision has led to a full scale train wreck.

If you asked most shareholders what was more important – the security of their dividends or rescuing Merrill, the answer should have been plain to management Instead, management chose to jepordize the dividend.

There aren’t any immediate actions available to small individual shareholders relative to this deplorable situation except hope that some well heeled shareholder steps forward and files a class action suit against the officers and directors, attorneys and accountants for allowing this chain of events to take place. In the meantime, shareholders can immediately commence an e-mail and letter writing campaign calling for the resignations of CEO Ken Lewis and his senior executives as well as calling for the immediate resignations of the Board of Directors and their replacement by more responsible people who would put the shareholders first.

January 24, 2009: Follow-up: See the site :”dandodiary.com: for a post on the class action law-suit filed against B of A and its officers and directors.

The stockholders of B of A have lost $100 billion in value and that information did not get one-tenth of the press coverage that the Madoff ponzi scheme costing investors $50 biillion got. What is wrong with that picture?

Unconscionable Executive Rewards – continued

The Wall Street Journal of Monday January 12, 2009 contained an article relative to the frustration of investors over big executive payouts. The article discussed resolutions being submitted by shareholder groups to limit executive compensation.

The article contained a prophetic statement “All of the shareholder resolutions are non-binding and it would be unsusal if any won majority support among shareholders on their first try.”

Shareholders should examine why passage of resolutins would be “unusual”. First, compensation packages are prepared for the Board of Directors by the Compensation Committee of the Board. Next, the Board solicits proxy votes and usually recommends against all shareholder submitted proposals. Finally, the Board usually holds enough proxies to determine the outcome of any vote.

The method of selecting Directors, even though individually voted into office by shareholders, is very suspect. There is usually a Nomination Committee composed of supposedly “independent” Directors that recommends the names of candidates for Board seats that appear on the Proxy statement. But, it remains to be seen that the selection is made without any “suggestion” or pressure from “inside” directors and/or officers. The only thing certain is that names placed in nomination did not come from the shareholdeers.

Directors in large corporations are paid well and are extended many perks by management. The level of emoluments extended to directors are more than adequate to massage and mold votes in favor of what the CEO’s want. Thus, the very notion of Director independence is questionable.

If Directors were truly “independent”, many shareholder proposals would be submitted for a vote with a favorable recommendation from the Board but that is just not the case.

Shafreholders must take a more dramatic stand to make shareholder proposals limiting executive compensation binding on the corporation and to assure their passage. This action could include greater activity to unseat directors who are members of the Compensation Committee for faling to reign in management as well as efforts to bring about the exposure or dismissal of executives who fail to perform but continue to draw down big compensation packages.

February 4, 2009 – A reader basically asks what shareholders can do? For starters, when the proxy materials are received vote against all candidates for the board. Next, send e-mails to every one you know that may be a shareholder and urge them to do the same. Next, send e-mails to the shareholder relations department of the company and let the company know how they feel. If enough people do this, the over bloated executives may get the idea.