Banks Try Splitting Chair, CEO Posts

Editor's note: This is the fifth story in an occasional series exploring the rise in shareholder activism and its impact on U.S. corporations amid the economic downturn. The first explored reasons behind the trend. The second detailed efforts by investors to rein in soaring executive compensation. The third looked at the battle being waged to get shareholder proposals on company ballots. The fourth examined shareholders' frustrations in the telecom industry.

Two days after it reported its first-quarter loss was 80% higher than it initially said, Wachovia(WB) announced chairman and CEO Ken Thompson was giving up his seat at the head of the company's board.

Thompson, while staying on as CEO, would now share power with longtime independent board member Lanty Smith. Thompson said the arrangement would allow him to focus on steering the company through the difficult economic environment, but many also saw it as a move to appease angry shareholders.

While not entirely uncommon in the banking industry, splitting the chairman and CEO roles is part of a trend among big financial institutions, as the sector reels from the credit crisis and housing downturn.

More than half of the 582 publicly traded banks in the U.S, mostly smaller institutions, have such an arrangement, according to a Sandler O'Neill analysis, and the practice is commonplace in Europe. It wasn't until earlier this year, however, after the effects of the credit crisis that gripped markets last year had began to show up in earnings reports, that boards of Wall Street's biggest banks felt the need to create power-sharing arrangements in the board room.

Citigroup(C) named Vikram Pandit to succeed the ousted Charles Prince as CEO, but gave Prince's chairman title to Sir Win Bischoff. At Bear Stearns(BSC), prior to the firm's near collapse and fire sale to JPMorgan Chase(JPM), longtime Chairman and CEO James Cayne gave up the executive role to President Alan Schwartz, but stayed at the head of the board.