Bank of America
CEO Ken Lewis likely will face a much chillier reception at the company's annual shareholder meeting next month than he did at his first, nearly eight years prior.
At that emotional meeting on April 25, 2001, Lewis' retiring predecessor Hugh McColl handed over the reins to his protégé. McColl, who earned a reputation over 18 years as an aggressive leader who built a small Southern bank into a national franchise, at the time bragged that "immodestly, we can, in fact, claim to have built the first nationwide coast-to-coast franchise, stretching across the best markets in the United States."
But this year, Lewis is preparing to face an onslaught of investor fury over what some see as his drive to expand the firm's
at the expense of shareholder value. At least two high-profile investment groups have gone public with calls for his ouster, citing an investigation into the company's shotgun wedding with
, and a nearly 85% decline in BofA's market value, fueled by a
in Lewis' ability to lead the firm back to solid ground.
"Our goal is the same as management, and that is to see the company return to strong financial health," says Jonathan Finger, a partner of the investment firm Finger Management, which is urging shareholders to vote against re-electing Lewis as chairman of the board. "We certainly don't mean to be disruptive and Ken Lewis has a history of being a good operator. But there is a credibility issue."
The Finger family has a long history with BofA. Finger's father, Jerry Finger, sold his company, Charter Bancshares, to BofA in 1997 and the family had a "significant portion" of its wealth tied up in Bank of America stock. They hold a tiny fraction of BofA, with 1.5 million shares, but the destruction of wealth has been enormous as the stock plunged from over $55 in late-2006 to recent lows under $3. Bank of America shares closed at $5.76 on Friday.
The Fingers filed a
against Lewis and other directors last month, and have launched a
urging investors to eject Lewis, lead director Temple Sloan and Jackie Ward, who chairs the board's asset-quality commission, from their positions.
They believe the Bank of America brand will survive and prosper, Jonathan says, but that the only way forward is with fresh blood at the helm. They're not alone.
CtW Investment Group, which represents pension funds and affiliates with nearly $2 trillion in assets, is also building a coalition of investors to vote against Lewis, Sloan and Thomas Ryan, chair of the corporate governance committee, at the upcoming meeting on April 25.
"Ultimately the market is going to turn around, the economy is going to turn around, but for Bank of America to get back on a growth track, it needs new leadership," says Michael I. Garland, director of value strategies at CtW. "His credibility is gone. We need to put someone in the executive suite who is credible and who isn't going to antagonize the attorney general and Barney Frank."
Garland was referring to the ongoing cage match between Bank of America, regulators and lawmakers. New York Attorney General Andrew Cuomo and Frank, chairman of the House Financial Services Committee are seeking more information about what and when the company knew about Merrill's escalating losses, and what role BofA played in approving $3.6 billion in bonuses for Merrill employees.
Lewis testified about the bonuses, and has been subpoenaed for a second round of questioning, but has refused to give up other information the government seeks. While Lewis hasn't made any direct public statements about the Merrill drama, he defended giving incentives to top-performing associates beneath the executive branch during a
Lewis has also asserted in recent weeks that Bank of America is financially strong, will earn an operating profit of $50 billion on $100 billion in revenue, won't need more government funding and didn't need as much as it took in the first place. BofA has said it would have walked away from the Merrill deal if not pressured by regulators -- leaving investors wondering if the Merrill and Countrywide acquisitions were profitable bargains, or some kind of public service.
The hasty acquisition of Merrill seems out of Lewis' character, according to Jim McDavid, who worked with both Lewis and McColl years ago at North Carolina National Bank, which eventually became BofA through a series of acquisitions. While McColl was the type of executive who ran up 60 flights of stairs to get to his office and kept a defused hand grenade on his desk as an "intimidation thing," according to McDavid, Lewis was more thoughtful, analytical and risk-averse.
"Hugh could get anything he wanted done ... because they wanted to grow the bank, and saw big opportunities everywhere," says McDavid. "Whereas Lewis was more laid back and reserved, Hugh McColl never ceased to be a Marine."
Not all investors are bearish on BofA, with its top 10 holders of common stock recently adding to positions by an average of 20%, according to
data. But McDavid proves that Finger is not an isolated case of a shareholder with a long history at BofA who is frustrated by what he perceives to be managerial incompetence.
His family recently liquidated its entire holding of BofA preferred stock, which it had held since Bank of America was created in its current form over a decade ago. The decision was driven by a fear that BofA would be nationalized, combined with McDavid's belief that Lewis was not a strong enough leader to stand up to lawmakers and regulators and put the interest of shareholders first. Still, he says, it was a tough call.
"We looked that over long and hard because we're loyal people," says McDavid. "When you have a history with an outfit that was good to you, and you got where you are because of them, it's a hard thing to do. If I say 'Let's meet and have an ice cream cone at noon,' I'm going to be there and I expect you to be there."
While Lewis managed to get Bank of America through the mortgage mess with vastly less exposure to subprime debt than its peers, he still expanded the bank's franchise greatly with major acquisitions of LaSalle, MBNA and U.S. Trust through the years. In the age of financial supermarkets modeled after
, such acquisitions -- along with those of smaller banking operations around the country -- were deemed wise. They gave BofA a national footprint that was tough to compete with and expanded its operations in the capital markets.
But they also came with the necessary due diligence for huge, multi-billion dollar deals that investors and government officials say went out the window for BofA last year. They allege that because Lewis smelled opportunity to broaden market share, he and other board members didn't ensure that the benefits would outweigh the costs.
Lewis has stated that he intends to stay on as CEO, telling an audience at Boston College on Thursday that despite caps on executive compensation, "we're not going to leave the company over this. We have invested our careers here, and our loyalty runs very deep." He put a timeframe on his potential tenure during an interview with the
as well, saying he would stay on as CEO until every last dollar of the $45 billion Bank of America received in government loans are paid off. "It would be very easy to disappear into the sunset but we have to slug through this," he said.
But he may not have that long.
Bank of America on Friday would not comment on preparations for the shareholder meeting, or Lewis' fragile position. Spokesman Scott Silvestri said the firm had met with Jerry Finger several times to address his concerns, and that the CtW issue and broad shareholder frustrations were not topics BofA would discuss.
But even Stuart I. Greenbaum, the Bank of America Emeritus Professor of Managerial Leadership at Washington University's Olin Business School, was skeptical of Lewis' claims -- as well as those of his counterparts at firms like
"Let me remind you that Jeff Immelt said two months ago that he was not going to cut the dividend in '09," says Greenbaum, whose position is sponsored by BofA. "Then 60 days later he cut the dividend by 70%. All of these utterances are situational utterances. What's true today may be false tomorrow. Ken Lewis may have to fall on his sword. He certainly lost his iconic status."