Bank of America ( BAC - Get Report) is listening to its shareholders. In the two months that have elapsed since BofA's annual meeting, the firm has ousted six board members. The most recent departures were announced quietly late Friday evening in a filing with the Securities and Exchange Commission. First, the board stripped President and CEO Ken Lewis of his chairman title, something shareholders had supported in a nonbinding vote. Then it ousted six more directors, some of whom were the least popular among shareholders, according to the vote, and were the target of activist campaigns. The most recent departures consisted of two directors with great military resumes, but little apparent experience in banking, regulation or serving on the boards of public companies at all: Retired, high-profile Army General Tommy Franks, who led attacks against the Taliban after the Sept. 11, 2001 terrorist attacks, and retired Admiral Joseph Prueher, a former U.S. ambassador to China. Walter Massey, who replaced Lewis as chairman, is likely to depart in less than a year as well, as he nears the mandatory retirement age of 72. In the meantime, he has charged ahead with a board restructuring plan that seems to hold much promise. A review led by Massey resulted in the nomination of four new directors earlier this month, all of whom have significant experience in banking or bank regulation. Arguably, BofA's board today looks like it should have before the crisis took hold. A few are veterans with a long history at Bank of America, including Lewis and Massey, and former chairman Charles Gifford. Others honed their chops in the financial world outside of BofA, whether Frank Bramble, the former CEO of MBNA, the credit-card giant BofA acquired in 2005; Charles Rossotti, a senior advisor at the private equity powerhouse The Carlyle Group; Gary Countryman, chairman emeritus and director of Liberty Mutual; or new additions William Boardman, former executive of Bank One and Visa ( V - Get Report), and D. Paul Jones, former CEO of Compass Bancshares.
Fresh blood on the board also includes those with regulatory connections, like Susan Bies, a former Federal Reserve governor, and Donald Powell, a former chairman of the Federal Deposit Insurance Corp. A few other directors made their names as leaders in the corporate world outside of banking, like Thomas Ryan, who is chairman, president and CEO of CVS Caremark ( CVS - Get Report) and Virgis Colbert, who was a top executive and is now a senior adviser to MillerCoors. Experts in corporate governance and executive recruiting say the wave of change seems like a positive one from the outside, but time will tell its ultimate results. Jim Westphal, an expert in strategic management at the University of Michigan who has studied board composition, says it's important for BofA's board to have a good mix of professionals with experience in the banking, regulatory and corporate world. It's a difficult task for any firm, especially one as large and complex as Bank of America. "They're handling really complex, difficult tasks," he says. "It's really easy to get rid of directors like Franks, but it's a lot harder to find someone who is more qualified." Other directors who left the firm since the April 29 vote include the least popular director O. Temple Sloan, against whom 37.4% of shareholders voted, as well as Jackie Ward, against whom 28.2% of shareholders voted. Activist groups charged that as long-time directors and heads of key committees, the two directors should have foreseen problems with the acquisition of Merrill Lynch.
Robert Tillman and Patricia Mitchell also resigned. After netting out two directors, the board now has 16 members, fitting within the wide range set by BofA's by-laws -- from 5 to 30 members -- but slightly smaller than the board of most large banks, which is about 18 to 20 members, says Westphal. Whether BofA will add any new directors is unclear, as is who will replace Massey as chairman once he steps down. Pete Deragon, who leads the financial services practice for recruiting firm Stanton Chase, notes the "public pressure" to have board members with financial services experience. He cites criticism of Citigroup ( C - Get Report) CEO Vikram Pandit -- deserved or not -- for having a lot of experience in investment banking, but little in core retail banking. Other qualities are hard to measure but just as important -- whether gut instincts that could have limited exposure to the housing market's implosion, proper risk-management skills to avoid complex derivative products that competitors were jumping into, or personal relationships. Few candidates list the cocktail parties they attend on their resume. "The personal relationships that exist between regulators and government leaders and bank executives are really important," says Deragon. "You can imagine if Hank Paulson had not been a Wall Street guy, then called the nine banks to Washington and said, 'This is what we're going to do. This bank is going to go out of business. This bank will stay in business. And you will sign this paper.'"
Paulson's Wall Street alma mater, Goldman Sachs ( GS - Get Report), has been criticized -- or heralded, depending on the point of view -- for its close ties to Washington amid the financial crisis, bailout benefits and regulatory overhaul. Even if Massey succeeds in getting the right mix and number of professionals, another factor that may be overlooked, Westphal adds, is how well they work together. It may take some time for the new board to be effective, even if it has the right mix of professionals. B. Espen Eckbo, a corporate governance expert at Dartmouth College's Tuck School of Business, also notes that while boards are supposed to provide checks and balances against executive leadership, there is often a lack of independence, even among directors who never worked at the specific institution. BofA's board had a reputation for being an old boys' network of Lewis supporters who stood behind the embattled CEO even as shareholders cried out for his ouster. "Perhaps it is time to deviate from the old model somewhat, where one narrows the director search down to current and former CEOs of other similar companies," says Eckbo. "In fact, it is likely that other types of candidates may exhibit stronger independence -- an example may be a military commander." His argument may have some merit. Oddly enough, Gen. Franks was the most popular director among shareholders, receiving 93.4% approval in the vote.