For whatever excuses and explanations he can now muster, the fact is that BAC, at Lewis' urging, should never have purchased Merrill Lynch for the price it offered (after only two days of due diligence!) and Lewis relented to government pressure to close the deal even after BAC learned of almost $16 billion of losses that were not factored into the closing price and which should have nixed the deal. Instead, not only did Lewis and the BAC Board bow to pressure and close the deal but they didn't even present the new findings of such losses to shareholders prior to the vote -- information that clearly would have had a material effect on shareholder consent to the deal at the original price. In a nutshell, the entire corporate governance of BAC, designed to protect shareholder value, was trampled for as yet inexplicable reasons, but certainly having nothing to do with what was in the best interest of shareholders.
Reports have surfaced that Lewis was effectively coerced to do the deal lest he be possibly ousted by the Government from his role as either Chairman of the Board of BAC and/or its CEO. But, even if Lewis was put in that awkward position, the right thing to do -- the lawful and obligatory thing to do -- would have been to honor his fiduciary duty to shareholders, disclose the additional Merrill losses to them and let the chips fall where they may concerning his continuing personal role. That the Board of BAC aided and abetted Lewis' action reflects poorly on its members and its ability to exercise independent judgment in the best interest of shareholders.
But now that the facts are out, in part, who is taking responsibility? Has Lewis apologized or resigned? Has any Board member convincingly explained how his actions in supporting Lewis and the Merrill transaction served shareholders' interest or why shareholders were kept in the dark about material information concerning that transaction? Regrettably, the answer is no. Hence, BAC is now in the position of having to defend the indefensible behavior of its leaders thereby diverting attention away from righting its tattered image and business.
The legality of the actions of Lewis and the Board will undoubtedly play out in courtrooms over the next few years. Regardless of the legal niceties, it is unquestionable that Lewis can no longer be trusted by shareholders to serve their interest. Moreover, the Board can no longer be trusted to act as a check on management actions or to ensure that such actions are in the best interest of shareholders.
While the Board was just re-elected to another term, that vote is tainted because the truth still hasn't come out as to the Board's role in reviewing the Merrill transaction and the related non-disclosure of material losses. When it does, a shareholder vote of confidence or no confidence would be more meaningful and valid. Having said that, the shareholders still sought fit to oust Lewis from his role as Chairman, an act virtually unthinkable less than a year ago.
While some might argue that the same result would have befallen BAC even if the Chairman and CEO roles had been separate, the era of cavalierness of board of director conduct seems nearing an end. A board is not supposed to rubber-stamp the conduct of management. And it should possess more than a healthy degree of skepticism, particularly when the very existence of the company hangs in balance by any transaction sought to be approved by management. For the fact is the BAC would have failed but for unprecedented action by the Federal Reserve and the U.S. Treasury. Consequently, neither Lewis nor the Board should be congratulated for the survival BAC. Instead, they should all be cast aside as unworthy and incompetent to serve in their respective positions starting with the most culpable, Ken Lewis.
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