We’ve been very loudly calling for the head of Ken Lewis, so it seems appropriate that we respond to the Lex column in today’s Financial Times that attempts to rebut our arguments. As Lex sees it, there are two main arguments for firing Lewis.
- He jumped at the chance to acquire Merrill Lynch, a move that now looks like a epic mistake.
- He’s now very unpopular within his own firm, having alienated the natives at Bank of America and lost key senior people from Merrill.
According to Lex, neither of these points holds up to scrutiny.
First, on the Merril acquisition:
BofA’s purchase of Merrill must be seen in context. Last autumn, the entire US banking deck of cards was thrown in the air. How they landed would shape the financial landscape for decades – and sharp bank bosses knew it. Barclays grabbed Lehman, Citigroup rushed for Wachovia but lost to Wells Fargo. JPMorgan had already stolen Bear Stearns. Sure, BofA overpaid in retrospect. But had markets surged in the fourth quarter, Mr Lewis would have been a hero. He made a terrible error but with the flawed information he had, it was a punt worth taking. A better question is why more chief executives are not guillotined for top of the market, value-destroying deals.
This is a bit of a weird way of arguing for Lewis. Sure, if markets had surged Lewis would look like a hero. And if pigs had wings we’d call them owls. The crashing of the markets in the fourth quarter was not some unforeseeable event. Lots of us knew things were going from bad to worse. What’s more, getting things so badly wrong should matter. A CEO needs to produce results, not just try hard. There shouldn’t be an “A for effort” grade on Wall Street.
On Lewis’ unpopularity:
Should Mr Lewis lead from here? The argument that employees are upset should be met with “who cares?”. The days when Merrill could moan about a poor cultural fit, or BofA staff about receiving $50,000 bonuses spread over three years, are over. And many, frankly, are lucky to have a job at all. Besides, when markets are in upheaval, change at the top is no palliative. Removing Chuck Prince at Citi, Stan O’Neal at Merrill, Peter Wuffli at UBS, Ken Thompson at Wachovia and Kerry Killinger at Washington Mutual did nothing to improve the fortunes of those banks. Let Mr Lewis get on with it.
We think Lex is too quick to dismiss the importance of a CEO having the confidence of his employees. If he cannot regain their trust quickly, Bank of America will continue to struggle. Employees will increasingly act in self-serving ways, and the top talent will leave. That exit of talent is already under way according to our sources.
So, nice try Lex. But we still say: fire Ken Lewis.