On Oct. 1, Bank of America's (NYSE:BAC) board handed CEO Brian Moynihan the additional responsibilities of chairman of the board, heralding the return of the imperial chief executive at an institution that only split the two functions in 2009, near the end of the tenure of Moynihan's predecessor Ken Lewis.
While the board elevated Jack Bovender to the newly created role of lead independent director -- presumably as a counterweight to Moynihan's chairmanship -- handing Moynihan a dual role is a step backward in terms of governance at an institution that is only now recovering from Lewis' catastrophic excesses.
Indeed, it was Lewis' unconstrained empire building that brought Bank of America to the brink of ruin during the financial crisis, as a result of the acquisitions of Countrywide Financial and Merrill Lynch. That shameful episode ought to have been an enduring institutional lesson regarding the value of checks on a chief executive's power. Ken Lewis was stripped of the chairman's role in April 2009, before retiring at the end of that year.
Buffett on Moynihan
As a Buffett-watcher, I'm always curious to hear the views of Berkshire Hathaway's (NYSE:BRK-B) CEO on business (and other) topics. Buffett has long been of sound counsel regarding corporate governance, and he has a significant interest in seeing that Bank of America is run on behalf of its shareholders: Berkshire Hathaway currently holds $5 billion of Bank of America preferred shares paying a 6% dividend, along with warrants to purchase 700 million common shares. (If it were to exercise those warrants, Berkshire would immediately become B of A's largest shareholder.)
Appearing on CNBC Oct. 2, Buffett was asked to comment on Moynihan adding the chairman's role. Buffett initially sidestepped the question, taking the opportunity to praise his accomplishments instead:
Well, I think Brian's done a sensational job. He did just what he said he would do: He just methodically cleaned up the problems of the past and looked at the bank, looked at its strengths. It's got this incredible low-cost deposit base and he's getting back to the things that Bank of America has done well for a hundred years and can do well with another hundred years. He got rid of a lot -- he's still got some things to clean up -- but he's cleaned up an awful lot of them.
I have no quarrel with Buffett's assessment of Moynihan's performance. The trouble is that powers and privileges that are handed to one CEO are usually inherited by their successor, with only a crisis generating the will to roll them back (as witnessed with Lewis.)
Bad CEO risk
As such, one risk of the dual CEO-chairman's role at B of A was highlighted in Buffett's reply to CNBC's follow-up question: "From a policy perspective, do you care if the chairman and the CEO titles are separate or together? Do you have a general view one way or the other?" Buffett answered:
I don't have a general view. After I'm out of the picture, I do think they should be separated at Berkshire. The one advantage to having them separated is if you get a mediocre CEO, it's a lot easier to do something about it if you've got a separate chairman.
It seems to me that what is good enough for post-Buffett Berkshire ought to be good enough for Bank of America, particularly as the latter has a much weaker institutional culture.
Unfortunately, B of A is hardly setting itself apart from its peers with this decision. In fact, it leaves Citigroup as the sole remaining bank to split the two roles among the top six banks.
Keep an eye out
With this transfer of power to the CEO, Bank of America's board has just done its shareholders a disservice and while it does not necessarily pose an immediate risk, investors will need to be all the more vigilant in monitoring the company and its leadership.