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The Depressing Tone of Bank of America

Matt Kelly | February 28, 2010



Sometimes corporate leaders step up and do the simple, ethical thing, and their tone at the top is a harmonized chorus delightful to hear. Sometimes they do the wrong thing, and their tone is more like a tribal screech of self-interest.



And then there is the messy, jangling, cacophonous governance meltdown otherwise known as Bank of America.



I hesitate to wade through the dueling tales of bad judgment at BofA outlined by the Securities and Exchange Commission on one hand and New York Attorney General Andrew Cuomo on the other. Yes, both regulators accuse the bank of withholding vital information from investors in late 2008 as it struggled to close its acquisition of Merrill Lynch—but the similarities end there. Cuomo essentially accuses BofA’s top leaders of sacking the bank’s former general counsel, Tim Mayopoulos, when he urged the company to disclose Merrill’s rapidly mounting losses in late 2008 before investors voted on the merger. The SEC, in contrast, says the bank’s leadership did act foolishly, but had no intent to hide material facts from investors that should have been disclosed.



That’s the gross over-simplification of all those headlines you’ve been reading for the last few weeks. If you want to dive into the hundreds of pages of court filings related to the case, feel free.



What fascinates (and depresses) me is the apparent lack of concern from senior executives and board directors about the best interests of Bank of America shareholders. If you read through the court filings, the BofA executives come across as manipulating the letter of the law to complete the merger by any means necessary; the boards seemed disengaged, struggling to keep pace with events, and more interested in handicapping who might end up in what role at the surviving entity.



But those two things are not always the same as the best interest of the shareholders, who saw Bank of America stock drop from $35 in September 2008 to $6.50 when the merger closed in January 2009. Those investors also had to swallow $11 billion in losses at Merrill for the fourth quarter alone, while paying Merrill $5.8 billion in bonuses for that, um, memorable performance.



The court documents (I did read them) sift through a dizzying thicket of laws and standards companies must comply with as they struggle through questions about material events and when to disclose them. But to my thinking, Bank of America’s drama embodies the dilemma of the rules-based compliance world we live in—namely, that nobody exercised the leadership to ask, much less answer, the simple question: “If I were a shareholder, would I want to know about this?”



I would want to know. And while Compliance Week’s audience may be full of lawyers and accountants, let’s not kid ourselves: regardless of the law’s specifics, you would too.



That simple, principles-based view of governance is what was missing in the Bank of America debacle. That is why federal judge Jed Rakoff dragged out settlement talks between the bank and the SEC for so long, allowing the settlement to conlude only last week. Shareholders, largely powerless to exercise any control during the meltdown in 2008, wanted some semblance of justice for the merger costs Bank of America leaders forced them to pay. They don’t want dense legal arguments over compliance with the rules; they want simple principles they can understand.



Until corporate leaders understand that and communicate in those simple terms—that is, with a strong tone at the top—expect more fiascos like Bank of America to follow.



* * *



And to add a fine coda to this tale, on Friday afternoon Bank of America filed its preliminary proxy statement for 2010. Let's pluck out a few compensation numbers, remembering that all this was paid out after the Merrill Lynch fiasco closed at the start of 2009 and while the SEC and BofA were sparring with Rakoff in federal court:






  • Board director Charles Gifford received $1.78 million in total compensation, including $956,000 worth of aircraft usage, $238,000 in office support, and $293,000 in a tax gross-up for the $956,000 in aircraft use.

  • Lewis received a total of $4.21 million in compensation. Wisely, he took no salary or bonus in 2009; $4.18 million of his compensation came from changes in the value of his pension plan, and the rest came largely from $24,000 in financial planning services. (Note to BofA: Quicken Premier is only $89.99.)

  • Joe Price, CFO in 2009 and recently re-assigned to run the bank's consumer banking operations, and who plays a starring role in both the SEC and Cuomo complaints, received $6.12 million in total compensation.

  • Chief Risk Officer Gregory Curl, who had been in the running to replace Lewis as CEO, received $10.66 million in total compensation, including $9.3 million in restricted stock. And as everyone on Wall Street already knew, the proxy statement announces that the passed-over Curl will retire at the end of March.

  • Brian Moynihan, whom the board ultimately did select to replace Lewis as CEO, earned $6.5 million in total pay last year, including an $800,000 base salary and $5.2 million in restricted stock.


By the way, last year Bank of America cut 6 percent of its workforce, from 302,000 just after the Merrill acquisition to 284,000 by the end of 2009.