BofA sends the wrong message

(breakingviews.com) -- By all accounts, Bank of America's annual meeting in Charlotte, North Carolina was a pleasant affair. Chief executive Ken Lewis received hearty applause when he appeared before the bank's shareholders, which consisted of hundreds of employees, former executives and local supporters. But the voting results tell a different story.

Enough shareholders supported a resolution to separate the chairman and chief executive roles to see Lewis stripped of the former. And the man responsible for BofA's botched attempts to catch not one, but two, falling knives - Merrill Lynch and Countrywide - saw a third of shareholders oppose his re-election to the board.

That Lewis should have borne responsibility for BofA's failings is unquestionable. He paid too much for Merrill and conducted too little due diligence. And when pressured by the government to complete the deal after belatedly learning of Merrill's woes, he did not do enough to alert his shareholders to the impending doom.

The trouble with the board's decision to deny him the chairmanship, however, is twofold. First, the bank gives the impression that splitting the roles is a punishment rather than an act of optimal corporate governance. Separating the roles only when things go wrong implies the division is a response to trouble. That's the wrong message.

BofA (BAC, Fortune 500) compounds that perception with its choice of executive to oversee Lewis. Walter Massey has served on the bank's board since 1998, encompassing all of Lewis' tenure as top dog, not to mention all decisions taken in recent years regarding, say, risk management and takeover approvals. And he is not an experienced financial executive but a life-long academic.

Massey may hold a Ph.D. and call himself doctor, but unlike former Time Warner (TWX, Fortune 500) boss and the man named to take over as Citigroup's (C, Fortune 500) independent chairman Richard Parsons, it's not obvious from his resume that he has the experience or gravitas to keep Lewis on the tighter leash he deserves.

Of course, the recent experience of bank chief executives stripped of their chairman's title suggests that may not be a long-term problem. Just look across town in Charlotte to the former headquarters of Wachovia. Less than month after the bank's board stripped Ken Thompson of the role last May, he was ousted as chief executive.