Federal Government Picking CEOs

U.S. government hovers in background of BofA search



Fri Oct 2, 2009 5:54pm EDT Email
Joe Rauch and Karey Wutkowski


NEW YORK (Reuters) - U.S. regulators will subtly influence Bank of America Corp's search for a new chief executive, but are likely to shy away from an overt role, former regulators and industry attorneys said.

The largest U.S. bank has kicked off a high-stakes talent search after the sudden retirement of Kenneth Lewis.

Given that Lewis' departure followed a wholesale revamping of the Charlotte, North Carolina-based lender's board largely at the behest of the government, some investors fear the government -- as largest shareholder and regulator -- will play a role in choosing his successor.

But there is little need for the government to do so directly, as both the largest investor and regulator, because the bank already knows which candidates would get government approval and which would not, experts said.

"In a big bank, the government just really doesn't want to be picking the CEO," said John Douglas, a former Federal Deposit Insurance Corp general counsel and partner at Davis, Polk & Wardwell. "The board should only be looking at candidates the regulators would approve."

Bank examiners, who have desks inside major institutions, regularly consult with companies on management decisions and "safety and soundness decisions."

FDIC Chairman Sheila Bair has said more scrutiny needs to be applied as to whether managers have the necessary skills to guide banks through the tough economic environment. But she has stopped short of saying regulators should be able to dictate the exit of chief executives or pick their replacements.

In Bank of America's case, government experience is directly on the search committee. Don Powell, former FDIC chairman, is a committee member.

"NOT BEST FOR THE JOB"

Bank of America represents an thorny question for the government because so much taxpayer money is at stake, including $45 billion in Troubled Asset Relief Program, or TARP, investment.

But the Obama administration has made it clear it does not want to dictate the business decisions of private sector companies, even if the government is a large investor.

[But apparently it is doing this anyway.  Interesting the direction the article takes - the government of Obama does not want to, yet the article also makes clear the federal government will be influencing who becomes the CEO .... it won't but it will.]

Vikram Pandit, chief executive of Citigroup, which has received multiple government rescues, has been the target of scrutiny for his lack of commercial banking expertise, but has held on to his post -- so far, at least.

Also, American International Group -- whose federal bailout package has swelled to as much as $182.5 billion -- was allowed to pick an outspoken chief executive and give him a $10.5 million pay package. Robert Benmosche's predecessor, Ed Liddy, took a $1 salary.

RISKY BUSINESS

The government would run the risk of demonstrating poor corporate governance judgment if an overt CEO selection returned poor results, experts said. Continued...

"If in six months, nine months, from now it turns out that the person wasn't such a good choice, now you have the federal government on the hook for a bad choice," said Kevin Petrasic, a former official at the Office of Thrift Supervision, who is now an attorney with Paul Hastings in Washington.


Petrasic said regulators may have limited veto power if a board-selected candidate clearly did not have the necessary qualifications. He said ideally, the selection of executives and board members is a consulting process with regulators.

"I don't think in any way shape or form do you really want the federal government to be deciding who's running what's still a private sector company."













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