New BofA Chairman Chad Holliday

It strikes me as a superb decision by the Bank of America board to have Charles "Chad" Holliday Jr., former chairman and CEO of DuPont Co., be the company's new chairman.

Directors & Boards author Jack Roddy visited with Mr. Holliday last year — a meeting that resulted in a Q&A article on Holliday's style of leadership that we published in the Fourth Quarter 2009 edition.

I had come to know Roddy as an avid devotee of leadership. He studies it intently in his role running J.P. Roddy Consultants, through which he specializes in recruiting leadership candidates in the automotive, transportation, plastics, and chemical industries. When he shared with me the transcript of his conversation with Chad Holliday on what makes a good leader, I jumped at the chance to share it in turn with the Directors & Boards audience.

As I reread this now six-month-old article in light of Holliday's new appointment at BofA, I am even more persuaded that the troubled institution and its shareholders are in good hands. Here is one of Holliday's answers to Roddy's question as to the importance of spontaneity as a leadership trait. Keep in mind as you read his answer the fateful decision by BofA to complete the Merrill Lynch acquisition:

"My style has always been to be spontaneous as a way of managing in a meeting or other situation. I find myself constantly asking, 'Am I listening well? What is this person saying that I need to hear?' I believe being comfortable with spontaneity is important for a good leader.

"I remember once we were considering an acquisition and we were far along the way to going forward with a positive decision. Then suddenly someone asked a new question about certain factors. This opened up a whole new way of looking at the acquisition such that we said to ourselves, 'What did we miss that caused us to move this far without seeing another important viewpoint?'

"Ultimately, we decided against the acquisition, which was the right decision, yet we almost missed the boat on that one due to singular-direction thinking. The fact that we were open to new questions helped us to make the right decision."

Singular-direction thinking is a threat to many boards. To the extent that such thinking may have almost sunk BofA, my guess is a change in board culture is coming with Chad Holliday chairing the board meetings.

Ken Lewis Advice: 'Keep a Level Head'

With the sudden resignation of Ken Lewis, the Bank of America board now faces a classic succession crisis: the much earlier-than-foreseen departure of an iconic CEO, with no clearly defined and vetted successor ready to step in. And this is happening at one of the most important financial institutions in the country and to the country, in terms of helping the capital market system return to full and fair functioning.

The New York Times calls it "a remarkable boardroom drama," and describes the directors as being "stunned by the turn of events."

Take heart, BofA board members. Your own CEO offered some sound advice on what to do in such a situation. Here from an article by Ken Lewis published in Directors & Boards in 2006:

"Directors must have grace under pressure. Given the regulatory environment in which we now operate, the likelihood that your company will face an issue at the board level at some point during your service — related to accounting, disclosure, compliance, an ethics breach, or something else — is high. Directors must accept that issues arise in all organizations.

"What distinguishes companies is how managers and directors respond. The first job of a director is to keep a level head, get the facts, and give management the opportunity to take appropriate action. It is only when management fails to act, or to acknowledge the issue, that directors must act decisively and hold management accountable. Figuring out which situation the company is in — and when directors need to take independent action — may not always be easy. But it's the most important judgment directors will ever be called on to make."

At the time he authored those words, there probably was no stronger or more highly regarded CEO in the country. The intervening years have not been kind to the man or his reputation. This particular piece of wisdom, originally dispensed to be a best practice to boards generally, has applied in a most particular way to his own board over the past 18 months, what with the near collapse of the financial system, the TARP funding, the Countrywide and Merrill Lynch purchases, the Merrill bonuses, the Paulson/Bernanke gangtackle, and other "issues at the board level." (Some of those directors, in fact, can no longer keep a level head, seeing as their heads were lopped off a couple of months ago in a board putsch.)

And now, with Ken Lewis dropping the "early retirement" bombshell on them, the BofA directors find themselves yet again having to embrace their beleaguered leader's advice to "keep a level head."

28 Years

Today marks my 28th anniversary with Directors & Boards.

I chuckle now when I think about how I turned down the offer to join Directors & Boards back in 1981 — not once but twice over the course of several months of discussions with the principals backing the journal. It was at that time too academic a publication for my tastes, and, besides, who ever heard of corporate governance? It wasn't even a term in the popular lexicon three decades ago. I was a business writer and editor — covering everything from high finance to low sales (1981 being a pretty punk year for Corporate America). Not a word had I ever written or published about boards of directors. A board was in deep background back then — directors weren't even a factor in popular business coverage.

So, I am somewhat bemused that here I am, starting my 29th year as editor of Directors & Boards. The aforementioned principals must have seen something in me that I didn't see in myself. I finally relented, agreeing to give this "beat" of specializing in corporate boards a shot. On Sep. 21, 1981, I showed up at the door as the next editor of Directors & Boards.

On such an anniversary milestone, I am mindful of the following anecdote. When writer William Saroyan asked famed magazine editor H.L. Mencken (pictured) how to become a magazine editor, Mencken responded: "I notice what you say about your aspiration to edit a magazine. I am sending you by this mail a six-chambered revolver. Load it and fire every one into your head. You will thank me when you get to hell and learn from other editors there how dreadful their job was on earth."

I sometimes think Mencken's sentiment applies as well to those aspiring to a seat on a corporate board. Yes, there are days when the job can be dreadful. Just ask, for example, how it must feel to be a Bank of America director now being subpoenaed by New York Attorney General Andrew Cuomo. Or being a director of a company facing bankruptcy or scandal.

But (sorry, H.L.) if there is one thing I have learned over all these years, it's this: the joy of finding your calling in life — be it in editing a journal of corporate governance (especially now that the term is viscerally embedded in the lexicon) or in lending your time, energy and expertise to board service.

Ken Lewis, Non-Chairman

Bank of America CEO Ken Lewis can't be happy about being forced to give up the chairman's role. In an article for Directors & Boards in 2006 on governance best practices, here is what he had to say on the separation of the roles:

"The idea that separating the chairman's function from the CEO's might provide stronger oversight is not new. And, in some circumstances, it could be correct. But there is also the risk that companies with an independent chairman can end up with ambiguous leadership, split allegiances on the board and in management, and an incoherent vision for the company's future.

"What is helpful when the chairman and CEO are the same person is to have an independent lead director, who can chair meetings and coordinate other activities of the other nonmanagement directors. This is a model our company adopted [earlier in 2006]. It provides an important communications link between the other independent directors and our shareholders.

"In working with a chairman and CEO, members of any board must be able to do their job, which is to provide guidance and support as long as the CEO has their confidence, and to remove the CEO when he (or she) has lost it. If they can't do that, the company doesn't need a new chairman; it needs new directors."

Well, guess what? The Wall Street Journal is reporting today that BofA is on the hunt for new directors. Oy vey! 

Just the Facts

Fortune reporter Shawn Tully did a good job dissecting how the Bank of America/Merrill Lynch deal, and the attendant Ken Lewis/John Thain relationship, went careening off the rails in an article titled "Divorce — Bank of America Style." Here is a key observation that Tully makes: 

"There's no doubt that Thain bears a lot of the responsibility for Merrill's recent woes... But Lewis, too, must shoulder a share of the blame... He failed to recognize how perilous [Merrill's legacy trading] positions were, and placed far too much confidence in Thain's assurances when the numbers told a different, dangerous story" [emphasis mine].

Readers of Directors & Boards will know what Tully is talking about — and where Lewis allegedly went wrong. In the First Quarter 2009 edition, author Jonathan Tuttle, a partner of Debevoise & Plimpton, examines the intricacies of internal investigations in his article, "The First 48 Hours: No Board Missteps." The first critical question to be addressed, Tuttle advises, is whether to conduct an internal investigation at all. Here is his advice:

"A single question can be an important starting point for making that judgment: Is the board receiving assurances or facts? Mere assurances of compliance programs working or accounting entries being properly recorded will wilt in the glare of hindsight, particularly if offered by those who may later turn out to be culpable in some form. Facts, on the other hand, may be more difficult to harness initially, but provide a much more concrete basis on which to determine the best path forward" [emphasis Jon Tuttle's].

If we needed a third opinion to seal the deal for facts vs. assurances, we would of course turn to "Dragnet" star Jack Webb (pictured), whose character Sgt. Joe Friday became famous for his investigative line, "All we want are the facts, ma'am." (Apparently, he never actually said "Just the facts, ma'am," as is widely thought — and which would have made for a catchier title for this blogpost.)

Boards have a big job helping their companies crawl out of this recession crater. To do this with agility and as proper fiduciaries, they are going to need to anchor themselves with facts, not assurances.

Ken Lewis, Off Message

I hate to see a past Directors & Boards author getting beat up in the press. That's what has been happening to Ken Lewis. The Bank of America chairman and CEO, who graced our cover three years ago as a paragon of good governance thought leadership, has taken a pummeling this week. No CEO wants to be on the receiving end of a gut punch like this one from the breakingviews.com news and views service.

Here is the thought that I had when digesting what happened to BofA re the Merrill losses disclosure in December, after the shareholder votes were in. When Paulson and Bernanke were apparently browbeating Lewis into going through with the Merrill acquisition, maybe this is what Lewis should have said: 

"Listen, guys, I have to go back to my owners on this. You can't expect me to make this decision on my own. Haven't you heard — the age of the Imperial CEO is over. It's not my company. I know if I tell my board — oops, the board — that we should go through with this, they'll bless that decision. But let me at least fully disclose the changed circumstances to the shareholders. They own the company, believe it or not. Let the chips fall where they may, but they should make the final call on going through with this deal."

Not a bad retort. Maybe a bit naive, considering what this broken deal might have done to shatter already bleak and fragile circumstances as 2008 was coming to a close. And it's certainly idealistic as to best practices in corporate governance.

But Lewis might have brought with him to his meeting with the Treasury Secretary and the Fed head a copy of the Third Quarter 2006 edition of Directors & Boards, and pointed to the concluding paragraph of his authored article. 

He would have done a great service to the shareholders by reminding himself, as well as the government biggies, of what he wrote then: "My hope for all of us is that we will find the courage and the wisdom to perform both of our primary functions as directors with equal skill — that of protecting wealth, and of building it for future generations."