Bank of America is under legal and political fire these days for its failure to disclose millions in bonuses paid to Merrill Lynch executives just prior to its acquiring the ailing brokerage firm. The furor has provoked a rather remarkable disclosure that defies all the commonly held principals of good corporate governance but so far has sparked nary a peep from shareholder advocates.
“There is no individual liability in this case; there no evidence that any individual is culpable,” Bank of America claims in its Sept. 9 federal filing. Bank of America also shamefully claims that it relied on its lawyers to prepare the offending proxy statement, but as the bank’s executives conveniently refuse to waive attorney-client privilege, the veracity of that statement cannot be independently confirmed.
There is something frighteningly Orwellian about a major U.S. company arguing that not a single individual can be held publicly accountable for a decision relating to the possible deliberate deception of its shareholders. Judge Jed S. Rakoff of the United States District Court for the Southern District of New York clearly understands the horror and has admirably demanded to know why the SEC hasn’t pursued charges against individual Bank of America executives. To his credit, Judge Rakoff understands and appreciates that decisions don’t emerge on their own; someone has to make them.
The implications of Bank of America’s defense are far reaching. It sends a strong signal to the bank’s rank-and-file, that they, too, shouldn’t feel any obligation to take any responsibility for their actions. Attorneys must review pretty much every activity Bank of America is involved in, and if the attorneys give their blessings, no need to exercise any independent judgment.
An Orwellian undercurrent can also be found in Bank of America’s executive announcements, which are so convoluted and laced with Newspeak that it’s impossible to tell what any executive actually does, let alone hold him or her responsible.
Case in point: Bank of America’s “Global Chief Strategy and Marketing Officer” Anne Finucane announced earlier this month that “Global Corporate Social Responsibility (CSR) Executive” Andrew Plepler “will take on the expanded role of Consumer Policy executive, responsible for working closely with the company’s core consumer business lines to better align and help govern policies and decisions consistent with the needs of the company’s external stakeholders.”
One might understandably infer from Ms. Finucane’s title that she is responsible for the bank’s “marketing” activities, but I note that the bank tapped her this week to explain to Rep. Edolphus Towns, D-N.Y., why the bank failed to comply with his request for documents relating to the Merrill merger. Unless Ms. Finucane hoped to sign up Rep. Towns for a credit card, her designation to deal with a highly political matter seems rather inappropriate.
One might also legitimately wonder why Ms. Finucane needs a subordinate to ensure that her strategy and marketing decisions are “consistent” with external stakeholder needs. Logic dictates that she would first make that determination before finalizing her marketing and strategy decisions. And for that matter, why would the needs of external stakeholders be inconsistent with prudent strategy and marketing policies? As a publicly traded company, Bank of America’s mandate is to yield a healthy return to shareholders; presumably all the bank’s strategy and marketing decisions are designed to achieve that goal.
There are some, including me, who would argue that Ken Lewis’ title clearly explains his role. As CEO, he should ultimately accept responsibility for every major decision Bank of America makes, including whether to withhold information from shareholders that some investors might deem pertinent. While Mr. Lewis no doubt relied on the counsel of staff and outside attorneys as to what the bank might legally be able to get away with, he undoubtedly was advised of all the legal risks. If he wasn’t, those responsible for keeping him in the dark should be held to account.
Bank of America defiantly claims that it only agreed to its $33 million settlement with the SEC regarding the Merrill disclosure issue so the company “would not face the unnecessary distraction” of a protracted dispute. As the dispute isn’t going away anytime soon, it is high time that Mr. Lewis step up to the plate and publicly accept responsibility for the escalating legal and PR debacle.
Jacob H. Zamansky is a principal in the firm Zamansky LLC, one of the leading plaintiff’s securities arbitration firms in the U.S. He is representing investors in a class action against Bank of America that is unrelated to its Merrill Lynch acquisition.