Which CEOs Should Be Fired?

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Permalink Reply by Tom Burke on February 26, 2009 at 8:29am

Chris Dodd and Barney Frank first. It was on their watch that the financial system tanked. Doesn't matter what you think of them personally or politically. They and their committees failed miserably, and they have to go.

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Permalink Reply by John Tonetti on February 26, 2009 at 9:40am

Dodd and Frank are elected officials, who for some reason seem to keep getting re-elected. Of course, Frank is from the great Commonwealth of Massachusetts, who baffle me by re-electing both Kennedy and Kerry. Speaking of Kerry, he is now advocating that the Secretary of the Treasury review promotions and sponsorships by any institution taking TARP funds. The next step is telling TARP recipients they can no longer market, ensuring their eventual demise. WRT CEO's that need to be fired, I'm not sure Lewis is totally at fault. From what I've read, he got his arm twisted to take TARP funds and to absorb Merrill.

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Permalink Reply by Tom Burke on February 26, 2009 at 10:16am

John,
Yeah, of course those guys are elected officials who can only be "fired" by voters. But they should not be allowed anywhere near the financial system and really ought to be the first to go. I think that the impetus for removing them from their current positions would have to come from Reid and Pelosi. I know neither will happen - either election of someone else or an internal dismissal by the "leadership" from their respective committees. Hey, I'm from the illustrious Commonwealth of Massachusetts too.

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Permalink Reply by Carl Selmasska on February 26, 2009 at 9:37am

Mr. Hornblass,
Your question needs to be directed toward another group. Please sir, are you not at all familiar with Fanny and Freddie? Does the Community Reinvestment Act sound at all familiar? Do the coordinated efforts of President Clinton and his Justice Department meddling in the mortgage markets and threatening lending institutions with the power of the Federal Government strike a familiar note? Does the fact that Senator Dodd used the power of his position to acquire access to funds that no one else could possibly access not only disappoint you but also frighten you? Risk assessment represents the "front lines" in our capitalist system. Those "front lines" were breached by people who have no interest in our capitalist system but only the desire to enhance their own power. I hope that you would try to remind your readers of this.
Carl Selmasska

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Permalink Reply by JJ Hornblass on February 26, 2009 at 10:19am

Carl/Tom/John, thanks for your posts.

Let me understand your positions, though. You don't think any bank executive bears any responsibility for the demise of any bank? Come on! There's a reason the CEOs of Fannie and Freddie have tee times today. How can we assign all the blame to people and groups outside of the actual banks?

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Permalink Reply by Tom Burke on February 26, 2009 at 10:54am

Point well taken, JJ. I was just venting because all roads lead back to Fannie/Freddie and the CRA. The WSJ had an interesting proposal a couple of days ago about Citi. It was to fire the whole management team, install a new one, and give it the specific mandate to work off the bad assets and break itself up into enough small parts that are each not too big to fail.

So yes, let's start with Citicorp. Throw them out. How many times has that nine-headed hydra cost the taxpayers big money, anyway? As for the point about Lewis's having been pressured to buy Merrill, it's plausible. Let's suspend judgment on him until we subpoena the tapes and hear what kind of pressure was brought to bear, and by whom. If he won't come clean about it, that alone is grounds for dismissal.

Back to Citicorp - those of a certain age might remember Walter Wriston, fabled generalissimo of Citi. I was just starting to pay attention to business in those days. I seem to recall that the press of that period was a worshipful, slobbering chorus of sycophants trailing Walter around and lapping up his every word. One of his pronouncements was "Countries don't default" or something to that effect. Brilliant, Walter.

What the point? Well, whoever ventures an opinion or asks pointed questions of or about the multimillionaire executives who have screwed up so badly should not be in the least deferential or overimpressed by them. The media has a share of the blame here for its lack of skepticism during the "good" times that weren't so good after all.

So let's hope that, as we opine about who should be fired, we have people in the press asking the tough questions and not accepting as answers the pablum like Mr. Lewis's memo on his in-house stress tests.

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Permalink Reply by Michael Bina on February 26, 2009 at 10:10am

Heads should roll, but who'll be the Executioner? YOU? Me? Geithner? B FRANK? (I know "people" who would gladly volunteer for the role!)

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Permalink Reply by JJ Hornblass on February 26, 2009 at 10:21am

The best people for the job are those that sit on the bank corporate boards. That's kind of what they do. Or what they are supposed to do.

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Permalink Reply by JJ Hornblass on February 26, 2009 at 11:02am

Fully agree!!!!

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Permalink Reply by Dan Skowronek on February 26, 2009 at 1:06pm

There has to be personal culpability. Core banking services are not rocket science, the fundamentals of risk assessment and lending/borrowing arbitrage are well understood. They didn't get the 3-5-3 rep for nothing, borrow at 3, lend at 5, on the golf course by 3.

The C-level and First Tier Below Executives understood that the markets could not go up forever, and if they didn't, then they weren't worthy of their jobs in the first place. Instead, they allowed low to no doc loans to proliferate and managed on a 12 month horizon. Other than the boards and the CEOs, who else would possibly be expected to watch out for the long term in these banks? Just because the posted speed limit is 75, the driver is the one responsible for identifying the heavy fog and icy conditions make it prudent to drive slower.

So here is what I would do, (for the truly troubled TARP banks), I would start by firing the CEO's and all the top 20 execs covered under the pay limitations imposed by the TARP. I would go further, and ban them from taking an equivalent leadership role in any other TARP funded institution for a period of 5 years, because they have clearly shown a propesity for moral hazard. There are lots of conservative, talented bankers at smaller solvent institutions who would be quite capable of stepping into the vacated roles.

Then, (once again for the truly troubled TARP banks), I would put the entire board slate up for re-election and I would publish the last 5 years of board and committee minutes and any recorded meetings so that investors could sort out which Directors were yelling fire, which were rubber stamps, and which were fanning the flames.

Accountability, like running a bank, is not rocket science. It might be painful for the group described above, but how much pain, and how many sleepless nights, have they inflicted on a much wider population through their careless go-along-to-get-along attitudes. Have they shown true leadership? No, they have shown the exact opposite and they should have to own up for their collective failures.

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Permalink Reply by JJ Hornblass on February 26, 2009 at 1:52pm

Other than the boards and the CEOs, who else would possibly be expected to watch out for the long term in these banks? Just because the posted speed limit is 75, the driver is the one responsible for identifying the heavy fog and icy conditions that make it prudent to drive slower.

Exactly, Dan! Thank you!

Dan, on your next point I am with you -- to a degree. Not every bank in the Group of 20 is equal. Some banks within the group are far removed from the residential mortgage market, and it is not true that each treated risk as if it were a stress ball that can be stretched in any which way.

However, for those banks that did, your formula is sound. I simply do not understand why it hasn't happened yet. I distinctly remember a time when CEOs were fired for the poor performance of their company, plain and simple. When did Corporate America dismiss this standard?

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Permalink Reply by Dan Skowronek on February 26, 2009 at 2:12pm

Thanks

My reference was not to the group of 20, but the 20 top execs at each of the critical condition TARP covered banks. Someone a little more sophisticated than me would be a better candidate for identifying the most troubled. Going down the org chart is admittedly broad brush, but I think it is needed to shock the industry to return to acting like bank stewards instead of skid row gamblers.

As to why it hasn't happened, there seems to be a general rule of thumb that accountability is inversely proportional to elevation of title. And the people most responsible enacting such actions often share in the blame and are worried that the action would boomerang back upon themselves. The self serving rule the boards and the huge investment funds, and they will continue to protect their own, and look down the chain for scapegoats. The slippery slope has been long. In anything close to a rational market, "would we really believe that any one individual in an organization was worth 300-500X the average salary????" Maybe their would be the occasional visionary that would be an outlier that would justify the compensation, but across the majority of theFortune 1000, that would be preposterous.

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