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On Director Courage
Here is what the Bank of American board might have said to Henry Paulson: ‘You can have our CEO when you pry him from our cold dead hands.’


Director courage is a compelling concept in theory. One of its most thoughtful and articulate proponents is William Bowen. “By far the most important attributes of a director/trustee are courage and the will to act,” writes this veteran of 14 profit and nonprofit boards in “The Board Book: An Insider’s Guide for Directors and Trustees,” published last year. Bowen is a former president of Princeton University and of the Andrew W. Mellon Foundation, where he is now president emeritus.

But how often, really, do boards face a situation where all the marbles are on the line? When director courage moves from best-practice theory to do-or-die reality?

It seems to me that the Bank of America directors may have been in just this position when their CEO, Ken Lewis, went toe-to-toe with then-Treasury Secretary Henry Paulson over pulling the plug on the Merrill Lynch acquisition.

I emphasize “may.” In all the coverage of this exchange between Lewis and Paulson (and Fed Chairman Ben Bernanke as well), we are subject to “he said, he said” recounts, imprecise memories of what was said, diverging interpretations of the meaning of what was said, and other infirmities in reconstructing the exact nature of their discourse at a crucial moment in time.

This much seems indisputable: Lewis concluded the Merrill acquisition would be a poisoned chalice, putting his company and shareholders in grave jeopardy; Paulson, in turn, driven by a notion of national economic security, threatened to oust Lewis if BofA did not go through with the deal.

So let’s play out one imaginary scenario of director courage. Assuming that Lewis fully briefed the board of Paulson’s threat, the BofA directors are rightly outraged at this “old-fashioned Brooklyn shakedown,” as Rep. Edolphus Towns, chairman of the House Committee on Oversight and Government Reform, called it in the panel’s Paulson hearings last month. The bank directors see the horror that will be wreaked upon the company’s financial soundness and shareholders’ investment by taking on Merrill’s toxic black hole. They send a clear message to Paulson — you can have our CEO when you pry him from our cold dead hands.

Perhaps the board, en masse, goes to Washington to deliver this message directly to “Government Sachs” Paulson. (You may have noted that Jamie Dimon just took the JPMorgan board to Washington in July for a first-time board meeting in the nation’s capital.)

Again, this is a purely speculative scenario. There are missing pieces. A big piece left out is the fragile nature of the financial markets at this negotiating moment. Would the economy have cratered if Merrill were cut loose as the diseased limb it appeared to be? That’s a speculative leap as well.

The point is this: If the board trusted their CEO’s instincts, and felt that he was the best man to lead the company in a time of extreme duress, then it was their duty, as the wise Bill Bowen believes, to summon up a kind of courage rarely activated in one’s oversight role.

Better to go out in a blaze of governance glory defending your CEO, your company, and your shareholders than to be kicked to the curb like yesterday’s trash, which is what is happening now to the BofA directors, thanks to the bank’s government overseers.

As always, I welcome your comments. If you’d like a copy of the cover story Ken Lewis authored for Directors & Boards in which he illuminated the characteristics of a strong board, email me at jkristie@directorsandboards.com.

Jim Kristie is the editor and associate publisher of  Directors & Boards.

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Editor's note:  Each month, we ask a Directors & Boards reader to comment on critical issues facing directors today.  If you'd like to participate in this section in the future, please email Scott Chase. 

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• Companies acquiring within their own country borders outperformed the market by 7.7%, whereas acquisitions across borders only outperformed by 4%.
• Deal makers in financial services performed only 0.4% better than the global market, yet outperformed their peer group by 14%.
• Health care was the best-performing industry, with a 13.8% better return.  The technology sector outperformed by 9.3%, and energy by 7.3%.

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