Bank of America Corp. CEO Hugh L. McColl has been known to hand out crystal hand grenades as mementos to associates who please him. But the scrappy former Marine had best be prepared to catch a few grenades of the verbal sort--they're likely to be lobbed his way at the bank's Apr. 25 shareholders' meeting in Charlotte, N.C.
McColl faces heavy criticism over his $50 million pay package--and allegations that he is stacking the board of the nation's largest bank with cronies who lack the knowhow to oversee $630 billion in assets. Pension fund CalPERS Inc., for one, has pledged to vote against reinstating the four board members on the compensation committee and another with business ties to the bank.
The circumstances surrounding the departure of board member Shirley Young, who leaves this month, are a likely lightning rod for controversy at the meeting. Young, a former General Motors Corp. vice-president who is also on the Bell Atlantic Corp. board, has been critical of both the board's governance and McColl's pay, sources familiar with the situation say. The bank contends that Young was automatically dropped from the board in January after retiring in December, following a bank rule that requires board members to step down if they leave their principal occupation.
But well-placed sources say that Young was forced out. They say she spoke with Charles W. Coker--the head of the board's nominating committee--in December and refused to give up her seat after concluding that the board policy handbook contained no such rule. Then, in mid-January, Young sent a letter to Coker expressing her interest in continuing on the board. Nonetheless, insiders say, she wasn't sent materials about the January board meeting because administrative staff had been told she had resigned. "Under the policies of the board, Young was required to submit her resignation," Bank of America spokesman Robert Stickler says, citing three former directors who left for that reason. The bank would not provide a copy of the board policy handbook or fax an excerpt of the page containing that policy.
At least one former NationsBank director who has changed careers in recent years remains on the board. Paul Fulton, a director since 1993, stepped down as dean of the University of North Carolina's Kenan-Flagler Business School and became chief executive of Bassett Furniture Industries Inc. in August, 1997, according to the bank's proxy. Stickler says that Fulton tendered his resignation then, but that the board declined to accept it.
SERIOUS QUESTIONS. In any event, Young appeared at the bank's January board meeting and spoke for several minutes about corporate governance. Her remarks, which suggested the bank conduct a study of its internal governance and contrast it with practices at other corporations, weren't mentioned in the meeting's draft minutes that were sent to each board member.
But in a Mar. 20 letter to McColl, obtained by Business Week, Young wrote to express her displeasure: "Dear Hugh: It seems appropriate that the minutes include a summary statement of my remarks: Young urged the board to initiate an examination of best practices in corporate governance, with the goal of making BOA, as the leading bank in the U.S., a leader in corporate governance." A final version of the minutes approved by board members at the Mar. 22 meeting contains a mention of Young's remarks, Stickler says.
Critics say the circumstances of Young's departure are indicative of McColl's management style--and the need for less biased oversight at the bank, formed in a 1998 merger with NationsBank. Young is one of three board members leaving this month who do not have ties to McColl: The others are former Bank of America chief executive Richard Rosenberg and former NestleUSA chief executive Timm Crull. In their place, the bank has nominated Frank Dowd IV, chief executive of a local pipe company and son of a former NationsBank board member, according to its Mar. 20 proxy. "Several actions raise serious questions about the corporate governance by the company's board of directors," says Second Curve Capital founder Tom Brown in a recent report.
In addition to questioning lavish pay packages, critics doubt the quality of the information provided the board. For example, only the four members of Bank of America's audit committee are allowed to view the bank's quarterly financials before they are made public, though most public companies let all directors see them.
Big layoffs since the 1998 merger have also created waves: The elimination of 12,000 jobs--roughly twice the number projected--coupled with McColl's pay package prompted CalPERS' decision to act at the next shareholder meeting, says CalPERS spokesman Brad Pacheco.
The bank claims the quality of its corporate governance is assured by the U.S. government. "As a bank holding company, we are highly regulated by the Federal Reserve and the Office of the Comptroller of the Currency," says Stickler.
Since the merger, controversy has stuck to McColl like flypaper. He forced out former BankAmerica Chief Executive David Coulter, despite promises that Coulter would eventually be chief executive. Plum jobs went to NationsBank executives, although the combination was billed as a merger of equals. And the bank ranked #10 this year on Business Week's "Worst Boards" list this year.
So far McColl has operated almost without challenge. But with the departure of the highly respected Young, McColl may finally have to answer to his critics.