It was quite a day for CEOs of major US companies yesterday.
GM's former CFO, then CEO, Fritz Henderson, became a GM ex-CEO. Meanwhile, in yesterday's edition of the Wall Street Journal, it was reported that BofA's board is having trouble finding a replacement for outgoing CEO Ken Lewis, because several candidates advise shedding some businesses, in order to make the unwieldy bank easier to manage and perhaps, one day, even lead to outperform equity markets.
Of course, as the Journal article related, the board is vehemently agains any such action.Nevermind the reality of the nearby, five-year price chart for Chase, Wells Fargo, BofA and Citigroup, and the S&P500 Index.
Three of the four banks couldn't beat the index, and Chase only barely manged to outperform in the final months of the 60-month period.
Which means, of course, that the quote in the Journal article ascribed to BofA spokesman Robert Stickler, is completely wrongheaded and misinformed,
"Part of the point of diversity is when a certain part of your engine is not going at full speed you have another part that is."
Either Stickler needs to be fired, or the board member(s) holding this misguided view need to be replaced.
That chart, though seemingly anecdotal, actually supports and reinforces the conclusions of my research into this matter when I was Director of Research at Oliver, Wyman & Co., now the financial services consulting unit of Mercer Management Consulting.
After quantitatively analyzing the total return performance of several hundred financial service institutions over several decades, I discovered that, with perhaps one lone exception, no diversified financial entity was ever able to exhibit consistently superior total return performance to an index of financial service firms.
Rather than have one business take up the slack for others in a diversified financial company's portfolio, in fact, such a company hits every single credit and trading disaster pothole that comes along. Some business is always dragging down the rest, resulting in continual subpar total return performance.
It's unfortunate that BofA's board is so delusional in how to move forward and reward shareholders for the risk of owning the firm's equity.
Then we come to GM.
As bad as Henderson was, how much worse will Ed Whitacre be as the custodial CEO?
Henderson was the CFO of the long-ailing auto maker, and, as such, I think clearly shared in the failure that ex-CEO Rick Wagoner had wrought.
But at least Henderson actually was acquainted with the business.
Ed Whitacre was a phone guy. He ran a regional phone company whose major business influence was government regulation. I worked for ATT back when it was a monolithic communications giant, so I know something about this topic.
Whitacre's SBC never really had the customer as its major focus. It was, during the past few decades, government regulation. Especially in the aftermath of the Bell System breakup, whereby, after many years of uncertain competition, under shifting rules, the old ATT finally succumbed to bad management and an outdated culture, selling what was left of itself to a regional offspring, SBC.
What Whitacre would know about competing in the auto industry ought to scare everyone, both private shareholders and all of the rest of us taxpayers, as public shareholders.
Sure, Whitacre is supposed to be an interim CEO. There's supposed to be a search for a new one.
What qualified candidate for the job would want it now? They're going to have the federal government and Whitacre looking over their shoulder, while they are handed the worst US auto maker of the bunch.
Good luck with that.
Instead, we're all saddled with a badly-run remnant of a car company now being run by a guy whose lifelong business experience is in the old telephone industry.
If this weren't about so much taxpayer money, this tragedy would be comical.
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