Is The US Government Pressuring Bank Of America To Revamp Its Board?

The federal regulators have advised Bank of America Corp. (BAC) to revamp its board of directors, according to a report published in the Wall Street Journal Friday morning.

Per the report, the government officials also suggested that independent directors lead a reshuffling of the board, and that the board “needed more members with banking experience.”

There is no doubt that the board was negligent in carrying out its duties while the bank continued to make risky bets, which ultimately resulted in its bailouts by the government. And we believe that there is a pressing need to revamp the Corporate Governance practices at the banks.

But the question is, can the government create pressure for changes at the board level of a private company? Is that not the prerogative of the company’s shareholders?

Bank of America shareholders voted in late April to oust Ken Lewis as chairman of the board, but they voted to keep him as the CEO as well as the rest of the board.

Though the government has invested $45 billion in BAC, the investment is in the form of preferred shares which do not carry voting rights. Further, most of its current woes stem from its acquisition of Merrill Lynch, reportedly on the government’s behest.

According to testimony by Ken Lewis to the New York Attorney General, he was pressured by Fed Chairman Bernanke and former Treasury Secretary Paulson to not disclose the huge losses at Merrill Lynch and not invoke the material adverse change clause in the agreement in order to get out of the deal.

The government had adopted a different strategy in bailouts of General Motors (GM), Freddie Mac (FRE) and Fannie Mae (FNM) when the CEOs were ousted following the bailouts. However, in the case of banks, the CEOs were allowed to remain in office.

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