Bank of America shook up its executive ranks in what the firm euphemistically calls "de-layering." This meaningless bit of corporate jargon - de-layering - is wonderfully ridiculous and has been woefully underused in press releases. So I'm coining a better, newer, just as meaningless but more easily grasped term in the headline: executive-level exfoliation.
Please make sure it catches on.
But back to the news. The gist of today's developments centers around not the newly exfoliated executives, but on Brian Moynihan - the CEO of Bank of America, who, if not yet officially "embattled," certainly should be by now.
Moynihan has neatly rid himself of his two main rivals, brokerage chief Sallie Krawcheck and chief financial officer Joe Price. He is installing two chief-operating officers, David Darnell for the consumer businesses and Thomas Montag for the businesses that serve companies and big institutions.
Surprises? There are none here except the timing. (Let's call it the Labor Day Massacre).
Krawcheck is one of Wall Street's smartest and most popular charmers - and thus a perpetual sacrificial maiden and risk to the CEOs above her, particularly in their tender and insecure first years. Vikram Pandit, the CEO of Citigroup, also dispatched with Krawcheck in a manner not unlike Moynihan's. As John Carney correctly pointed out, she seemed to be doing well in her job of integrating Bank of America's wealth-management operations, which includes the firm's Merrill Lynch financial advisors.
Moynihan is dealing with much bigger and uglier issues - the raft of mortgage lawsuits aimed at the bank, its inability to prove to most people's satisfaction that its balance sheet has strength, its flagging reputation that needed $5 billion worth of shoring up from Warren Buffett.
How Moynihan responds to those problems comes down to palace intrigue, yes. But these courtiers control one of the nation's biggest banks - and one that we shouldn't have to bail out again - so it matters.
So, with all that on Moynihan's plate, it may seem a wise time, politically, to impose yet another reorganization of executives, right?
Not so fast. On Wall Street, any reorganization at a bank is usually disparagingly greeted by demoralized bankers with the same phrase: "shifting the deck chairs on the Titanic."
Moynihan is going one step further: only two weeks after the markets threatened to sink his entire firm, he's leaving himself without a lifeboat.
Most embattled CEOs fire their No. 2s and potential successors. Then they consolidate their power by forcing a new line of executives to report to them.
Moynihan is actually doing the opposite: the Ivory Tower approach. He is shuffling off (okay: exfoliating) the layer of people who report directly to him, and reducing that to only two people. Nor is it the first time he's done it: last year, Moynihan disposed of Greg Curl, another executive who was Moynihan's rival for the CEO job. It can't be lost on Moynihan that he was the very last choice for the CEO job at Bank of America, and only got it because every single one of the first -and second, and third - choices for the job turned it down.
In 2010, Moynihan promised to bring in his own people into major executive positions. That may lead cynics to believe that Moynihan -despite years of tenure - doesn't actually have "people" at Bank of America.
If Wall Street politics and palace intrigue work out the way they have in the past - and they probably will - this actually puts Moynihan at more risk. He has already battled a reputation as a "rookie," in the words of former CEO Ken Lewis - or, in less-kind terms, a lightweight.
By having fewer direct reports, Moynihan won't know firsthand what's going on in the bank. He will have even less grasp of the substance of his banking businesses.
While this may protect him from liability to an extent - because he can plead ignorance - it certainly won't protect him from losing his job. A determined board of directors would have no trouble moving an executive like Krawcheck or mortgage chief Barbara Desoer up two spots instead of one. In other words: kicking Krawcheck and Price out of the building won't protect Moynihan's job. What will protect Moynihan's job is....being really good at doing his job.
Less politics and more performance is always a good place for an insecure executive to start.
Moynihan has now made it really hard for himself to improve his performance. With this "de-layering," he's officially in rear-covering mode.
Under the new exfoliation, Moynihan will be getting all his information about major businesses through a narrow filter of only two executives: David Darnell in the consumer businesses, and Thomas Montag in the businesses that serve major institutions and companies. Moynihan has created a situation where he'll get all his news about his own bank's operations second-hand. This means that he is even less likely now to have his finger on the pulse of a business that has already sprawled beyond any human being's observable attention span.
While these executives seem to get along with Moynihan pretty well (we should hope) they are both not considered plausible successors. Neither of them has any particular loyalty to Moynihan. Darnell is a Bank of America veteran, with a history going back to 1979, and has survived dozens of executive reorganizations. Montag came up through Goldman Sachs with a healthy amount of skepticism about commercial banking. They are pragmatic survivors and it's hard to picture either man weighed down by sentiment about Moynihan's chances to keep his job.
Even with the specific players aside, Moynihan is setting down a dangerous path. The Ivory Tower approach is responsible for most of the major bank disasters of our time. Stan O'Neal, the chief executive of Merrill Lynch, got all of his information from a closed, protective circle of executives. They were afraid to tell him how much the bank was losing on mortgage-backed securities.
Dick Fuld, at Lehman Brothers, was an infamous micromanager who had a thorough understanding of the bank's businesses -- until he stepped aside and handed sole responsibility to Joseph Gregory. Many Lehman insiders attribute the ugly last days of Lehman Brothers to Gregory being overwhelmed by the new responsibilities and ineffective in communicating them. Fuld stood by Gregory to the end, but by then Lehman's problems had started to pile up dangerously and were too complex to sort out.
Jimmy Cayne, the former chairman of Bear Stearns, fired his No. 2, Warren Spector, in a fit of pique. This turned out to be an enormous mistake, because Spector had for years been the only person running Bear Stearns' markets businesses - which were, in turn, the bulk of Bear Stearns' profitability. All the information about those businesses went through Spector - another well-known micromanager - and only then up to Cayne himself. With no one to replace Spector as the housing crisis deepened in 2007 and 2008, Bear Stearns lacked a map into its own mortgage-trading and hedge-fund businesses. Cayne couldn't reliably assure the markets that his firm was well-capitalized and that it could survive..
The lesson is clear: Wall Street executives run image risks if they are evil, incompetent or greedy. But they run even greater risks - including legal ones - if they are out of touch with the substance of their own businesses.
Moynihan may be taking a big chance by putting someone between him and Barbara Desoer in particular. Desoer, the widely-admired mortgage chief, was put in charge of the near-impossible task of cleaning up Countrywide. With so many lawsuits aimed at that business, Moynihan may buy himself some time by potentially blaming the fallout on Desoer. But if he does, he also risks looking like a weak and uninformed chief executive who failed to keep tabs on a major crisis.
Even worse, he risks bringing on another major crisis. Bank of America is known for its infamous failures to communicate, particularly during the dark days of the winter of 2008 when the bank issued notice after notice that its losses from Merrill Lynch mortgage-backed securities were metastasizing. Bank of America's lack of frankness led the bank to lose nearly $20 billion of value in two trading days, as the markets correctly suspected that the bank was not being completely forthright and was not fully aware of its own problems. Bank of America dealt with this primarily by scrubbing out (okay: exfoliating) the entire month of December.
The real effect of this executive exfoliation, however, is to wipe the branding and the logo of Bank of America and show the real name peeking underneath: FleetBoston Financial.
Bank of America bought FleetBoston in 2004. The struggling Northeastern bank had waded into trouble through bad commercial loans and ill-thought-out bets overseas. After a few years of quiet, FleetBoston's executives like Chad Gifford came to dominate Bank of America's board - and exert their traditionally strict Yankee culture. Moynihan, of course, came up through Fleet and the support of the former Fleet executives on Bank of America's board is what helped Moynihan clinched a job he might otherwise have lost because he was too green.
So if Moynihan is worried enough about his job to push this "de-layering," what that really means is that Moynihan is worried about the strength of his support from his former Fleet bosses.
BONUS: The More You Know....
For those who are truly interested in the concept of "de-layering," (scorned well by John McDermott at Alphaville here), "delayering" appears to have been coined - or at least popularized - in a 2003 article in the Journal of Management Studies. However, according to the Economist, de-layering was originally meant to describe the reduction from the top-heavy organizational charts of the 1950s to more streamlined management teams of about 5 layers or so. It's questionable whether such a term can be applied when Moynihan is actually adding another layer of management - the COO layer - and pushing previous management down one notch.