Thompson out as Wachovia chairman
He remains as top executive but loses top board position
RICK ROTHACKER
Ken Thompson
On a mixed day for financial stocks, Wachovia Corp. shares climbed this morning, a day after chief executive Ken Thompson lost his chairman title.
The Charlotte bank said Thursday that lead independent director Lanty Smith had assumed the post, creating a separation of power favored by corporate governance advocates. Thompson, who remains CEO, has been under fire for the bank's stock slide and a litany of missteps in recent weeks.
The bank's shares climbed 46 cents, or 1.65 percent, to $28.29.
Some analysts today saw the move as a clear rebuke to Thompson, who has led the nation's No. 4 bank by assets since 2000. Gary Townsend, a former bank analyst who has launched a Maryland-based investment firm, said he supported a move that clearly puts the board back in control of the company.
"This has to be a big blow personally to Ken as it would be for anyone," Townsend said. "The change is very important because it says to me that Ken knows that his future depends on his ability to put an end to all of the series of negative events he's seen and very quickly address the underlying issues with controls that management faces."
Analyst Dick Bove of Ladenburg Thalman & Co., however, said the move was an affront to shareholders. He's taken issue with a statement by Smith that seemed to imply that shareholders should have expected the company to cut its dividend last month, despite comments by management to the contrary.
"I think the company is proving that shareholders have no say, no ownership of this company, that the board and management will do whatever it chooses and is completely oblivious to anything its shareholders might want or need in the organization," Bove said.
In a research note, Sandler O'Neill + Partners analyst Kevin Fitzsimmons said the move might provide "incremental relief" to investors worried about the company's direction.
"We suspect the move represents the board of directors' ultimately reaching the decision that it had to do something in response to (Wachovia's) multiple challenges and likely increasing calls from investors to take a more active and independent role in guiding the company," Fitzsimmons wrote. "Freeing up Mr. Thompson to focus on the most troubled areas at this point is probably a net positive as well, given that he spent the early part of his tenure as CEO fixing a troubled institution (predecessor First Union)."
In a statement Thursday, Thompson, 57, said giving up the chairman post frees him to "focus 100 percent of my time and attention on guiding the company through the current environment." The decision was made by the board at a meeting Thursday, spokeswoman Christy Phillips-Brown said.
Asked whether the change was Thompson's idea, Phillips-Brown said the decision was made by the full board, of which he is a member. Asked about the timing, she said separating the two positions "is the right structure for the company at this time." No changes have been made to compensation, she said.
The change elevates a director who has stood behind Thompson in recent weeks - and who has also faced criticism himself. The shift comes at a critical time for Thompson, who is also a fixture on the Charlotte civic scene.
At last month's shareholder meeting, he faced calls to resign, largely over the bank's ill-timed acquisition of mortgage specialist Golden West Financial in 2006. Since then, the bank has disclosed additional missteps, including a regulatory settlement for its ties to telemarketers. On Tuesday, the bank said its first-quarter loss had nearly doubled.
Thompson, who also holds the title of president, joins other bank CEOs to come under pressure during a credit crunch spurred by the nation's mortgage mess. At the extreme, counterparts at Citigroup and Merrill Lynch have lost their jobs.
Smith has said in recent weeks that Thompson has the board's full backing. The bank said neither was available for comment Thursday.
In his role as lead independent director, Smith assisted the chairman, approved meeting agendas, served as a liaison between independent directors and ran any meetings in which the chairman wasn't present. Now, as non-executive chairman, he will be in charge of all board matters and preside over its meetings.
Smith has served on the board since 1987, taking the lead director spot in 2000. He is also chairman and CEO of a Raleigh merchant bank. While Thompson has absorbed most of the heat during the bank's recent travails, Smith also has come under attack.
John Moore, an activist shareholder in Charlotte who has long advocated for a CEO/chairman split, on Thursday said he was delighted by Wachovia's decision. But Smith wasn't his first choice for the job.
"He's closely tied to Mr. Thompson, and does not represent a truly independent voice," Moore said.
Activists had called on the bank as recently as last year to divide the chairman and CEO roles, but management opposed the change and shareholders voted down the proposals. Shareholders at Charlotte-based Bank of America rejected such a split this year; the bank has a lead director.
Virginia-based bank consultant Bert Ely said Wachovia's move is not surprising because governance advocates have been pushing public companies to make the change. But he added: "The one thing I wonder about is to what extent it's partly due to the losses Wachovia has taken and concerns about its risk management."
In particular, he said investors are troubled by Tuesday's disclosure that the bank's first-quarter loss had jumped to $708 million because of writedowns related to insurance investments. The bank may disclose more on that issue in a filing today.
Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware, said that separating the CEO and chairman positions has become more popular in the past year, and that it's a good move for a company that's facing shareholder ire.
"When a company is going through severe problems and there is a crisis of confidence in the management, it makes sense," Elson said. "You want the board to be as effective a monitor as possible. Having the board chaired by the individual being monitored doesn't make a whole lot of sense."
Smith's changing of posts could be "totally cosmetic" or a real change that gives him a bigger role in devising bank strategy, said Paul Hodgson of The Corporate Library, a corporate governance research firm. He said the change didn't necessarily weaken Thompson's position at the company, but does allow him to share more blame.
Thompson, a company lifer, has served as CEO without being chairman in the past. He became CEO of predecessor First Union in April 2000 but mentor Ed Crutchfield held onto the post of chairman until March 2001. Bud Baker also served a stint as chairman after First Union merged with Baker's Wachovia later in 2001.
Wachovia's turbulent times
• April 14: Bank announces first-quarter loss, dividend cut, plans to raise $8 billion in capital and 500 layoffs.
• April 22: CEO Ken Thompson faces calls to resign at shareholder meeting.
• April 25: Bank announces settlement with federal regulators that could total $144 million in restitution and other penalties over its relationship with third-party telemarketers.
• April 26: Wall Street Journal reports federal prosecutors are looking at the bank as part of a broader probe of alleged money-laundering by Mexican and Colombian money-transfer companies.
• April 30: Bank says it will take a charge of up to $1 billion in the second quarter because of a court ruling involving leasing transactions.
• Tuesday: Bank revises first-quarter earnings, nearly doubling the loss to $708 million because of a writedown related to its life insurance portfolio.
• Thursday: Bank splits chairman and CEO positions.
Staff Writer Christina Rexrode contributed
