Management changeovers are testing situations at the best of times. But in the middle of a full-blown financial crisis, they can have wider repercussions than just ruffling the feathers of those vying for the top jobs.
A recent survey of commercial banking customers shows that the largest two banks, Bank of America and Citigroup, took the biggest hits in ratings when it comes to delivering customer satisfaction. It's impossible not to notice that these are also the two banks whose stock prices are languishing most among their peers right now.
Since January, while most big banks such as Morgan Stanley and Goldman Sachs have raised their capitalizations by at least a half, Citi and Bank of America have declined in value. What's more, the two banks' cash requirements comprised half of the $74 billion capital needs regulators told banks to raise after the first quarter stress tests.
It makes you wonder: is there something more systemic to this pile-up of problems? It seems a little coincidental that Bank of America and Citigroup happen to be at the top of another list this year: namely, big banks with most chaotic management issues.
In April, shareholders heckled the five departing members of Citi's board at the bank's annual general meeting. "Thank God you've gone!" one man shouted among the chorus of grievances, according to the New York Post. There was scant support for the four new directors, who were put in place after shareholders saw their savings in the bank's shares collapse some 90% last year.
And Bank of America's management calamities are so well known by now they barely need mentioning. Chairman and chief executive Ken Lewis was recently ousted from the top spot after the bank's board voted 50.3 percent to 49.7 percent to split the two jobs. With no direct banking experience, the replacement chairman, Lewis-appointed board member Walter Massey, has about as much support in the role as did his predecessor.
In the customer services survey cited above, Wells Fargo fared some of the best. But that success has failed to translate into any kind of capital gains: the stock is still slumping for the year after a brief rally on the back of Warren Buffett's endorsement for the firm. Although the management changeovers weren't calamitous, it's worth remembering that Wells Fargo too underwent some shifting around of its top dogs when it merged with Wachovia late last year.
Goldman Sachs, by contrast, has remained as true as possible to its original team and culture.
Curiously, one potential side-effect of the observation that retaining top management induces stability at big firms is that some may be tempted to hold on for too long to those who shouldn't be there at all just to keep things smooth. That was one of the criticisms with retaining Ken Lewis' services at Bank of America, who many view as responsible for the bulk of the bank's problems.
Of course, management is far from the only metric that matters in weathering the crisis intact -- and with a solid public image. But it seems that it really helps if you can make any necessary changes with as quiet an announcement as possible.