Another bank, another failure of the board.
New York Community Bancorp (NYSE:) became the latest commercial bank on the brink of bankruptcy last week to be pulled back from the cliff by a last-ditch lifeline. The latest bailout comes in the form of a $1 billion capital injection from a group of investors led by former U.S. Treasury Secretary Steve Mnuchin. But in a sweeping indictment of the New York Central Bank board, this investment is fraught with pitfalls. Seven of the 12 current board members will have to resign.
I'll admit there's always a fair amount of Monday morning quarterbacking in situations like this, but in the case of the NYCB board, Mnuchin is right. This board (or at least a majority) needed to step down for the bank to have any chance of survival.
U.S. bank boards are unique compared to typical corporate boards, or at least they should be. The U.S. banking industry is one of the most complex and highly regulated industries in the world, requiring independent board members with deep industry expertise. And unlike Silicon Valley Bank, which infamously failed last year, NYCB, to its credit, had veteran financial executives on its board with deep experience in the banking industry.
So where exactly did the NYCB board go wrong? Experts say the bank's acquisition of failed regional bank Signature Valley Bank last year hurt its balance sheet, which was marred by heavy exposure to commercial real estate loans. I'm not a banking expert, so I can't comment on the soundness of these tactical decisions. But from a corporate governance perspective, the board's actions last month certainly support the position that it is part of the problem rather than the solution.
February 7thth, NYCB announced that Alessandro Dinero, former CEO and director of Flagstar Bank, which was acquired by NYCB in 2022, will assume the new role of Executive Chairman of the bank. The announcement came after the bank slashed its dividend and reported a quarterly net loss of more than $250 million.
A week later, in a somewhat bizarre effort to clarify the confusion, NYCB announced that Dinero would actually become the company's “most senior executive” and that CEO Thomas Cangemi would report to him. Do you still have confidence in NYCB's board of directors? The same goes for board members Tuan Huynh and Hanif Dahiya, who both resigned shortly thereafter.
Last week, NYCB announced that it actually lost more than $2.7 billion in the fourth quarter and that management had discovered “material weaknesses in the company's internal controls.” As part of that announcement, the board announced that Mr. Cangemi would resign with immediate effect and that Mr. Dinero would replace him. While this is certainly not unusual in the wake of bad economic news, what was unusual was the bank's decision to allow Kangemi to remain on the board.
In what world would a management team with significant underperformance be given a seat on the board?
Consider the recent examples of John Foley of Peloton, Steve Randell of VF (NYSE:) Corporation, and Roger Hochschild of Discover Financial. They were all immediately removed as CEOs. and Appointed as a member of the board of directors following disclosure of financial problems.
Allowing Mr. Cangemi to remain on the NYCB board is clear evidence that the board is either unaware of its own reality or simply unwilling to admit that they are part of the problem. be. In any case, it is clear that the board at the helm of NYCB was dysfunctional.
The very public and embarrassing behavior at NYCB over the past month should emphasize to boards that talent alone is not enough for boards to meet the challenges they may face on the board. there is. During the director recruitment process, it is important to understand the additional skill sets, personality traits, and experience a director brings to the board.
Have they ever been involved in a corporate fiasco? How do they approach conflict resolution? Can they work collaboratively with others in a tense atmosphere? It's unlikely that these questions would have prevented NYCB's financial collapse, but they might have prevented last month's turmoil.
It is too early to tell whether Mnuchin, who will join NYCB's board as part of this new capital infusion, will be able to stabilize NYCB. Nevertheless, his first move to reconstitute the board is an important step in the right direction.
*Mark Rogers (NYSE:) is a corporate governance expert and CEO of BoardProspects, the premier executive recruitment solution for public and private companies.
