Don't Hate The Player
the rise and fall of stan o'neal
2007-12-03
By Donna Johnson and Boyd Klingler

Every tragedy has its hero and every hero has his fatal flaw.  From Oedipus to Hamlet we’ve seen the very characteristics that empower a man as the same ones that lead to his downfall. For Stan O’Neal it was steely ambition, unwavering drive and maybe a touch of hubris. 

No doubt the story of O'Neal's ignominious demise has taken on Shakespearian proportions. But before we come here today to bury Cesar, let us take a moment to reflect upon his efforts to restore the glory that was Merrill’s.

In the days following September 11, 2001 after a portion of Hell broke loose and engulfed the World Trade Center in Apocalyptic fashion, stricken residents of New York City turned beseeching eyes to Mayor Rudy Guillani for guidance. But for Merrill Lynch it was Stanley O’Neal who gathered dozens of employees of the firm to the home of David Komansky, then the company’s CEO.  There, it was O’Neal who marshaled the company’s forces, kept the troops emotionally together and sought to render the firm operational again as quickly as humanly possible.

After landing at the tender age of 35 in the junk bonds department at what was then known as Merrill Lynch, Pierce, Fenner & Smith, Stan O’Neal emerged three short years later to become section head. From there his career took off like a military fighter jet, ascending to Chief Financial Officer in 1998, then president in 2000, and finally Chairman and Chief Executive Officer in 2002.  After almost 90 years of financial dominance in the brokerage arena, Merrill was in trouble. In the fight for financial hegemony the world was actually shrinking, and the firm needed to expand its horizons.

For all the current bitching and moaning from blowhards like Jim Cramer and the like, back then no one quarreled with O’Neal’s vision for steering a stodgy retail broker into the uncharted waters of asset diversification. It was a transformation that resulted in improved profitability year over year, leading the company to become a financial behemoth -- the largest investment brokerage house not only in the country, but the world.

There’s no defending Stan O’Neal’s steerage of wrong-headed investments into an $8.4 billion write-off in the third quarter, wiping out $6 billion in profits for that period, and ultimately resulting in a $2.4 billion loss for the company.  Even by Wall Street standards that’s a lot of cheddar.

There is, however, some question as to what really led to his ouster by a board that, ironically, was mostly chosen by him. We can only speculate, but it seems to fit the facts as we know them: As time closed in on Merrill's need to announce the big asset write-down, O’Neal decided he had to do something to soften the blow.  In an effort to deliver a little sweet with the bitter, he entered into negotiations with Wachovia without consulting his board, on a merger that would have created one of the largest financial institutions in the world. Was it more so their outrage at his attempt to pull off the nearly impossible without board consent? Much in the same way that Oedipus ignored the warnings of oracles and prophets, Mr. O’Neal’s penchant for habitually avoiding the counsel of those around him when it came to making decisions very likely contributed to his downfall. It didn’t help.

But he hardly stands alone when it comes to the miscalculations of what damage the sub-prime lending debacle would wreak. So far this year the overreaching credit crisis has seen no fewer than 110 chief executives in the financial services industry catapulted from their corner offices.

Bear in mind that in these times there is little longevity for the tenure of a CEO at one company. The average is about 6.5 years, akin to that of an NFL player. We like to refer to their respective professions as different blood sports with similar salaries.

So what’s to become of Ernest Stanley O’Neal? We are divided on the issue of whether he will ever head a publicly traded company again, but it doesn’t look good. After running Sears into the ground several years ago, former CEO Alan Lacy hasn’t been heard from since.  Despite a stellar performance during the housing boom, Home Depot’s equally arrogant Bob Nardelli was bounced earlier this year for the company’s stagnant stock price when the market began to decline. (Nardelli has since resurfaced as CEO of Chrysler.)

Before the O’Neal era, Merrill Lynch was affectionately known as “Mother Merrill” so called because the firm lovingly looked out for its staff and ostensibly ensured cradle-to grave job security. Stan O’Neal rarely sought the advice of others, but as far as his career goes perhaps he should have heeded the warning many of us have heard at one time from our own mothers, “I brought you into this world, and I can take you out.”

Donna Johnson and Boyd Klingler are Giving You the BusinessSM, in an occasional column for EbonyJet.com. Send your business and finance-related questions to our e-mailbag.