He had a pretty much handpicked board and was paid something close to a king’s ransom in compensation. No one could argue that the company was bogged down by directors who were excessive in their corporate governance pursuits. And when Merrill Lynch CEO E. Stanley O’Neal called subprime defaults “reasonably well contained” last June, investors were doubtless encouraged. But then came along that rather large leak in earnings in the form of a third-quarter loss of $2.3 billion and a further $7.9 billion charge for failed credit and mortgage-related investments. The charge grew by more than $3 billion in just two weeks. That, it seems, is the kind of vision you get for $48 million, which is what Mr. O’Neal was paid last year.
It is a stunning development for a company that should be doing better, but probably needs a better board and a new CEO to do it. Maybe if these folks stopped believing their PR department’s press releases about their own brilliance they would see events in their proper perspective. But in the world of endless deference and untold wealth in which these titans live, perspective seems to be the one thing they often don’t have and can’t buy. Anybody can claim things look good one day and turn up with egg on their face the next. It takes something of a rare talent to pull off losses that soar into the billions just after reassuring the market and be paid $48 million for the privilege. Merrill Lynch’s directors are apparently somewhat shaken by this week’s revelations. But you have to wonder where was the Merrill Lynch board before the disaster struck? Were these directors so enamored of Mr. O’Neal and his forecasting skills that they put themselves on auto pilot? Did they not have any inkling things were going south before billions went flying out the door? You want a board that can act to prevent or minimize calamity, not just shout fire after everyone else sees the flames. And maybe you want a board that the CEO has less of a hand in shaping than the one at Merrill Lynch.
Since Mr. O’Neal has given the prediction business such a bad name we feel obliged to repair the damage with some you can take to the bank. There will be a new CEO in charge at Merrill Lynch. A minor shakeup in the boardroom will take place, though not really as much as required. Mr. O’Neal will be paid off rather handsomely —again. And the cycle of excess, derisory leadership and weak accountability that sees CEOs say and do stupid things will return.
Wall Street is kno wn for its extremes, its egos, its colossal blunders, but rarely for the quality of its corporate governance and CEO oversight. Even in that world, Merrill Lynch stands out as a model of misjudgment and flawed vision, which is why we have chosen the actions of Stanley O’Neal and his boardroom colleagues as our Outrage of the Week.