The sudden fascination on the part of the former CEO of Merrill Lynch with expensive antiques paid for by beleaguered shareholders illustrates once again that sound judgment is the most underrated and unevenly dispensed attribute among modern leaders today.
A year ago, at the beginning of 2008, investors in U.S. financial stocks had already begun to see their fortunes dwindle. Major icons of American capitalism, including Merrill Lynch, had already lost or written down billions. Layoffs had already begun in the financial sector, including at Merrill Lynch. And families were losing their homes to foreclosures in record numbers. At Merrill Lynch, a new CEO was called in to clean up the mess that the misjudgments of his predecessor, Stanley O’Neal, had caused. Bringing in John Thain was considered a real coup for Merrill, and they paid handsomely for that privilege -to the tune of nearly $80 million. It was, a year ago, a sobering time for Wall Street, where confidence was evaporating faster than an Irishman’s bottle of whiskey. Many had begun to glimpse a gathering financial storm like no other imagined.
In the peculiar world of John Thain, however, it was just the right time for something else: a spending spree of more than a million dollars to redecorate his personal office. Evidently, investors at Merrill Lynch, who had already lost big-time, had not paid enough. They needed to fork over more than a million dollars for things like a George IV chair at $18,000, a carpet for $85,000 and four pairs of draperies for $28,000. (The complete list is available here.)
Keeping Mr. Thain happy became a very expensive proposition. And the amazing thing is, he thought he could really get away with it at a time when the world was so distracted by the implosion of Wall Street and the credit markets. Had he been a passenger on the Titanic, he no doubt would have pulled a Bruce Ismay. (He was the head of the White Star company, owner of the Titanic, who took one of the last lifeboats off the ill-fated ship while more than 1,500 crew members and passengers were left to perish onboard.)
It has become increasingly common in recent months to discover a certain disquieting reality about America’s CEO class. When times were good, it seemed to many that they could do no wrong. They were lauded as superheroes and garnered celebrity status on a level with rock stars and sports giants. But now that the economy is not proceeding ever upward with the obliging assistance of absurd levels of leverage and a blind eye to any notion of risk, the pressure is on. Many CEOs in this environment simply don’t cut it. They don’t seem to possess the sea changing abilities they once did. Problems appear more intractable. Many have decided to pack it in rather than keep up the pretense that they really know what they are doing.
Then there are the John Thains, who rake in tens of millions just for showing up, demand a $10 million bonus even at the lowest ebb of the company’s fortunes when thousands have been sent packing, and need a more impressive office from which to preside over the company’s shrinking fortunes, its dwindling share value and, ultimately, its disappearance as a standalone entity.
This kind of conduct, in addition to his decision to award $4 billion in bonuses company-wide just days before the deal with Bank of America closed and further losses of $15 billion were reported, shows the extent to which Mr. Thain did not grasp the radically changed landscape on Wall Street. There are many CEOs, unfortunately, whose actions also illustrate a nearly complete disconnection from reality.
As we have said before, sound judgment is the most underrated and unevenly dispensed attribute among modern leaders today, in politics and in business. Without it, even the brightest stars eventually sputter out, usually in some kind of stupid scandal quickly captured under the category “What were they thinking?” Astrological awareness is something few leaders possess. Believing their own press clippings and the unfailing deference of the media, politicians and boards of directors to their every action, many begin to think that the earth and all the other planets really do revolve around them. Clever public relations people can do many things, but they cannot forever defy the laws of physics. Sooner or later, there is a stumble involving conduct that is, at best, unacceptable and, at worst, one hundred percent weird (see Admiral Bobby Ray Inman). Many cannot adjust to the sudden reality that a different set of laws governs the universe and that they are not the center of it. It is generally an episode that causes others to question how these people actually got as far as they did, or whether they were just among the luckiest people in the world -for a while.
Mr. Thain’s actions, including his shameful attempt to claw back a $10 million bonus just after the company’s forced sale to Bank of America, also fall into the bizarre category. But this is about more than the spectacle of the patently over-praised engaging in the unmistakably despicable. Mr. Thain has brought discredit to the company he once headed, the industry of which he has been a life-long part, and Wall Street itself at a time when what they all need is genuine leadership that can regenerate lasting confidence. He is a deserving choice for our Outrage of the Week.