Too Big to Fail [81]
“Well, as you know, I’m new, and you were the CEO for five years,” Thain said carefully. “I’d like to get your take, any insight on what happened here. Who everybody is, and all that. It would be very helpful to me and to Merrill.”
O’Neal was silent for a moment, picking at his fruit plate, and then looked up at Thain. “I’m sorry,” he said. “I don’t think I’m the right person to answer that question.”
O’Neal was out of a different mold than most of Merrill’s top executives, not least of all because he was African American—quite a change from the succession of white Irish Catholics who had headed the firm in the past. His was, by any measure, an amazing success story. O’Neal, whose grandfather had been born a slave, had spent much of his childhood in a wood-frame house with no indoor plumbing on a farm in eastern Alabama. When Stan was twelve, his father moved the family to a housing project in Atlanta, where he soon found a job at a nearby General Motors assembly plant. GM became Stan O’Neal’s ticket out of poverty. After high school he enrolled at the General Motors Institute (now known as Kettering University), an engineering college, on a work-study scholarship that involved his working six weeks on the assembly line in Flint, Michigan, followed by six weeks in the classroom. With GM’s support he attended Harvard Business School, graduating in 1978. After a period working in GM’s treasury department in New York, he was persuaded in 1986 by a former GM treasurer, then at Merrill Lynch, to join the brokerage firm on its junk bond desk. Through hard work and support from powerful mentors, O’Neal rose rapidly through the ranks. He eventually came to oversee the junk bond unit, which rose to the top of the Wall Street rankings known as league tables. In 1997 he was named a co-head of the institutional client business; the following year, chief financial officer; and in 2002, CEO.
The firm for which O’Neal was now responsible had been founded in 1914 by Charles Merrill, a stocky Floridian known to his friends as “Good Time Charlie,” whose mission was “Bringing Wall Street to Main Street.” Merrill set up brokerage branches in nearly one hundred cities across the nation, connected to the home office by Teletype. He helped democratize and demystify the stock market by using promotions, like giving away shares in a contest sponsored by Wheaties. More than the mutual fund giant Fidelity or any bank, Merrill Lynch, with its bull logo, became identified with the new investing class that emerged in the decades after World War II. The percentage of Americans who owned stock—whether directly or indirectly, through mutual funds and retirement plans—more than doubled from 1983 to 1999, by which point nearly half the country were investors in the market. Merrill Lynch was “Bullish on America” (an advertising slogan it first used in 1971), and America was just as bullish on Merrill Lynch.
By 2000, however, the “thundering herd” had become the “phlegmatic herd”—a bit too fat and complacent. The firm had gone on a shopping binge in the 1990s, accelerating its global expansion and swelling its workforce to 72,000 (compared to the 62,700 of its closest rival, Morgan Stanley). Meanwhile, its traditional power base, the retail brokerage business, was being undercut by the rise of discount online brokerage firms like E*Trade and Ameritrade. And because much of Merrill Lynch’s investment banking business was predicated on volume, not profits, the dot-com crash in the stock market the previous year had left Merrill vulnerable, exposing its high costs and thin margins.
The man tasked with shrinking Merrill back to a manageable size was O’Neal. Although colleagues had urged him to proceed slowly, especially in light of the trauma of 9/11, in which Merrill had lost three of its employees, O’Neal plowed