Stanley O’Neal 1951–

Financial services executive

General Motors Provided Opportunities

Joined Merrill Lynch

Overhauled Merrill’s Brokerage Business

Led Corporation Through Crises

Fought His Way to the Top

Sources

On December 2, 2002, Stanley O’Neal became chief executive officer (CEO) of Merrill Lynch & Company, Inc. He is the first African American to head a major Wall Street brokerage firm. Merrill Lynch is one of the world’s largest and most influential financial advisory and management companies, with offices in 37 nations. O’Neal was already one of the highest-paid African Americans on Wall Street and, in July of 2002, Fortune magazine named him the most powerful African-American executive. Known as a tough but exceedingly private individual, O’Neal kept a surprisingly low profile throughout his rise to power.

The grandson of a former slave, Earnest Stanley O’Neal, born in 1951, was the oldest of four siblings, three boys and a girl. The O’Neal family lived in Wedowee, Alabama, a town of less than 1,000 people, 85 miles from Birmingham. However, Stanley was born in Roanoke, Alabama, since hospitals nearer to his home did not admit African Americans. He grew up surrounded by a large, close-knit, extended family, in a home that had neither an automobile nor indoor plumbing. His father was a farmer and his mother cleaned houses to help support the family. O’Neal attended a one-room school that was heated with a wood stove. He and his siblings worked the corn and cotton fields of his grandfather’s subsistence farm and O’Neal delivered and sold newspapers.

General Motors Provided Opportunities

When O’Neal was 12, his father gave up farming to take a job at a General Motors assembly plant in Doraville, Georgia. The family moved into a federal housing project in Atlanta. There O’Neal became one of the first African Americans at the newly integrated West Fulton High School. “My father told me I wasn’t cut out for farm work,” O’Neal told the Harvard Business School Bulletin. “I really didn’t have an understanding of the world or any role models, but I had a strong desire to learn.” As a top student, O’Neal dreamed of becoming a writer. However, following his father’s advice, he entered college determined to pursue a successful career.

O’Neal attended the General Motors Institute, which later became Kettering University. In a cooperative program, he alternated studies in engineering and

At a Glance…

Born Earnest Stanley O’Neal on October 7, 1951, in Roanoke, AL; married to Nancy Garvey; children: twin son and daughter. Education: General Motors Institute, BS, industrial administration, 1974; Harvard Business School, MBA, finance, 1978.

Career: General Motors Corporation, New York treasurer’s office, analyst, 1978-80, director, 1980-82, Spanish subsidiary, treasurer, 1982-84, general assistant treasurer, New York City, 1984-87; Merrill Lynch & Co., Inc., investment banker, high-yield finance group, director, investment banking, managing director, financial services group, head, client strategies group, 1987-96, head, capital markets group, 1996-97, executive vice president, co-head, corporate and institutional client group, 1997-98, member, executive management committee, 1997-, chief financial officer, 1998-00, president, U.S. private client group, 2000-01, president and chief operating officer, 2001-02, chief executive officer, 2002-.

Memberships: Executive Leadership Council and Foundation; board member, General Motors Corporation, Lower Manhattan Development Corporation, NASDAQ Stock Exchange, National Urban League, Ronald McDonald House; advisory board, American Cancer Society, Bronx Preparatory School; trustee, Buckley School, Catalyst, Center for Strategic and International Studies.

Awards: Corporate Executive of the Year, Black Enterprise, 2000; Achievement Award, Executive Leadership Council, 2002.

Address: Merrill Lynch & Co., Inc., World Financial Center, North Tower, New York, NY 10281-1312.

industrial administration with the night shift in the body shop at the Doraville assembly plant. Graduating in the top 20% of his class with a B.S. degree in industrial administration in 1974, O’Neal was the first in his family to finish college. For the next two years he worked as a supervisor at the Doraville plant. A scholarship from GM then enabled him to attend Harvard Business School as one of the few African Americans in his class. He earned his M.B.A. in finance with distinction from Harvard in 1978. After graduation O’Neal began his career as an analyst in the GM treasurer’s office in New York City. There he met his future wife, economist Nancy Garvey. The couple eventually had twins, a son and a daughter.

Within two years, O’Neal had become a director in the New York office, working in cash management, profit analysis, budgeting, and international funding. In 1982 he was appointed treasurer of GM’s Spanish subsidiary in Madrid. Returning in 1984 as general assistant treasurer, the second highest financial position in the New York office, O’Neal was responsible for GM’s acquisitions and mergers.

Joined Merrill Lynch

After eight years with GM, O’Neal made an important career move—with a large jump in salary—when he joined the high-yield finance group of Merrill Lynch’s investment banking division. This division was one of the world’s leading underwriters of debt and equity securities, as well as a strategic economic advisor to corporations, governments, institutions, and individuals across the globe. O’Neal soon rose to the position of managing director of the financial services group during one of its most successful periods in history, when it held first place in the high-yield bond field. In this position he was in charge of the high-yield finance and restructuring group, as well as the real estate, project and lease finance, and equity private placement groups.

Over the next few years, O’Neal worked in nearly every branch of Merrill Lynch’s multiple businesses. However, he first drew the attention of the financial world in the early 1990s, when he successfully turned around the company’s junk bond business. As head of the client strategies group, O’Neal took over responsibility for specialized portfolio consulting and investment advisory services to institutional clients worldwide. In 1996, as head of the capital markets group, O’Neal worked with clients throughout the world on debt and equity new issue activity.

In 1997 O’Neal was named executive vice president and co-head of the corporate and institutional client group (now the global markets and investment banking group) of Merrill Lynch. This core business group provides investment banking, securities trading, and other financial services to corporations, governments, and institutions worldwide. O’Neal also became a member of the executive management committee.

A year later, in 1998, O’Neal was named chief financial officer of Merrill Lynch. His responsibilities included operations, finance, accounting, budgeting, credit, taxes, real estate, purchasing, risk management, corporate services and reporting, and investor relations for the entire company. Almost immediately upon assuming this position, O’Neal was faced with handling Merrill’s investment in Long Term Capital Management, a hedge fund that was near collapse.

Overhauled Merrill’s Brokerage Business

Although he had never worked as a stockbroker, in 2000 O’Neal stepped into the presidency of Merrill Lynch’s flagship business, its retail brokerage unit, called the U.S. private client group. O’Neal became the first non-broker to ever hold this position. He assumed responsibility for approximately 16,000 financial advisors or brokers working out of nearly 800 branch offices, $1.3 trillion in client assets, and financial services for almost six million benefit plans.

One of O’Neal’s first actions, in February of 2000, was to fire 2,000 U.S. brokers and support staff and close 166 field offices. He also replaced competing individual brokers with teams of financial advisors. Initially O’Neal sought to match the low trading fees of the discount brokerages; however he soon switched gears and decided instead to target large clients with assets of over one million dollars.

With his overhaul of Merrill’s brokerage business, O’Neal shed his low profile completely. Some called him the axman and critics questioned his management style and its effects on employee morale. However his decisions enabled the company to reduce operating costs while increasing revenue per client. His cost-cutting measures, including the consolidation of operations, increased the retail brokerage unit’s pretax margins by 2%. O’Neal had become one of the highest-paid executives on Wall Street, with reported earnings in 1999 of $7.5 million, in addition to $11.5 million worth of stock options. In September of 2000 Black Enterprise magazine named him “Corporate Executive of the Year.”

Led Corporation Through Crises

In July of 2001 O’Neal became president and chief operating officer of Merrill Lynch and joined the board of directors. On September 11, 2001, Merrill Lynch employees were forced out of the company headquarters in the World Financial Center, across the street from the World Trade Center. For the next three months most of these employees worked out of temporary or makeshift quarters. However in October of 2001, O’Neal became the first Wall Street executive to move back into his office. In May of 2002 New York Mayor Michael Bloomberg appointed O’Neal to the board overseeing the redevelopment of downtown Manhattan.

After reporting record quarterly earnings of $1.04 billion in April of 2000, Merrill Lynch suffered a $1.3 billion loss in the fourth quarter of 2001. Although total revenues for 2001 were $38 billion, between 2000 and 2001 Merrill Lynch’s net earnings dropped by 85%. Turbulent markets resulted in a dearth of the corporate financings, mergers, and acquisitions that had been major sources of the firm’s revenue and the company’s performance and stock price continued to fall. In the face of a slumping stock market, global recession, and more profitable competitors, O’Neal immediately began the largest restructuring in Merrill Lynch’s 117-year history. Concentrating on the bottom line and fighting off bids to take over the company, O’Neal laid off 15,000 employees—21% of the total work force—over a 12-month period ending in April of 2002. Another 1,800 jobs or 3% of the staff were cut in the second quarter of 2002. He also reorganized the company’s top management, making 13 changes among the 22 members of the executive committee. Finally he dramatically scaled back the company’s global operations, selling off or closing brokerages in South Africa, Canada, and Australia, as well as most of the company’s recently acquired Japanese business.

Although Merrill Lynch remained 36th of the Fortune 500 companies in 2002, O’Neal continued to restructure, cutting expenses by a total of $1.7 billion. David Rynecki wrote of O’Neal in the September 30th issue of Fortune magazine: “He’s ripping apart the securities firm, piece by piece. He’s making enemies. He’s not apologizing. It might just work.” In October of 2002, O’Neal received the Achievement Award of the Executive Leadership Council, an organization of African-American senior executives from Fortune 500 companies, for his lifetime career achievements as a pioneer in corporate business.

However, competition from discount brokerages and a troubled stock market were not the only crises facing Merrill Lynch when O’Neal took the helm. The company found itself embroiled in a major stock recommendation scandal. In May of 2002, Merrill Lynch agreed to pay $100 million to settle charges brought against it by the New York State Attorney General, as well as other lawsuits. The company was accused of having misled investors with biased research aimed at pleasing its investment banking clients. There also were accusations that Merrill Lynch helped the bankrupt energy trader Enron to construct complicated transactions for artificially inflating profits, although the company claims they were duped by Enron. In addition there were charges of pension fund mismanagement by Merrill’s London-based subsidiary and allegations of insider trading by Merrill’s celebrity client Martha Stewart. O’Neal instituted reforms to address some of these issues, including a new method for compensating financial analysts.

Fought His Way to the Top

On December 2, 2002, following a bitter power struggle, O’Neal became CEO of Merrill Lynch, well before his planned succession date in 2004. O’Neal is only the third African American to head a major U.S. financial services company. The others are Franklin Raines, CEO of Fannie Mae, the mortgage financing company, and Kenneth Chenault, chairman and CEO of American Express.

Carl Brooks, president of the Executive Leadership Council and Foundation, told Black Enterprise magazine that O’Neal’s promotion was “another indication that a very talented African American has been able to move through the management ranks of the largest financial corporation in the United States. It continues the movement of African Americans to the top.” As guest speaker at the 2002 National Urban League Conference in Los Angeles, O’Neal spoke of how businesses such as Merrill Lynch must play an important role in providing educational opportunities for financial empowerment, to fulfill the promise of the Civil Rights movement in America.

In his first days as CEO, O’Neal reorganized the top management of Merrill Lynch and within a week a number of executives had left the firm. In addition, O’Neal reorganized the company’s global economics team and ordered further job cuts in poor performing sectors.

O’Neal maintains his relationship with GM as a member of its board. His influence is pervasive in New York and across the nation, as a board member of the NASDAQ Stock Exchange, the National Urban League, and the Ronald McDonald House of New York, and as a trustee of the Center for Strategic and International Studies. He is a former vice chairman of the Securities Industry Association and a former member of the Capital Markets Advisory Committee of the New York Stock Exchange.

Although the economy continued to falter as O’Neal faced his first year as Merrill Lynch CEO, he remained optimistic. As he told the audience at the Merrill Lynch Banking and Financial Services Conference: “I’ve never been more confident in the long-term growth prospects for our economy, or more bullish on the financial services industry.”

Sources

Periodicals

Black Enterprise, September, 2000, p. 82; October, 2002 p. 35.

Fortune, July 22, 2002, pp. 60-80; September 30, 2002, p. 76.

Money, March 1, 2002, p. 82.

On-line

CNN Money, money.cnn.com/2002/02/14/investing/mag_sheriff/index.htm

Harvard Business School Bulletin, www.alumni.hbs.edu/buUetin/2001/june/profile.html

Merrill Lynch, www.merrilllynch.com/about/org_structure_ml/oneal.htm

—Margaret Alic

E. Stanley O'Neal
1951–

Chairman, chief executive officer, and president of Merrill Lynch

Nationality: American.

Born: October 7, 1951, in Roanoke, Alabama.

Education: Kettering University, BS, 1974; Harvard University, MBA, Finance, 1978.

Family: Married Nancy A. Garvey (economist and former controller of Allied-Signal); children: two.

Career: General Motors Corp., pre-1978, assembly-line employee; 1978–1986, entry-level analyst, assistant treasurer, treasurer of GM's Spanish division in Madrid; Merrill Lynch, 1986, director in investment banking; 1986, managing director of investment banking; 1997, head of Global Capital Markets; 1998, executive vice president and co-head of the Corporate and Institutional Client group; 1998–2000, executive vice president and CFO; 2000–2001, president of U.S. Private Client Group; 2001–2002, chief operating officer; 2001–, president; 2002–, CEO; 2003–, chairman.

Address: Merrill Lynch, 4 World Financial Center, North Tower, New York, New York 10080; http://www.ml.com.

■ O'Neal was named CEO February 12, 2002, succeeding David Komansky. He was one of the first nonbrokers to run Merrill Lynch in the company's 80-year history, the first African-American to head a major Wall Street firm, and one of only four black CEOs of Fortune 500 companies. While O'Neal had faced a lifetime of adversity due partly to race, he quickly adapted and never let social barriers dull his ruthless, competitive edge. O'Neal faced enormous challenges, particularly in terms of repairing the firm's damaged reputation. He unapologetically revamped the firm, cutting costs and boosting profits, while leaving behind a trail of enemies and critics.

With $27.7 billion in revenues for 2003, Merrill Lynch was one of the world's leading financial management and advisory companies. As an investment bank, it was the top global underwriter and market maker of debt and equity securities and

a leading strategic advisor to corporations, governments, institutions, and individuals worldwide. The firm has three divisions: the Private Client Group, which offers brokerage, mutual funds, and life insurance and annuities to individuals; the Corporate and Institutional Client Group that provides investment banking and capital market services to corporations, institutions, and governments; and the global Asset Management Group.

GM SHAPES A LIFE

O'Neal grew up in poverty on a farm in the Deep South. He was educated in a schoolhouse built by his grandfather, who was born a slave. His grandmother, mother, and aunts picked cotton. Much of O'Neal's life was guided by his association with General Motors. Too poor to properly support his family, O'Neal's father eventually moved the family to Atlanta, where they lived in a housing project, so he could work at a newly integrated GM assembly plant. O'Neal worked the night shift at the same plant as a teenager. GM sent the young O'Neal to the GM Institute (now Kettering University), where he earned a bachelor's degree in industrial administration. He later received a scholarship to Harvard from GM and spent the first 10 years of his career there. Finally, he met his wife at GM because she was an economist who worked with him in GM's treasury office.

ON THE FAST TRACK FOR SUCCESS

His first job after graduating from Harvard Business School was with GM, where he began his career in 1978 as an entry-level analyst. In just three years he moved to director level in the treasurer's office. According to John D. Finnegan, chairman of General Motors Acceptance Corp. and a former colleague: "That's about as fast as you can do it." He next worked for GM in Madrid, Spain, as treasurer of GM's Spanish division. Sandy Robertson, founder of the investment bank Robertson Stephens, who dealt with O'Neal during his time at GM, stated: "He was proud of the fact that he had started at the bottom" (both BusinessWeek, November 12, 2001).

ARRIVING ON WALL STREET

O'Neal resigned from GM in 1987 and changed over to a career in finance, joining Merrill Lynch's investment banking division. His move showed foresight. GM's finance division was losing its influence and O'Neal had his doubts about the future of the entire company, worrying that its success would lead to complacency. "I was concerned I would wake up 10 years hence and be very successful in a context I was not entirely happy with" (BusinessWeek, November 12, 2001)

Just three years after arriving at Merrill Lynch he was appointed head of its lucrative junk-bond unit, where he coached a team of young vice presidents in an effort to win new clients. Under his watch, Merrill Lynch rose to number one and remained first or second in junk bonds until O'Neal was promoted to head of global capital markets in 1995. After he left, the company fell to number eight. Bennett Rosenthal, who worked with O'Neal at the time, stated: "I never took Stan on a pitch where we didn't win the business. He was obsessed with being No. 1" (BusinessWeek, November 12, 2001).

RESTORING CALM FOLLOWING A CRISIS

In 1997 O'Neal was appointed co-head of Merrill Lynch's corporate and institutional client group, while also working in other areas such as real estate and private placements. In 1998 he was appointed CFO, but within his first few months Merrill Lynch suffered a $164 million loss when the hedge fund Long Term Capital collapsed. Losses for the hedge fund totaled more than $4 billion—rocking the financial markets. O'Neal was instrumental in putting measures in place that would ensure Merrill Lynch was not financially crippled by the LTC Management debacle. The firm contributed $300 million to a fed-brokered bailout fund.

A CASE OF FINANCIAL COMPLACENCY

When O'Neal was handed the CFO title, he inherited a fiscally irresponsible firm. In 1996 Merrill Lynch's profit margins sank an average of 5 percent below its competitors; by 1998 the gap had doubled. Between 1996 and 1998 revenues grew by $3 billion; yet only $100 million was realized in profits. Money was wasted on lavish perks, such as chauffeured cars for low-level managers and concierge services for investment bankers.

As one of his first tasks as CFO, he created an assessment of the bank's financial well-being and presented it to the firm's management committee. According to O'Neal: "What was supposed to be a 45-minute presentation turned into about two and a half hours. What was easy to see was the cost structure. It was incredibly visible. The question was how does one get at it. But I was not in a position to do anything about it" (New York Times, November 2, 2003).

Testing a strategy that he hoped to implement across the entire firm, O'Neal received board approval for cost-cutting measures in the struggling retail brokerage division. With the help of a former McKinsey consultant, he analyzed the division's nine million retail accounts, segmenting them according to profitability. The bottom-of-the-barrel accounts—those with less than $100,000—were transferred to low-cost call centers, while teams of wealth-management aficionados were assigned to the firm's biggest accounts. Compensation was changed to affect the new strategy: brokers were no longer paid for trades they made in accounts worth less than $100 thousand. His changes worked. Merrill Lynch doubled the amount of revenue per dollar of assets in its accounts and cut operating costs by $800 million.

A PRESSURE-PACKED PROMOTION

O'Neal's promotion to president of the firm in 2001 was the confirmation he needed to take his strategy company-wide. In the process he irritated many of Merrill Lynch's rank-and-file employees. His decision to continue a restructuring process begun before September 11 irked many employees and created the perception that he was using the tragedy as an excuse to fire people.

O'Neal's decision, however, may have been the result of panic. Not long after the attacks, Guy Moszkowski, Salomon Smith Barney financial-services analyst, predicted that Merrill Lynch's board would push O'Neal to sell the company if he couldn't bring profit margins in line with competitors. O'Neal dismissed the talk as "crap" (BusinessWeek, November 12, 2001).

THE RACE CARD HE'D RATHER NOT PLAY

Even though O'Neal was one of the highest ranked executives in the financial services field, institutionalized racism regularly presented itself. When he became president, O'Neal was more visible on the social circuit. He lost his relative anonymity and was frequently the recipient of oblivious, inappropriate comments. According to O'Neal: "I would meet people socially and they asked what I did for a living. I would say I worked at Merrill. 'And what do you do there?' they would ask. When I said I was CFO, there inevitably would be a pause, followed about 75 percent of the time by: 'Of the whole company?' It's not malicious at all, but there's an unspoken expectation that's embedded in that exchange" (New York Times, October 29, 2000).

ENGINEERING A TURNAROUND

O'Neal pressed on, announcing a plan to increase profit margins from 17 percent in 2001 to 24 percent in 2003. (He ended up beating his own goal by about four percentage points.) He was the first Wall Street executive to move his company back to the location that had been torn apart by terrorist attacks, basing his decision on the fact that "at the end of the day, we're about the business of conducting business. This is where we do it" (BusinessWeek, November 12, 2001).

Abandoning the company's long-held mission of bringing its services to the demographics of the market—from smalltime investors on Main Street to individuals of substantial net worth—O'Neal concentrated resources on the company's most lucrative accounts, leaving unprofitable businesses behind. According to him, "That means being properly positioned in the markets we want to be positioned in. It also means not expending resources on those things that will not ultimately produce the growth and profits we want to achieve" (BusinessWeek, November 12, 2001). He froze salaries, slashed bonuses, and made it clear that the business culture would be based on meritocracy and not the sense of entitlement that had pervaded the company.

AN UNLIKELY LEADER

O'Neal, the company's 11th CEO, represented a radical departure from his predecessors. Not only was he African-American (most of the former leaders had been of Irish descent), but he didn't begin as a broker. O'Neal wasn't worried about fitting in; his priority was turning the company around. After posting record quarterly earnings of $1.04 billion in April 2000, the firm announced a $1.3 billion loss in the fourth quarter of 2001. The company's stock, which once enjoyed a high of $80 a share, hit a 52-week low of $33.50 on September 21, 2001.

By O'Neal's estimate, the firm had become too comfortable. Commenting on the firm's nickname of "Mother Merrill," he argued that "people interpret it in different ways. I interpret it as a club. If you are part of the club, we take care of you. But this is a 47,000-person organization, and not everyone can be part of that club. I think clubs have their place, but not in modern commerce" (New York Times, November 2, 2003).

A MOMENT OF TRUTH

O'Neal led a difficult restructuring, including a complete overhaul of its overseas business. David Komansky, his predecessor, had made aggressive investments overseas, acquiring 33 retail brokerage branches in Japan alone. The operations were crippled by an ailing economy and ended up losing about $100 million a year; Komansky later conceded that his timing had been terrible. In January 2002 O'Neal shut down 20 Japanese branches and fired 1,200 employees. A similar approach was taken in Australia. O'Neal commented: "Even if we're successful beyond our wildest imagination in Australia in the wealth-management space, it's not going to make a big difference to Merrill Lynch overall" (Money, March 2002).

Apart from undoing the mistakes of his predecessor, O'Neal faced competition from firms like Morgan Stanley, Goldman Sachs, and large, well-capitalized banks whose massive balance sheets won them underwriting assignments by linking investment-banking work with lending. All of this continued to fuel speculation that Merrill Lynch would have to merge or sell out to a larger financial player.

James Gorman, head of Merrill Lynch's retail brokerage division, commented: "Stan was made CEO at the ultimate moment of truth. Our world was imploding, and he had the courage to make difficult decisions. If that's not heroic, I don't know what is" (Fortune, April 5, 2004).

HARSH MOVES SEND A MESSAGE

Not everyone considered O'Neal's decisions heroic. In the summer of 2003 he bumped his second in command, Vice Chairman Thomas H. Patrick. Next Arshad R. Zakaria, the president of Merrill Lynch's investment-banking unit, resigned abruptly. The message to company employees was clear: the old Merrill Lynch died with the appointment of the new CEO.

At the center of O'Neal's falling out with Patrick was the latter's decision to go behind O'Neal's back in an attempt to convince the board to appoint Zakaria, his protégé, as president. According to company insiders, Patrick and O'Neal had made a deal. Patrick would support O'Neal for chief executive if O'Neal agreed to choose Zakaria as president. When O'Neal decided he wasn't ready to appoint a president, Patrick took matters into his own hands.

In the fall of 2003, Winthrop H. Smith Jr., the son of a company founder and a former president of the firm's international Private Client Group network, who had left Merrill Lynch after O'Neal took over, doubted whether his former boss could live up to the legacies of his predecessors: "Stan is a relative newcomer to Merrill Lynch. He is an extremely bright and able person who like Charlie Merrill came from a humble background and did not receive a traditional education. But, I am not sure that he has heard or yet fully appreciates the Merrill Lynch stories and may not be able to embrace the culture in the same fashion as his predecessors. Time will tell" (New York Times, November 2, 2003).

SCANDALS PLAGUE A COMPANY

Besides his own image, O'Neal also had to contend with the company's reputation. Merrill Lynch and its primary rivals were being investigated to determine whether their analysts' stock recommendations were influenced by the quest to retain and attract new investment-banking customers. Stocks were recommended by brokerage houses that sought to distribute those firm's shares, so that the brokerages could win lucrative investment-banking fees from the companies. Doing so meant that the small investor was frequently given biased research that led to their losing money. In 2003 New York State found that the 10 brokerage houses had corrupted the stock-research process. As part of a historic settlement, Merrill Lynch ultimately paid $100 million to settle charges that the investment-banking business had influenced research. The 10 brokerage houses had to put a total of $432.5 million into an independent-research fund to finance free research over a five-year period for small investors. As part of the agreement, Merrill Lynch agreed to implement changes that would further separate its research department from its investment-banking unit.

Next followed allegations by a Senate subcommittee that the firm's investment bankers had helped Enron lie about profits (through a mysterious Nigerian barge deal) and that 96 Merrill Lynch employees had invested $16.6 million in a partnership with the now infamous Andrew Fastow of Enron.

Meanwhile, the securities firm was drawn into the Martha Stewart insider-trading accusations and had to contend with charges of pension-fund mismanagement by its London-based subsidiary. In each case Merrill Lynch vehemently denied any wrongdoing. O'Neal commented: "Ensuring integrity at our firm has always been a top priority and will continue to be" (USA Today, July 25, 2001).

SUBSTANCE OVER STYLE

Within three years after taking over Merrill Lynch, O'Neal had eliminated 24,000 jobs, including 20 percent of all investment-banking and analyst posts. He closed more than 300 offices, wiping out operations in South Africa, Canada, Australia, New Zealand and Japan. He also retooled the company's executive management committee, firing nearly every member hired by his predecessor. The new group was diverse, consisting of one African-American male, one Korean, one Egyptian, and two American women.

Merrill Lynch started 2004 on a positive note. It had posted a record profit in 2003, with earnings that reached a best-ever $4 billion—better than even the prosperous quarters of the late 1990s. Merrill Lynch was generating more income per broker than any of its competitors; its investment-banking division touted more fees in 2002 than Goldman Sachs or Citigroup. Shareholders watched the company's stock increase 100 percent. O'Neal pocketed a compensation package worth $28 million, making him one of the highest-paid executives in the field of financial services.

Some company insiders have nicknamed O'Neal's new followers in the company the "Taliban" because of their blind faith. Critics have even referred to O'Neal as "Mullah Omar." Less vitriolic is the perception that he's simply an aloof executive who was more interested in profits than people. O'Neal has responded: "People say all these things about me. They say I'm a bean counter. I'm not. I spend so little time thinking about numbers they wouldn't believe it. But if people want to say that, I can't do anything about it. I have a job to do, and it has nothing to do with worrying about what people call me" (Fortune, April 5, 2004).

See also entry on Merrill Lynch & Co., Inc. in International Directory of Company Histories.

sources for further information

Knox, Noelle, "Merrill Lynch Names New President, COO," USA Today, July 25, 2001, p. 3B.

McGeehan, Patrick, "Poised to Take Merrill by the Horns," New York Times, October 29, 2000, Section 3, p. 1.

Rynecki, David, "Putting the Muscle Back in the Bull," Fortune, April 5, 2004, p. 162.

Thomas, Landon, Jr., "Dismantling a Wall Street Club," New York Times, November 2, 2003.

Thornton, Emily, "Shaking Up Merrill," BusinessWeek, November 12, 2001, p. 96.

Woolley, Suzanne, "A New Bull At Merrill Lynch," Money, March 2002, p. 82.

—Tim Halpern

Stanley O'Neal

1951—

Chief executive officer, chief financial officer

Born into humble circumstances, Stanley O'Neal became chief executive officer (CEO) of Merrill Lynch & Company, Inc., one of the largest and most influential financial services companies in the world. As head of Merrill Lynch, O'Neal presided over a complete restructuring of the financial titan's business after a period of falling profits. Outside of the company, he was admired for cutting costs, eliminating unnecessary jobs, and maximizing profits. However, Merrill Lynch's prosperity under O'Neal was not long-lived. A crisis in subprime mortgage lending led the company to record losses, and in October 2007 O'Neal was forced out by a board of directors that he had hand picked. One of the highest-paid executives on Wall Street, O'Neal reportedly received the largest exit-pay package ever by an African-American executive, with an estimated value of $161.5 million.

Born into a Family of Subsistence Farmers

The grandson of a former slave, Earnest Stanley O'Neal was born in 1951, the oldest of four siblings. The O'Neal family lived in Wedowee, Alabama, a town of fewer than a thousand people, eighty-five miles from Birmingham. However, since local hospitals did not admit African Americans, O'Neal was born in nearby Roanoke. He grew up surrounded by a large, close-knit, extended family in a home that had neither an automobile nor indoor plumbing. His father was a farmer, and his mother cleaned houses to help support the family. He and his siblings worked in the corn and cotton fields of his grandfather's subsistence farm, and O'Neal also worked as a newspaper delivery boy.

"My father told me I wasn't cut out for farm work," O'Neal told the Harvard Business School Bulletin in 2001. "I never took it as an insult." While they lived in Wedowee, it looked like he would have no other choice than farming: O'Neal attended a rudimentary one-room school that was heated with a wood stove. However, when O'Neal was twelve, his father gave up farming to take a job at a General Motors assembly plant in Doraville, Georgia, and the family moved to Atlanta, where they lived in a federally-subsidized housing project. There, O'Neal became one of the first African Americans at the newly integrated West Fulton High School. As a top student, O'Neal dreamed of becoming a writer. However, following his father's advice, he entered college determined to pursue a more practical career, focused on financial success.

O'Neal attended the General Motors Institute, in Flint, Michigan, which later became Kettering University. In a cooperative program, he alternated six-week rotations studying engineering and industrial administration at the Institute followed by six weeks working in the body shop at the Doraville assembly plant. O'Neal was the first in his family to finish college, graduating in the top fifth of his class with a bachelor of science degree in industrial administration in 1974. For the next two years he worked as a supervisor at the Doraville plant. A scholarship from GM then enabled him to attend Harvard Business School as one of the few African Americans in his class. He earned a master's degree in finance with distinction from Harvard in 1978. After graduation O'Neal began working as an analyst in the GM treasurer's office in New York City. There he met his future wife, economist Nancy Garvey.

Within two years, O'Neal had become a director in the New York office, working in cash management, profit analysis, budgeting, and international funding. In 1982 he was appointed treasurer of GM's Spanish subsidiary in Madrid. Returning in 1984 as general assistant treasurer, the second highest financial position in the New York office, O'Neal was responsible for GM's acquisitions and mergers.

Joined Merrill Lynch

After eight years with GM, O'Neal made an important career move when he joined the high-yield finance group of Merrill Lynch's investment banking division. This division was one of the world's leading underwriters of debt and equity securities, as well as a strategic economic adviser to corporations, governments, institutions, and individuals across the globe. O'Neal soon rose to the position of managing director of the financial services group during one of its most successful periods in history, when it held first place in the high-yield bond field. In this position he was in charge of the high-yield finance and restructuring group, as well as the real estate, project and lease finance, and equity private placement groups.

Over the next few years, O'Neal worked in nearly every branch of Merrill Lynch's multiple businesses. However, he first drew the attention of the financial world in the early 1990s, when he successfully turned around the company's junk bond business. As head of the client strategies group, O'Neal took over responsibility for specialized portfolio consulting and investment advisory services to institutional clients worldwide. In 1996, as head of the capital markets group, O'Neal worked with clients throughout the world on debt and equity new issue activity.

At a Glance …

Born Earnest Stanley O'Neal on October 7, 1951, in Roanoke, AL; married to Nancy Garvey; children: twin son and daughter. Education: General Motors Institute, BS, industrial administration, 1974; Harvard Business School, MBA, finance, 1978.

Career: General Motors Corporation, Doraville, GA, supervisor at assembly plant, 1974-76, General Motors treasurer's office, New York City, began as analyst and became director, 1978-82, GM España, Madrid, Spain, treasurer, 1982-84, New York City, general assistant treasurer, 1984-87; Merrill Lynch & Co., Inc., New York City, investment banker in high-yield finance group, director of investment banking, managing director of financial services group, head of client strategies group, 1987-96, head, capital markets group, 1996-97, executive vice president, co-head, corporate and institutional client group, 1997-98, member, executive management committee, 1997-, chief financial officer, 1998-2000, president, U.S. private client group, 2000-01, president and chief operating officer, 2001-02, chief executive officer, 2002-07.

Memberships: Executive Leadership Council and Foundation; board member, General Motors Corporation, Lower Manhattan Development Corporation, NASDAQ Stock Exchange, National Urban League, Ronald McDonald House; advisory board, American Cancer Society, Bronx Preparatory School; trustee, Buckley School, Catalyst, Center for Strategic and International Studies; Alcoa, Inc., board member.

Awards: Corporate Executive of the Year, Black Enterprise, 2000; Achievement Award, Executive Leadership Council, 2002.

Addresses: Office—Director, Alcoa, Inc., 390 Park Ave., New York, NY 10022.

In 1997 O'Neal was named executive vice president and co-head of the corporate and institutional client group (now the global markets and investment banking group) of Merrill Lynch. This core business group provides investment banking, securities trading, and other financial services to corporations, governments, and institutions worldwide. O'Neal also became a member of the executive management committee.

A year later, in 1998, O'Neal was named chief financial officer of Merrill Lynch. His responsibilities included operations, finance, accounting, budgeting, credit, taxes, real estate, purchasing, risk management, corporate services and reporting, and investor relations for the entire company. Almost immediately upon assuming this position, O'Neal was faced with handling Merrill's investment in Long Term Capital Management, a hedge fund that was near collapse.

Overhauled Merrill's Brokerage Business

Although he had never worked as a stockbroker, in 2000 O'Neal stepped into the presidency of Merrill Lynch's flagship business, its retail brokerage unit, called the U.S. private client group. O'Neal became the first non-broker to ever hold this position. He assumed responsibility for approximately sixteen thousand financial advisers or brokers working out of nearly eight hundred branch offices, $1.3 trillion in client assets, and financial services for almost six million benefit plans.

One of O'Neal's first actions, in February of 2000, was to fire 2,000 U.S. brokers and support staff and close 166 field offices. He also replaced competing individual brokers with teams of financial advisers. Initially O'Neal sought to match the low trading fees of the discount brokerages; however he soon switched gears and decided instead to target large clients with assets of over one million dollars.

With his overhaul of Merrill's brokerage business, O'Neal earned a reputation for ruthless efficiency. Some called him the "axman," and critics questioned his management style and its effects on employee morale. However, his decisions enabled the company to reduce operating costs while increasing revenue per client. His cost-cutting measures, including the consolidation of operations, increased the retail brokerage unit's pretax margins by 2 percent. O'Neal had become one of the highest-paid executives on Wall Street, with reported earnings in 1999 of $7.5 million, in addition to $11.5 million worth of stock options. In September of 2000 Black Enterprise magazine named him "Corporate Executive of the Year."

Led Corporation through Crises

In July of 2001 O'Neal became president and chief operating officer of Merrill Lynch and joined the board of directors. Even though he was not yet the company's top officer, he had been selected as next in line to succeed CEO David Komansky upon Komansky's scheduled retirement in 2004, and was in charge of the company's day-to-day operations. Although total gross revenues for 2001 were $38 billion, between 2000 and 2001 Merrill Lynch's net earnings had declined by 85 percent. Turbulent markets resulted in a dearth of the corporate financings, mergers, and acquisitions that had been major sources of the firm's revenue and the company's performance and stock price continued to fall. Making things worse, the terrorist attacks of September 11, 2001, threw the U.S. economy into a state of uncertainty and forced the evacuation of Merrill Lynch's headquarters, which were across the street from the World Trade Center in New York City.

Despite the terrorist attacks, and in the face of a slumping stock market, global recession, and more profitable competitors, O'Neal orchestrated the largest restructuring in Merrill Lynch's 117-year history. In October of 2001 he became the first Wall Street executive to move back into the "Ground Zero" area. Undaunted by public pressure, O'Neal continued to announce layoffs, eliminating twenty-four thousand jobs—roughly one-third of the company's employees—between 2001 and 2003. He also dramatically scaled back the company's global operations, selling off or closing brokerages in South Africa, Canada, and Australia, as well as most of the company's recently acquired Japanese business. "He's ripping apart the securities firm, piece by piece," David Rynecki wrote in Fortune magazine. "He's making enemies. He's not apologizing. It might just work."

It did work. O'Neal's goal was to raise Merrill Lynch's profit margins from 17 percent in 2001 to 24 percent by 2003. He would actually eclipse that target by several percentage points. This level of performance inspired his supporters on the company's board of directors to accelerate his ascension to the top. His rise to the summit would not be without resistance—O'Neal had fired or reassigned many popular managers within the company, and Komansky was not yet willing to step aside. Nonetheless, on December 2, 2002, following a bitter power struggle, O'Neal became CEO of Merrill Lynch, well before his planned succession date in 2004. O'Neal became only the third African American to head a major U.S. financial services company. The others are Franklin Raines, CEO of Fannie Mae, the mortgage financing company, and Kenneth Chenault, chairman and CEO of American Express.

In his first days as CEO, O'Neal reorganized the top management of Merrill Lynch, and within a week a number of executives had left the firm. In addition, O'Neal reorganized the company's global economics team and ordered further job cuts in poor performing sectors. In 2003 O'Neal further consolidated his power by becoming the Chairman of Merrill Lynch's Board of Directors.

Forced Out at Merrill Lynch

O'Neal's tenure was marked by an intense focus on the bottom line. Unlike other Wall Street leaders, his reputation was as a loner. Many of the top lieutenants who supported his rise to CEO found themselves marginalized when they allowed their ambition to get in the way of his plans for the business. O'Neal rebuilt Merrill Lynch—once known as "Mother Merrill" for its homey, nurturing, and congenial atmosphere—into a place where profit was king. While this approach led to several years of strong earnings, they would also be O'Neal's downfall.

With the housing market boom at the beginning of the twenty-first century, a large market developed to provide mortgages to subprime borrowers—those who did not qualify for conventional mortgages and were therefore considered high credit risks. This subprime debt became a commodity traded on Wall Street. O'Neal, who made his reputation in junk bonds—a similar high-risk investment' got both the company and its clients heavily invested in these mortgages. In Euromoney Magazine in August of 2007 O'Neal explained his investment philosophy: "It is important to be able to put capital to work in order to serve clients well: helping them to manage risk, sometimes offload it, sometimes reconfigure it in ways that allows it to be redistributed or managed more efficiently…. If you're not willing or capable of taking risk in and understanding those markets—which means being able to do it for your own account as well as on behalf of clients—you don't have the depth of knowledge or the skills to be effective as an intermediary on behalf of your clients."

However, the subprime market had, at that point, entered a downturn. People began to default on those mortgages as property values declined, and home sales slumped. In October of 2007 Merrill Lynch announced a write-down of almost $8 billion in the value of the debt they were holding—almost double what had been estimated weeks before. The loss of so much of the firm's assets was devastating. As O'Neal explained the problem to investors and analysts: "The bottom line is we … I … got it wrong by being overexposed to subprime, and we suffered as a result of impaired liquidity…in that market. No one is more disappointed than I am in that result. We hedged … but not aggressively or fast enough."

Merrill Lynch's board of directors, most of whom O'Neal had personally selected, moved swiftly to force him out. Many were upset that while the mortgage crisis was brewing in August and September, O'Neal—an avid golfer—had spent much of his time working on his handicap. Others were incensed that he had initiated informal merger discussions with the head of rival bank Wachovia without first seeking the board's approval. The main problem, however, was that profits that had protected O'Neal on his rise to the top had evaporated. By the end of October 2007, the writing was on the wall, and O'Neal resigned.

O'Neal received an exit payout from Merrill Lynch in excess of $161 million. The research group Corporate Library estimated that this was the fifth-largest exit-payout given to any executive—certainly, the largest "golden parachute" payout to an African-American executive at the time. In early 2008 O'Neal accepted a position on the board of directors of Alcoa.

Sources

Periodicals

Black Enterprise, September, 2000, p. 82; October, 2002, p. 35.

Fortune, July 22, 2002, pp. 60-80; September 30, 2002, p. 76.

Money, March 1, 2002, p. 82.

New York Times, October 29, 2007.

Online

Gross, Daniel, "Merrill's Peril: Should Merrill Lynch CEO Stanley O'Neal Lose His Job?" Slate, October 26, 2007, http://www.slate.com/id/2176803/ (accessed February 27, 2008).

Horwood, Clive, "Stan O'Neal Interview: O'Neal Accentuates the Positives," Euromoney, August 1, 2007 http://www.euromoney.com/Print.aspx?ArticleID_1398655 (accessed February 28, 2008).

Moran, Nancy and Rodney Yap, "O'Neal Ranks No. 5 on Payout List, Group Says," Bloomberg.com, November 2, 2007, http://www.bloomberg.com/apps/news?pid=20601109&refer=home&sid=aPxzn5U8zNBo (accessed February 28, 2008).

"Profile: A Long Road of Learning," Harvard Business School Bulletin, June 2001, http://www.alumni.hbs.edu/bulletin/2001/june/profile.html (accessed February 27, 2008).

Rosenbush, Steve, "Merrill Lynch's O'Neal Takes the Hit," Business Week, October 24, 2007, http://www.businessweek.com/print/bwdaily/dnflash/content/oct2007/db20071024_830456.htm (accessed February 28, 2008).

Rynecki, David, "Putting the Muscle Back in the Bull: Stan O'Neal may be the toughest—some say the most ruthless—CEO in America," Fortune, April 5, 2004, http://money.cnn.com/magazines/fortune/fortune_archive/2004/04/05/366358/index.htm (accessed February 28, 2008).

Wearden, Graeme, "Profile: Stan O'Neal," The Guardian, October 29, 2007, http://www.guardian.co.uk/business/2007/oct/29/usnews.useconomy (accessed February 28, 2008).

Woolley, Suzanne and Amy Feldman, "A New Sheriff in Town," CNN Money, February 14, 2002, http://money.cnn.com/2002/02/14/investing/mag_sheriff/index.htm (accessed February 27, 2008).

—Margaret Alic and Derek Jacques