Merill Lynch directors, some hand-picked by their CEO, Stanley O’Neal, were stung into action when he held exploratory talks with a potential business partner, prior to consulting them. When a firm is in trouble, a leader may be on dangerous ground in showing what might be seen as leadership qualities
With a week of the original posting, CEO O’Neal had left his post with a controversially substantial golden goodbye. The original posting referred to his discussions with Wachovia, which in the same period also was the subject of news stories about its vulnerability to a funding crisis through its own sub-prime position.
As 2007 drew to a close, Financial Institutions around the world had become increasing anxious about their vulnerabilities during the turbulence of the sub-prime lending frenzy. Inevitably, leaders came under scrutiny. It was a good time for a corporate board to signal its competence, by taking action to deal with its short-term and longer-term problems. This seems to have been the case at Merill Lynch.
While strategic actions might be more direct than disposing of a leader? As the New York Times reported it
The board of Merrill Lynch, its frustration mounting over the brokerage’s credit losses and the decision making of its embattled chief executive E. Stanley O’Neal, has begun to actively consider whether to replace him and with whom… The board’s deliberations underscore O’Neal’s precarious position. Once credited with turning Merrill Lynch around, he is struggling to retain his job after a third-quarter loss of $2.24 billion and an $8.4 billion charge for failed credit and mortgage-related investments. He has also clashed with directors over an approach he made to rival Wachovia for a possible merger.
Journalists Landon Thomas Jr. and Jenny Anderson pointed out
On the face of it a brief conversation about a possible merger with a fellow chief executive at a rival bank is by no means a firing offense. But in O’Neal’s case, the proposal, even though he presented it as one of several options, elicited a sharply negative reaction from directors, the majority of whom were handpicked by him.
We may well conclude that that the lack of consultation was the trigger that set off the animal instinct to react to danger. The directors responded with a surge of adrenaline, and were into the fight or flight routine.
It is easy to understand how the board may have reacted on learning that Mr. O’Neal had been holding discussions with potential strategic implications prior to consulting with them. It could also be argued that ‘that’s what leaders have to do, sometimes’.
Don’t know what you might have done in the circumstances if you found yourself in O’Neal’s shoes. Perhaps find a way of anticipating and protecting yourself against the accusation? My students might have come up with this idea, or more subtle ones. I suspect they might have been rather scornful of the leader’s actions. If so, would they have been too harsh in their judgments? What cannot be denied is O’ Neal’s impeccable educational achievements at Harvard, and his business ones thereafter. It’s much easier to propose well-thought-out leadership actions in the classroom, than under conditions of extreme business crisis.
Stop Press Sunday October 28th 2007
Reuters report that O’ Neal is to leave Merill Lynch. And that a consensus to that effect has been reached by the Board.