E. Stanley O'Neal

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

E. Stanley O'Neal. AP/Wide World Photos.
E. Stanley O'Neal.
AP/Wide World Photos

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.


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.


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).


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).


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.


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.


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).


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).


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.


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).


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).


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).


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).


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

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