Merrill Lynch

Let's look a bit more closely at one of the failed companies. As an aside, I occasionally dabble in the stock market, with my few trades going through a broker I admire at Merrill Lynch.1 I remember that some years ago I asked him about the potential implications should Merrill someday go under. After he stopped laughing, he said there was no possibility of that happening. We now know that it almost did, with bankruptcy averted only by a shotgun wedding.

What happened at this well respected brand-name firm? Let's begin with senior management. Media reports describe Merrill's then-CEO, Stanley O'Neal, as an autocratic leader overseeing a group of trusted lieutenants who led Merrill's profitable but “belated push” into the market for collateralized debt obligations. One executive, the overseer of the firm's mortgage operations, often played the “tough guy . . . silencing critics who warned about the risks the firm was taking.” Another, who oversaw risk management, contributed by “loosening internal controls.”

What immediately comes to mind is a tone at the top that not only allows a firm to move toward the edge of a cliff, but actually drives it there. We know how a chief executive and loyal team can have a take-no-prisoners approach, mandating action while stifling dissent.

The phrase belated push is telling. More than a few financial firms in the last few years saw competitors reaping bushels full, or more likely warehouses full, of profit. Merrill reportedly was ...

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