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Merrill Lynch CEO Bullish on Future of Firm

In a business where change is perhaps the only constant, it comes as no surprise to many that Merrill Lynch Chairman and CEO Stan O’Neal (HBS ’78) has been so successful. After all, his track record of adaptability dates back at least to a bold change early on in his career. Like many other HBS graduates, O’Neal started his post-MBA run at McKinsey & Co.

His consulting stint was short-lived, however, as he quit after just two weeks there. “The hardest part was giving back my signing bonus,” he quipped to students during a campus visit to his alma mater last month. “The second hardest part”, he continued on a more serious note, “was to tell them I had made a mistake, and third hardest part was to go back to General Motors,” where he had worked prior to his MBA.

O’Neal delivered remarks in Spangler Auditorium last month as part of a broader Merrill Lynch company recruiting presentation. Joining O’Neal at HBS was a substantial delegation of investment banking professionals, many of them also HBS alumni, ranging from newly minted associates to Merrill’s Head of Investment Banking for the Americas. The event was co-sponsored by the Finance Club and the African-American Student Union, and was primarily facilitated by Finance Club Officer and former Merrill Lynch Investment Banking Analyst Irina Babushkina (OC).

O’Neal opened by addressing ways in which HBS had changed since his time as a student. For one thing “I couldn’t have imagined myself coming out to see me speak,” he joked. Continuing on a theme of change, he discussed the importance of leading organizations through necessary transformation. “Merrill Lynch would not be here had we not evolved and changed dramatically over the last 100 years,” he said.

Indeed, while O’Neal’s exercise in versatility in leaving McKinsey set the stage for the rest of his off-the-beaten-path journey to the top at Merrill, it also prepared him for the significant challenges that would await him once he got there. O’Neal inherited a franchise that had suffered a succession of problems: overreliance on equity made evident in a reversal of the market’s good fortunes in 2001, a firm-wide dislocation caused by the September 11, 2001 tragedies and its fair share of troubles associated with the corporate governance meltdown in early 2002. In O’Neal’s words, “the future of the company as an individual entity was in some doubt.”

Faced with tough decisions during a time of crisis, O’Neal borrowed a line from British Naturalist Charles Darwin’s book: “In the struggle for survival, the fittest win out at the expense of their rivals because they succeed in adapting themselves best to their environment.” Placing an emphasis on adaptability rather than size, O’Neal began an aggressive prioritization campaign aimed at scaling back peripheral businesses and laying the foundation for a new culture focused on innovation, discipline and creating value. “We couldn’t be all things to all people,” he noted.
His efforts appear to have paid off: Merrill had effectively cut over $6.7 billion in costs as of the middle of this year, translating into impressive bottom-line performance. The firm posted a record $4.0 billion in net earnings last year, and as of the second quarter this year had cleared a hurdle of $1.0 billion in profits for four straight quarters.

These positive results have generated additional growth opportunities for the firm, which is looking “for talented people to lead these efforts,” according to Jeff Edwards (HBS ’87), Head of Investment Banking for the Americas. As part of its “reshaping of industry and product” efforts to reflect its “focus on the current environment,” says Edwards, Merrill recently purchased Entergy-Koch’s gas and power trading unit, and is developing related origination efforts.

In addition to his focus on adaptability, O’Neal also honed in on the importance of leadership, noting that “leadership is a very visible thing, particularly in today’s world.” Despite facing more decisions in eighteen months of crisis management at Merrill than he had in the rest of his career combined, developing and nurturing leaders has been “a lot harder,” he allowed.

Still, while many firms on Wall Street struggle to attract a diverse talent pool, O’Neal has assembled a management team that includes an Egyptian, a Korean, two African Americans and two women. He credits Merrill’s culture of inclusiveness, meritocracy and diversity – where “leaders at all levels embody these values” – with allowing such diverse pools of talent to surface. This ability to “embrace talent from various backgrounds” and allow it to “blend and produce results” is “ultimately what will separate Merrill Lynch from others over the long-haul,” O’Neal noted.

Head of Global Recruiting Tom Wilson later echoed O’Neal’s sentiment, “A central part of our ongoing business strategy is developing leadership that can sustain the principles, the energy and the focus of the firm over business cycles. Under Stan’s leadership, Merrill Lynch has become a clear leader, not only in our business, but also in developing talent.”
In addition to the importance of “building a winning team,” O’Neal offered other pointers on leadership. He encouraged students to view leading change as “leading a battle” and to remember that “troop strength is important” and that “terrain and timing can mean a difference between success and failure. Even if you have the right idea, history is written by the victors, and it is therefore better to win,” he noted.

He also urged a connectiveness with the cause and a closeness to the business. “You can come up with an elegant analysis for fatal mistakes,” he allowed, but the best way to learn from mistakes and avoid them in the first place is to “talk to the people who do the work.”

Above all, O’Neal urged to students embarking on their careers, “Be true to yourself. There is no shortage of opportunities to compromise along your career.”

December 13, 2004
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