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