NYT: Power Struggle May Hasten Transition at Merrill Lynch
(N.Y. Times Full Text 06/03 04:59:34)
Publication Date: Monday June 3, 2002
Business/Financial Desk; Section A; Page 1, Column 5
c. 2002 New York Times Company
By PATRICK McGEEHAN
Ten months ago, Merrill Lynch, the nation's biggest brokerage house,
announced its plans for a long, smooth transfer of power. But the transition
has been far from smooth, and it now appears that it will be shorter than
promised.
People inside Merrill say the relationship between David H. Komansky, the
chairman and chief executive, and his chosen successor, E. Stanley O'Neal,
is too strained to last the two years remaining before Mr. Komansky is
scheduled to retire.
Mr. Komansky helped to fashion and deliver Merrill's apology last month for
the behavior of the firm's stock analysts as part of Merrill's $100 million
settlement to end an investigation by New York's attorney general, Eliot L.
Spitzer.
But aside from that, Mr. Komansky has largely been left out of most
important decisions, these people say.
When Mr. O'Neal met last week with the leaders of Merrill's various
businesses to evaluate their managers and management candidates, Mr.
Komansky was not invited.
Mr. O'Neal, 50, who brims with self-confidence, has made little effort to
hide his eagerness to usher Mr. Komansky, 63, into retirement and radically
reorganize a firm he thinks grew too complacent and bloated during the
booming 1990's.
''It's no secret that Stan wants David out,'' one former senior executive
at the firm said.
According to another: ''Dave has been pretty uninvolved in what's going on
since Stan took over. Dave is a lame duck.'' But, added an executive inside
the firm, ''David does not want to let go.''
Still, several people inside the firm predicted that Mr. Komansky would
yield the chief executive title to Mr. O'Neal before the end of the year.
Though interactions between the men seem civil, these people say, Mr.
Komansky's continued presence may only be prolonging the tension between
those loyal to him and the generally younger employees who support Mr.
O'Neal and his program.
Neither Mr. Komansky nor Mr. O'Neal would comment for this article. A
spokesman for Merrill said the firm would ''announce a succession plan when
David and the board deem it appropriate.''
The extreme differences in the styles and personalities of the two men have
added to the stresses within a firm that in the last nine months has been
driven out of its headquarters by the World Trade Center attack, eliminated
more than 10,000 jobs as the financial markets sagged and been accused of
giving tainted investment advice.
Merrill's stock has dropped almost 22 percent this year, reducing the
company's stock market value by nearly $10 billion and reigniting
speculation that the firm may be acquired.
On Wall Street, Mr. Komansky, a burly, gregarious New Yorker, is as closely
identified with Merrill as the bull on its corporate logo. A former stock
broker, he back-slapped his way up the ranks in the days when brokers ruled
the firm.
He surprised some colleagues in July when he announced that he had selected
Mr. O'Neal, a former General Motors executive whose grandfather had been
born a slave, to be the firm's president and chief operating officer. For
the previous year and a half, Mr. O'Neal ran Merrill's American brokerage
operation after serving as the firm's chief financial officer. The plan was
for Mr. Komansky to groom Mr. O'Neal to succeed him when Mr. Komansky
retires in 2004.
But Mr. O'Neal had his own timetable. Within weeks after being named, Mr.
O'Neal had drawn up a new management team that did not include some of Mr.
Komansky's most trusted lieutenants, most notably those who had competed
with Mr. O'Neal for the No. 2 job.
Even after Merrill was forced to evacuate its offices in the World
Financial Center on Sept. 11 and scatter to temporary quarters, Mr. O'Neal
wanted to charge ahead with his changes.
Jeffrey M. Peek, a former investment banker who ran Merrill's mutual fund
operations, quit and joined Credit Suisse First Boston. Winthrop H. Smith
Jr., a descendant of one of Merrill's founders, quit after Mr. O'Neal took
away his job running the firm's international brokerage operations.
The last of Mr. O'Neal's rivals, Thomas W. Davis, resigned last month, six
months after he was reassigned from running Merrill's investment banking and
trading businesses. In his latest job, Mr. Davis oversaw the firm's
beleaguered research department and its relatively small private equity
business, which invests in companies that are not publicly traded.
Mr. O'Neal's unemotional dispatching of such popular managers stirred anger
in the ranks at Merrill, a firm long on sentiment and tradition. He
compounded that ire by announcing a month after the attack on the World
Trade Center that he planned to eliminate several thousand jobs, on top of
the 6,000 Merrill cut earlier in 2001.
By moving quickly to eliminate rivals for the top job, Mr. O'Neal minimized
the chances that he would meet with a fate like that of Herbert M. Allison,
his predecessor as Mr. Komansky's heir apparent. In 1999, Mr. Komansky
ousted Mr. Allison, less than three years after Mr. Allison had gained the
No. 2 job. Analysts said that Merrill could not afford another aborted
succession plan. To be sure, Mr. Komansky retains enough clout to frustrate
Mr. O'Neal's desire to assume the title of chief executive sooner than
originally planned.
In all, Merrill eliminated more than 20 percent of its jobs within 12
months and lopped about $1 billion from its annual expenses. Mr. O'Neal has
promised to make Merrill more profitable. Some analysts cheered his cutbacks
as overdue.
''I'm a great fan of what he's doing,'' said Brad Hintz, an analyst at the
Sanford C. Bernstein unit of Alliance Capital.
Merrill's stock is languishing at $40.71 a share, down from about $54 on
April 8, the day Mr. Spitzer went public with his accusations that Merrill
had used its analysts' stock recommendations to obtain or keep investment
banking business.
Mr. Spitzer passed out copies of e-mail messages written by Henry Blodget
and other Merrill analysts that appeared to show they harbored negative
opinions about the stocks of client companies they were recommending to
investors. In the e-mail messages, the analysts described some of those
companies as ''junk'' or worse.
Mr. Komansky first apologized for the analysts' unprofessional comments at
Merrill's annual shareholders meeting in late April, while Mr. O'Neal sat by
silently.
Mr. O'Neal did not speak publicly about the matter until May 21, when
Merrill and Mr. Spitzer announced that the firm would pay a total of $100
million to New York and other states. Without admitting any wrongdoing,
Merrill also agreed to make several changes in the way its analysts are
monitored and paid.
In the weeks leading up to the settlement, Merrill officials said they
would not accept such a stiff penalty.
Merrill's about-face in the negotiations and the leading role Mr. Komansky
played in public led many people inside and outside Merrill to believe that
he had swooped back in to save the firm. Mr. O'Neal played hardball and
failed, their thinking went, then Mr. Komansky, the veteran deal maker and
consummate schmoozer, smoothed things out.
Mr. O'Neal's defenders said that view was wrong. As a Merrill spokesman put
it, ''There was never one iota of disagreement between Mr. Komansky and Mr.
O'Neal as to how to handle this matter.''
But people inside Merrill said Mr. O'Neal expected Mr. Komansky to deliver
the firm's apologies and do most of the talking about the matter because the
problems Mr. Spitzer cited dated back to when Mr. Komansky had run the firm.
As painful as the episode was for Mr. Komansky, they said, it gave him an
important role to play and an accomplishment -- getting the firm out of a
potentially devastating jam -- that could serve as his final act.
''It has to have been incredibly helpful to O'Neal to not have to take his
eye off the ball and to have someone of the stature and negotiating ability
of Komansky,'' said Guy Moszkowski, an analyst with the Salomon Smith Barney
of Citigroup.
Or, as one of Mr. O'Neal's supporters at the firm said, ''Stan was glad to
have Dave here to stand up and take that bullet.''
Photo: Tension exists between David H. Komansky, left, chief of Merrill
Lynch, and E. Stanley O'Neal, its president, right, according to people
close to them. ''It's no secret that Stan wants David out,'' a former
executive said. (Bloomberg News)(pg. A12)
(END) |
