The sin that reportedly got Stanley O’Neal expelled from the garden of Merrill Lynch was his authorization of merger discussions with fellow bank Wachovia without first getting the blessing of his board, writes reporter Jeff Nash in Financial Week. He was allowed to retire and reap his exit package. Could he have been fired?
Directors agree that Mr. O’Neal’sinitiative was something of a no-no, particularly in today’spost-Sarbanes-Oxley business world, where full disclosure is all-important. Butthey also doubt that that blunder alone was big enough to have cost him thecorner office.
The much larger issue was Mr.O’Neal’s failed gamble on investments in subprime mortgages and complex debtarrangements that led the firm to take an $8.4 billion write-down, and anoverall loss of $2.3 billion in the third quarter—the largest loss in thecompany’s storied nine-decade history. Being perceived as going behind theboard’s back just put another log on the fire, observers say, and perhapsallowed the board, already facing scrutiny for its oversight of the true natureof Merrill’s risk-taking, to cast Mr. O’Neal as a headstrong executive whoacted first and checked in later.
Directors and governance expertscontacted by Financial Week don’tdownplay the seriousness of keeping something as material as a major businesscombination from their boards.
“Ten years ago, a CEO couldprobably get away with not sharing that kind of information with the board,”said Patrick McGurn, special counsel of RiskMetrics Group, a governanceresearch firm. “But in this post-Enron era, any CEO would be foolish to keepmerger discussions from the board.”
Lionel Allan, CEO of the SiliconValley chapter of the National Association of Corporate Directors, and formerdirector of Catalyst Semiconductor and Global Motorsport Group, saidSarbanes-Oxley makes it more important than ever that boards are always awareof what the CEO is doing and why.
“I can’t believe a secret talk in isolationwould ever lead to a forced resignation,” said former Deloitte & Touche CEOJ. Michael Cook, now a director at Eli Lilly, International Flavors &Fragrances and Comcast. “The board could have easily sat Mr. O’Neal down andsaid, ‘Look, in the future, these are the rules of the road in terms ofnotifying us of any merger discussions.’ But throw the supposed talks in with thewrite-off and you’ve got a different story.”