Monday, October 29, 2007

Merrill Lynch Boardroom Hypocrisy

Merrill Lynch (MER) has allowed the street to write Stan O'Neils obituary. Wall Street warrior destroyed by the sub prime slime. The official reasons are plentiful. Huge right offs because of sub prime. A bad conference call which shocked many investors into thinking he does not have a handle on it. Telephone calls to Wachovia which the board did not approve. Was this a bad guy or what?

Where was the board in all this? When you sit on the board of an I-Bank, especially one the size of Merrill Lynch you are supposed to be adding value in some manner. No one has said the board knew nothing about the sub prime investments or CDO's. How were they monitoring the company? What questions where they asking?

Lets quickly check in and see who some of these players were.

The Merrill Lynch Board consists of 11 members including Stan O'Neil according to the corporate web site. This is what Merrill Lynch is telling their own investors about these board members and why they are up to the job.

Aulana L. Peters Retired Partner in the law firm of Gibson, Dunn & Crutcher LLP; former Member, Public Oversight Board of AICPA; former Commissioner of the U.S. Securities and Exchange Commission; 63 years old; Director of Merrill Lynch since 1994. Excellent background and should have been a major contributor. Also has been on the board for thirteen years. Where was this guy as the strategies for sub prime were laid out and executed?

Charles O. Rossotti Senior Advisor to The Carlyle Group; former Commissioner of Internal Revenue at the Internal Revenue Service; former Chairman of the Board and Chief Executive Officer of American Management Systems; 64 years old; Director of Merrill Lynch since 2004. Excellent background in financial matters.

Alberto Cribiore Managing Partner and founder of Brera Capital Partners, a global private equity investment firm; former Co-President of Clayton, Dubilier & Rice, Inc.; 59 years old; Director of Merrill Lynch since 2003. Excellent background in financial matters.

John D. Finnegan Chairman of the Board, President and Chief Executive Officer of The Chubb Corporation; former Executive Vice President of General Motors Corporation, and Chairman and President of General Motors Acceptance Corporation, a subsidiary of General Motors Corporation; 56 years old; Director of Merrill Lynch since 2004. Hey he was supposed to be pretty good. GMAC has lots of experience in sub-prime.

There are three individuals who manage or are involved in large charities or educational organizations.

Carol T. Christ President, Smith College; former executive vice chancellor and provost, University of California, Berkeley. 63 years old; Director of Merrill Lynch since 2007.

Judith Mayhew Jonas Member of the U.K. government's Commission for Equality and Human Rights; former Provost of Kings College, Cambridge; former Special Adviser to the Chairman, Clifford Chance, Solicitors; former Vice Chair of the London Development Agency; 57 years old; Director of Merrill Lynch since 2006.

Judith Mayhew Jonas Member of the U.K. government's Commission for Equality and Human Rights; former Provost of Kings College, Cambridge; former Special Adviser to the Chairman, Clifford Chance, Solicitors; former Vice Chair of the London Development Agency; 57 years old; Director of Merrill Lynch since 2006.

I would say that of the stated experience none of these last three had any business being on the board of an I-Bank. Never the less they accepted the responsibilities and there is no evidence to indicate they were against all the sub-prime strategies.

The board is rounded out by a retired Admiral and two senior business executives from operating companies. They need to prove that they were not asleep at the switch.

With the exception of Aulana L. Peters all the board members are relatively new having been appointed since 2000. Did they have the necessary perspective on the business to be adequate to the job?

While Stan O'Neil is the standard bearer the board needs to accept major responsibility in this matter.