John Thain is widely respected on Wall Street for his intelligence and experience. He scores top marks for his term at the head of the New York Stock Exchange. His knowledge of the bond market, gained running Goldman Sachs mortgage bond desk, is seen as exactly what Merrill Lynch needs right now. Investors in Merrill were pleased enough to push Merrill’s stock price up more than four percent after the news of his selection to replace ousted CEO Stan O’Neal broke yesterday.
Despite all this, Thain is far from an uncontroversial choice. In interviews this morning, current and former Merrill Lynch employees criticized the choice of Thain. The word used most often was “shocked.”
“I was shocked that the board went with someone with no connection with Merrill’s culture,” one former senior Merrill executive said. Others voiced similar concerns.
[More after the jump]
“It really shows that the board is only concerned about the current crisis and not interested in rebuilding after the damage O’Neal did to Merrill,” a Merrill Lynch broker said.
Even before outsized losses set in motion O’Neal’s fall from grace, he was criticized by many former and current employees for tearing down Mother Merrill, the traditional culture that reigned inside of Merrill. Former Merrill executive Win Smith recently described “Mother Merrill” to Maria Bartiromo in Business Week: “It was really a culture built around five principles: [Number one] the client's interests must come first. Second, one was to respect one's colleagues. Third, the firm relied on teamwork. Fourth, you had a responsibility to your communities. And fifth was integrity: You never did anything that you couldn't read about on the front page of The Wall Street Journal,” he said.
Many hoped the board would take O’Neal’s ouster as an opportunity to restore Mother Merrill by selecting someone with strong ties to the brokerage.
“There’s still a lot of institutional memory that they could have tapped. Instead the board decided it wants to be Goldman Sachs,” the former senior executive said.
Merrill’s brokerage business remains at the core of its operations and its profits. Thain has no brokerage experience, and has a reputation of being impersonal. One broker interviewed by DealBreaker said he feared Thain might be too cerebral and too “snobby.” Many brokers we spoke to believe the top job should have gone to their boss, Robert McCann.
"I'm shocked they went with an outsider," another broker said. (See what we mean about "shocked"?)
DealBreaker interviewed more than a dozen past and present Merrill employees, including brokers based in and outside of New York. Most were critical of the Thain choice but several expressed guarded optimism. All asked not to be named in this item.
“A lot of us get paid in stock so if Thain can get the stock moving up, he’ll win us over,” one broker said.
There is a bit of “anybody but O’Neal” sentiment in some of the comments from employees. Business Week quotes Win as praising Thain for not being O’Neal. "He understands the power of culture, which Stan did not," says Win Smith, a former Merrill executive and a son of one of the firm's founders. "He'll take time to understand the old culture and what made it so good."
He Fixed the NYSE. Can He Fix Merrill? [Business Week]