Home—Blog—How Stan O'Neal got rich – and stayed that way
Jan 27, 2012, 10:50
Posted byMerryn Somerset Webb
Comments (10)
If you want to try and understand where the huge rise in pay inequality across the West has come from, you might get yourself a copy of David Bolchover’s updated Pay Check: Are Top Earners Really Worth It? to read over the weekend.
You can probably guess the answer to the title question but the book is still worth a read for its explanation of how McKinsey invented the talent myth that has made their own employees and those of their clients so very, very rich.
One gem to get you started: did you know that one in three US male CEOs is over 6’2” but that only one in 30 of the adult population as a whole is over 6’2”? Add that to the fact that most of them are white, male and middle aged, and you have to wonder just how much time US companies really spend making sure they get the best talent and how much time they spend just letting some guy who looks the part have the job.
“Can we take the corporate mouthing of the talent ideology seriously when so many of those deemed sufficiently talented to get their heads around complexity are tall white men between 45 and 65?” asks Bolchover. Good question. You’ll also find the part on Stan O’Neal amusing. Bolchover contends – I think rightly – that we have long made the mistake of allowing people to be paid personal fortunes for things that have little to do with their actions.
Take O’Neal. He took over at Merrill Lynch (ML) in July 2001 just as the credit bubble was starting to get into its stride. ML hadn’t been doing that well. So he took action. He started a company-wide cost-cutting programme that laid off 24,000 workers and closed hundreds of offices. It appeared to pay off. Profits hit a record $3bn in 2004 and passed $6bn in 2006. O’Neal was lionised by the markets and he got super rich along the way. He took home a total of $145m in four years (roughly $100,000 a day).
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Then in late 2007, ML declared a write down of almost $8bn in mortgage securities and O’Neal resigned (with a payoff worth something in the region of $160m). Suddenly his hero status collapsed. He was ridiculed for playing golf as ML imploded and in 2009 came 18th on a list compiled by business school professors of the worst CEOs of all time.
But the point to bear in mind here is that none of this had much to do with O’Neal himself. He might have put in place the obvious strategy of major cost-cutting and fiddled around with the internal organisation of ML. But that isn’t what made revenues and profits soar. It was the seemingly buoyant economy and the credit bubble that did that. His fortunes followed those of his company which in turn followed those of the bubble machine that was the US economy at the time. Then when things turned down, so did everything. You can blame him if you like for investing in a stupid sector (sub prime) but he wasn't alone – the entire industry did the same.
“Whether he has talent or not was irrelevant,” says Bolchover. “He just happened to be the incumbent, the head of a company that was performing more or less as it would have with a different leader selected from a large pool of equally qualified candidates from both within ML and outside the company. He was not a hero. He was not a dunce. He was just there.”
But the talent myth nonetheless allowed him to snatch riches beyond all of our wildest dreams on the way up. And keep them on the way down.
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Leave a comment
(27 January 2012, 01:18PM) Complain about this comment
"You can blame him if you like for investing in a stupid sector (sub prime) but he wasn't alone – the entire industry did the same"JP Morgan got out of sub-prime before it blew up. Stan O'Neal could've done the same with ML but he didn't
(27 January 2012, 02:11PM) Complain about this comment
Read it last year Merryn. It is very good but Malcolm Gladwell's "Outliers " does a better job attacking the talent myth and Polly Toynbee's "Unjust Rewards" at attacking the disconnect between the rich and the average. Bolchover rightly points out that 70% of CEO's are appointed from within Companies and from lower ranks. They are appointed for their potential and not past performance. So if they do believe in talent they are rewarding talent yet to be proven.He also shows CEO pay in the US was 42 times average in 1980 and 531 times average by 2000, it is now pushing 750 times!
(27 January 2012, 02:18PM) Complain about this comment
Sorry I should have mentioned Danny Dorling's book "Injustice". There are two sides to the problem of talent myth and high pay. The flip side is that we are all told everyone gets a fair start, a decent education and (cynically) a fair opportunity. Thus many feel if they don't "make it big" it is their own fault .Either for not trying hard (the idle poor myth) or for not being talented enough. Premier League soccer helps sustain the myth among poorer people. Banks simply are assumed to be like football teams and so few qusetion the massive pay packets.
(28 January 2012, 07:59AM) Complain about this comment
Bolchover's writing has led the way in exposing the talent myth. But there are so many vested interests in preserving it that it has taken time for his insights to gain a wide hearing. Polly Toynbee's writing on the subject is just the standard Left wing rant. Gladwell's stuff is good, but Bolchover is really the go-to man on the subject.
(28 January 2012, 05:32PM) Complain about this comment
#4 Sheps.Toynbee's book is better than just a rant. It shows how staggeringly out of touch with the real world our wealthy are. Her survey of people in the top 0.1% of earners showed they thought they were only in the top ten per cent and had no idea how much people like teachers or even doctors earned. On average they thought to pay 40% tax you need to earn £165,000 ( in 2007 !).They refused to believe that 90% of people earn less than £40,000. Most concerning they believe they deserve to earn up to 200 times average pay because they work hard and blaming low earnings on lack of aspiration.
(28 January 2012, 06:57PM) Complain about this comment
"Bolchover contends – I think rightly – that we have long made the mistake of allowing people to be paid personal fortunes for things that have little to do with their actions"That little phrase is quite chilling - you don't "allow" people to be paid, and you shouldn't have anything to do with it.Only in communism the state dictates what people can be paid, and if you think capitalist inequality is bad, the 1%-99% divide is nowhere as genuine as it was in communism.
(28 January 2012, 09:32PM) Complain about this comment
#6 Niav. Chilling indeed. It is worth mentioning the degree of reassurance big business gets from paying high salaries. They (and the shareholders) rest easier because they assume by paying massive salaries they must have attracted the best, most brilliant leaders. They literally think that super -rich means super-human and these people are, to them, worth 500 times a mere mortal.I forgot to recommend two other books for those who care: Masters of Nothing by Matthew Hancock and Nadhim Zahawi and The Super -Rich Shall Inherit the Earth by Stephen Armstrong.
(29 January 2012, 09:46PM) Complain about this comment
@Niav - by "we" I don't mean the state, I mean shareholders. @Boris - There is a new updated edition of Paycheck out which has some new and useful bits in it.
(30 January 2012, 11:13AM) Complain about this comment
What Bolchover understands which is new and fascinating is how the notion of "meritocracy" ( a good thing) has been "captured" by well-positioned mediocrities, who have defined themselves as super talented and therefore justifying multi-million pound fortunes every year. The problem is there's not reasonable proof of such talent. And that's the point, you can have your fortune, if you can prove you're worth it. And we just sit there passively and let them grab our money. This insight is more important than Gladwell or Toynbee.
(30 January 2012, 05:30PM) Complain about this comment
#9 Curious O is right.This is crucial to the pup we've all been sold. But to fully realise how "talent"does not exist we must read Gladwell and even Matthew Syed. Most people can readily accept that some can be 50% better, even twice as good as others. However we are now asked to agree that some are 300, 500 ,even 750 times better.I'm sure Mr Hester is very good at what he does but should he get a major lottery win every 4 months?
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