The media is eagerly waiting to jump into the void created by Merrill Lynch (NYSE: MER)'s succession struggle. And its decision this morning to let CEO Stan O'Neal retire and to appoint Alberto Cribiore as interim non-executive chairman is a good one. I think the board should figure out how Merrill should change its corporate strategy before picking a new leader. And I would recommend that it resist pressure to be forced into picking the leadership team before that new strategy has been hashed out.
If I was in Merrill's boardroom, I would be encouraging a debate about the following questions: Why does Merrill need to change its strategy? Why is it important to pick the new strategy before choosing a new leadership team? Shouldn't the board just hire a new CEO and ask the CEO to figure out the strategy?
Here's where I come down on these questions:
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Merrill needs to change its corporate strategy. Merrill is really three companies -- the successful wealth management part supported by 16,000 brokers and $2 trillion in assets under management, the corporate banking part in which Merrill is a middling player, and the volatile fixed income part that forced Merrill to take an $8.4 billion write down. Merrill should decide which of these will be attractive businesses for its shareholders over the next five years and find a way to sell or close the ones that can't earn their cost of capital.
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Until it figures out a new corporate strategy, Merrill should create a temporary management structure. Merrill should put in place a temporary management structure, led by Cribiore who will oversee the corporate strategy evaluation. Once this strategy evaluation is completed -- it could take four to six months -- then the board can figure out what kind of CEO is needed to execute the new corporate strategy.
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Choose a more permanent management team. If Merrill's board decides that its corporate strategy should be to focus on wealth management, then it should appoint a CEO -- such as Robert McCann who heads its brokerage division -- who can sell off the other parts of Merrill and invest the cash to give Merrill a sustainable competitive advantage in wealth management. If Merrill's board decides that corporate banking is the way to go, then it should find a CEO who excels in gaining market share in corporate finance.
This approach will keep Merrill's board from confusing the conversation about its strategy with that of who should lead. Despite Stanley O'Neal's Goldman Sachs Group (NYSE: GS) envy, my hunch is that Merrill will never be able to beat Goldman at corporate banking or trading for its own account.
So it should place a big bet on the capabilities at which it excels -- wealth management. Besides losing board support, O'Neal's biggest mistake was betting on the wrong bull. And now Merrill's board should figure out which bull to bet on before it hires its next CEO.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in Goldman or Merrill securities.
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Reader Comments (Page 1 of 1)
10-30-2007 @ 3:32PM
Richard Jacovitz said...
Mr Cohan you are absolutely correct. Merrill needs to work out its corporate strategy going forward before selecting its newest CEO any other approavch could end up being counter productive.
Richard
http://managementaschangeagent.blogspot.com/