Win Smith on the Exit of Merrill's CEO

"For whatever reasons, he decided to get rid of a lot of longevity, a lot of memory, and I think, that came back to bite him"

Former Merrill Lynch executive Winthrop H. Smith Jr. runs his own investment firm and Sugarbush Resort. Shawn G. Henry

Win Smith doesn't mince words when he talks about the culture-crushing reign of Stanley E. O'Neal, who "retired" as Merrill Lynch (MER) CEO on Oct. 30 following the disclosure of $8.4 billion in subprime-related losses and secret merger overtures to Wachovia (WB). There are those on the Street who say Smith, the son of one of the founders of Merrill Lynch, Pierce, Fenner & Smith, has had a bad case of sour grapes since O'Neal beat him out for the top job in 2002. Smith—who worked at Merrill for almost 30 years and rose to be an executive vice-president and chairman of Merrill Lynch International—says there are hard feelings, but not about being passed over. In a phone call from his redoubt in Vermont, where he runs his own investment firm and Sugarbush Resort, Smith lamented the damage done to "Mother Merrill" by a talented man set loose in the wrong job.

MARIA BARTIROMO

Didn't the old guard at Merrill have the knives out for O'Neal ever since he took charge?

WINTHROP H. SMITH JR.

I would say that what he did that made many of us non-supportive was to publicly castigate Mother Merrill without understanding what Mother Merrill stood for. 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.

I don't think those principles were something Stan embraced or articulated. He thought Mother Merrill stood for paternalism—softness—which it did not in any way.

Even though he was an insider?

He was not an insider, really. You know, he grew up in the financial department of General Motors (GM) and came over in the late '80s, I believe, to the high-yield area. Momentarily left and came back. Yes, he was there for a period of time but never truly understood the strength of the firm's culture.

Was there ever any resentment of O'Neal related to his race?

Absolutely not.

So why was he made CEO? David Komansky was running the firm before O'Neal was named, and everybody expected Stan to start cutting, cutting, cutting.

Stan is a very talented, capable person, and my criticism is really that he did not take time to understand the strength and the power of the culture he was inheriting. And I think that was a fatal mistake that is resulting in the problem today.

So he came in and started cutting people without recognizing their talent and experience?

After 9/11, Merrill had gotten fat, a little bit bloated. But its strategy wasn't flawed in most of our opinions. And so how he went about [downsizing] is what I think became so damaging. For whatever reasons, he decided to get rid of a lot of longevity, a lot of memory, and I think, that came back to bite him.

Were you surprised that the board acted so swiftly?

If someone isn't a true leader and the troops aren't behind you, they may be fearful to speak up when times are good. But once a leader trips, that's when you find out the true character of the person by who's going to come to his rescue. And I don't think anybody came to his rescue.

He totally lost the support of the board?

And the employees and other stakeholders.