How Stan O'Neal got rich – and stayed that way

The myth of talent allowed Merrill Lynch's chief executive to snatch riches beyond all of our wildest dreams.

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 myththat has made their own employees and those of their clients so very, very rich.

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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.

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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).

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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