The Prophesies of the I Ching
In all of my 44 years of studying the I Ching, I have never seen a more prophetic warning than the opinion of the I Ching about the Stan O’Neal-Merrill Lynch Time Space (Hexagram 44 – Coming to Meet). The only other case that comes close would be that of the Scott McNealy–Sun Microsystems Time–Space where the I Ching correctly predicted its bankruptcy (Hexagram 36 – The Darkening of the Light). Both cases should be studied at Harvard School of Management as to what a CEO should not do. And both cases should also be studied by every student of the I Ching (and in particular by every investor) as to why the I Ching is always right.
During my 12 years as a Financial Advisor with Merrill Lynch, I gathered $150 million in assets and produced $2 million a year becoming a member of the top (International) producers’ Eagle Club. When I left Merrill Lynch in 2002 (or rather Merrill Lynch left me), I wrote “The TAO for CEOs and Investors”. In the introduction, I explained the various reasons why I left Merrill Lynch.
One was the fact that I felt we had betrayed our clients’ trust by allowing the Henry Blodget’s of our research department to make poor recommendations while receiving part of the fees of the Investment Banking Division. That is, not only was there no “Chinese Wall” between Research and Investment, but worst, both were in bed together.
The other was because to add insult to injury, Stan O’Neal (Komansky was on his way out and was only a figure head) wanted the Financial Advisors to abandon those clients with assets below $1 million because he wanted to turn Merrill Lynch into a Goldman Sachs.
In the 2002 version of THE TAO FOR CEOs AND INVESTORS, knowing about the I Ching’s warning that O’Neal “abrasive” attitude would harm Merrill Lynch, I wrote:
The I Ching says: “A king is the symbol of a fatherly man who is richly endowed in mind. He does nothing to make himself feared; on the contrary, the whole family can trust him, because love governs their intercourse. His character of itself exercises the right influence”.
But what made my stay at Merrill even more unbearable was the cocky new policy of its future CEO obsessed with turning Merrill Lynch into a Goldman Sachs, while keeping the Merrill Lynch name.
If Wal-Mart improves its products and personnel and opens a branch in front of Tiffany at Fifth Avenue, how many of those millionaires who have always shopped at Tiffany will cross over Fifth Avenue to buy at Wal-Mart? If Merrill Lynch throws out its clients below a million dollars, after incurring substantial losses due to poor research recommendations and after years as loyal clients, will that signal to the multimillionaires of the world that now Merrill is like Goldman Sachs? Well, that is exactly what management was doing, while in the process robbing its Financial Advisors of their income by reducing their payout while keeping the commissions from the small clients for itself.
The I Ching says: “Evil is not destructive to the good alone but inevitably destroys itself as well. For evil, which lives solely by negation, cannot continue to exist on its own strength alone. The inferior man himself fares best when held under control by a superior man.”
I guess Marriot’s CEO refused to live solely by negation. By having a group of hotels such as Fairfield Inn, Courtyard, Marriot and J.W. Marriot, he achieved brand differentiation without offending his clients, shareholders or employees.
As I leave Merrill Lynch, I would like to leave its CEO and top management with a simple advice.
The I Ching says: “When the good elements of society occupy a central position and are in control, the evil elements come under their influence and change for the better. When the spirit of Heaven rules in man, his animal nature also comes under its influence and takes its appropriate place.”
I dearly hope the good elements within Merrill Lynch will occupy the central position and take control of the corporation.
In 2008, when Merrill Lynch lay in shambles, everyone was bad mouthing Stan O’Neal:
The readers of Entrepreneur Limited elected him the World’s Worst Financial Markets CEO: “The CEO who exhibited the worst kinds of unbridled greed and a lack of compassion or concern for others over the last year”.
The New York Times Magazine described him as one of the “feckless dolts” who helped precipitate the financial crisis of 2007.
CNBC included O’Neal in their list of “Worst American CEOs of All Time” “The CEOs who most effectively destroyed value and innovation while displaying the worst management skills throughout their management tenure.”
After reading those comments, I recalled what the I Ching had said about O’Neal in 2002, a year before he was elected CEO, and how the I Ching had correctly predicted he would irreparably damage the 100 year old corporation.
In 2008, it was easy to see how O’Neal’s social and racial resentment had destroyed Merrill Lynch. But who could foretell in 2002 that his inferiority complex and his envy for Goldman Sachs would do so much damage? The I Ching did. Had the BOD taken a few minutes to consult the Oracle, they would have saved Merrill Lynch.
O’NEAL’S ELECTION AS CEO
When David Komansky realized he had to retire earlier than anticipated, he and the BOD of Merrill Lynch had to choose the next CEO from a group of three executives. Stan O’Neal won thanks to his ruthlessness and back stabbing strategies. It was déjà vu all over. Everyone knew how in 2001 he had taken over the presidency of Merrill Lynch in a classic palace intrigue that eventually led to the early ouster of his predecessor and one-time mentor David Komansky. It was only proper that Komansky’s dragon would burn the hand that fed him.
Why the BOD of Merrill Lynch did choose him as CEO in 2003?
They felt it was the “politically correct” thing to do.
What made O’Neal the politically correct choice?
He was black and he embodied the idea of success. He was born in a poor town in the south. The legend said that his grandfather had been a slave. His father was a poor farmer who had to move to Detroit. He worked for the assembly lines at GM and GM had agreed to pay for his education once Harvard had accepted him. In his first act of disloyalty, he had quit GM and gone to work for Merrill Lynch. There, he proved to be a ruthless manager in the fixed income department. From his early days, he had shown an obsession with the Goldman Sachs corporate model, and as he moved to the higher management levels, he had made strong criticism of management as to why Merrill Lynch was not as profitable as Goldman Sachs – too little risk taking. Even then it was evident that he knew nothing about marketing (product differentiation) but he thought he knew about leverage. He had never read Warren Buffett’s thoughts on leverage ‘If you’re smart you don’t need it, and if you’re dumb, you got no business using it.’ O’Neal was definitely dumb.
By making a “politically correct” decision, the BOD was hoping that the financial world would stand in admiration of Merrill Lynch for having elected its first black CEO in its 100 years history – a history of Irish Catholic culture. But there were two basic mistakes with such a “politically correct” choice:
The first mistake was to choose someone without merits. Yes, he knew about fixed income and had been CFO but he knew nothing about the brokerage business. Furthermore, the rumor was that he only felt contempt for the brokerage business as he proved it in 2000 when he was named president of the U.S. Private Client Group, which made him the first executive of the division to oversee Merrill’s brokerage without being a broker himself. As expected, O’Neal led the massive layoffs within the division. That was a big mistake.
The second mistake was to discriminate in favor of someone because of his color. This implies that the BOD is discriminating against someone because of his color. That was the case of many of the top executives of Merrill Lynch who were not taken into consideration because of their color. According to the I Ching, any of the other two candidates would have done a much better job. In particular, the I Ching held that Win Smith, the son of one of the founders, would have done an excellent job as CEO, but Win Smith was white.
These differences were arbitrary rather than based on inner worth:
The I Ching says: “Thus the superior man discriminates between high and low, and thereby fortifies the thinking of the people. Heaven and the Lake show a difference of elevation that inheres in the natures of the two, hence no envy arises. Among mankind also there are necessarily differences of elevation; it is impossible to bring about universal equality. But it is important that differences in social rank should not be arbitrary and unjust, for if this occurs, envy and class struggle are the inevitable consequences. If, on the other hand, external differences in rank correspond with differences in inner worth, and if inner worth forms the criterion of external rank, people acquiesce and order reigns in society.”
There are hundreds of lessons the I Ching can teach the CEOs. This is one of the most important.
