A primer on leadership for Wall Street CEOs

Stan O'Neal, CEO of Merrill Lynch, has had to exit his job following huge losses on the sub-prime portfolio. It wasn't just the magnitude of the writedown- $ 8bn- that appalled the board and analysts. O'Neal was seen to have failed to provide the right guidance- the estimate only a few weeks earlier was of $4.5 bn. This was seen as a poor reflection on risk management at the firm.

O'Neal was also faulted for having approached Wachovia Bank for a possible merger without prior discussion with his board.

These are both failures, all right, but are they big enough to cost a CEO his job? Wall Street's standards, you might say, are exacting. You earn big money as the CEO of a Wall Street firm and you must expect the margin for error to be narrow.

However, as former star analyst Abigail Hoffman points out, others have got away with failures of the same order.

I find it odd and odious that Mr O’Neal has been hounded from office while other chief executives linger on. At Citi, Mr Prince has presided over third-quarter fixed-income losses and a lacklustre share price performance; Bear Stearns, under James Cayne, has stumbled badly; and Ken Lewis, Bank of America’s chief executive, had the wrong people in charge of the investment banking division, where net income fell by $1.33bn in the third quarter.

Hoffman notes that O'Neal had conspicuous success at Merrill:

Mr O’Neal changed Merrill and, in my opinion, he changed it for the better. He diversified the business away from its traditional retail broking focus and oversaw significant profit growth. Net earnings rose 47 per cent last year to a record $7.5bn.

So, why was O'Neal singled out for heavy punishment? Hoffman says the problem was not the failures he ran up recently. It is just that he antagonised people through his cost-cutting and, more critically, failed to pack the board with supporters. As a CEO, you need to perform, of course, but there are other things you need to keep in mind:

Mr O’Neal’s departure was not inevitable. Nevertheless, this squalid incident has lessons for us all. Chief executives must be careful to keep the board on side. And the maxim: “On your way up, be cautious who you step on because you may meet these people on the way down” remains true.