“Rating: Overweight; Based on Culture” (by Jim Toes, STA)


Earlier this month, Daniel “Dan” Tully, former Merrill Lynch Chairman and CEO passed away at age 84. Dan’s career at Merrill spanned 42 years and reached its apex from May 1991 to December 1996 when he served as Chairman and CEO. During his 5 1/2 year tenure, the share price of Merrill Lynch tripled, but that is not what former employees will remember him for. I started at Merrill as a Nasdaq trader in 1992 and while I never had the privilege to call Dan a friend or come anywhere near close to working directly for him, I can confidently attest to what is being written about his legacy and the value he brought to the firm by creating a culture based on; client focus, respect for the individual, teamwork, responsible citizenship and integrity. My interactions with Dan were limited to observing him visiting the trading floor. This happened often, during good days and bad. If you walked behind him, you would see people put down phones, stand and smile. Dan was approachable and possessed the ability to have a private conversation with an employee while 400 sets of eyes looked on. Make no mistakes however, Dan was no push over. As former colleague Winthrop Smith recently said, “Dan was tough and courageous, but he also had a soul.”

A CEO’s ability to create a positive culture often gets under weighted in all the metrics used to determine a company’s valuation. In today’s world, confidence is more easily found in clearly measurable results than in a judgement call of the company leadership’s ability to inspire and motivate employees. Since there are no “culture ratings” or “culture ratios” that can be easily plugged into a valuation formula, some analysts and many investors don’t think to look for it when formulating opinions of buy, sell or hold.

Earlier this week one bank analyst, Gerard Cassidy of RBC, highlighted the value of culture when interviewed by Tom Keane on his research report titled, “Mirror, Mirror on the Wall, Who is the Fairest of Them All” which addressed the stock performance during the top 20 banks CEO’s tenures. In full disclosure, Gerard is my cousin and someone I have always looked up to. In his report he summarizes the importance of senior management. “The quality of senior management of any publicly traded company is very important to the company’s long-term success. We believe the strength of a senior bank management is even more critical to the long term-term success of a bank due to the opaqueness of the industry’s financial statements”. Amen, cousin.

Culture matters. Yes, it’s hard to instill and even harder to measure, but it matters in all areas especially those which are not clearly visible, and it starts at the top. Great CEOs attract great senior managers. Dan Tully was a great CEO as measured by skill and integrity, and his senior management were equally as great. That flowed down to the foot soldiers trading Nasdaq companies and serving Merrill’s clients. In his passing, we wish his family peace and thank them for sharing him with the thousands of former Merrill employees.

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