Daily Walk of Shame: John Thain

Editor's note: An earlier version of this article suggested that Mr. Thain acted without Bank of America's knowledge in paying bonuses and reporting Merrill's $15 billion quarterly loss. We regret the error. Read more about the corrections here.

Today's subject: Last month, John Thain, former head of Bank of America's (NYSE: BAC  ) Merrill Lynch unit, sat down at The Wharton School of Business to speak with MBA students and a panel of experts. Mr. Thain discussed the future of the banking system, JPMorgan Chase's (NYSE: JPM  ) purchase of Bear Stearns, problems with Freddie Mac (NYSE: FRE  ) and Fannie Mae (NYSE: FNM  ) , and the need for more competition among credit ratings agencies like Moody's (NYSE: MCO  ) and Fitch.

It's quite possible that after watching the two-hour discussion, you may have walked away with a sense of respect for Mr. Thain, maybe even a feeling of empathy.

Why you should be indignant: Let's first look at some of his quotes from the discussion:

I have actually never believed in either executive contracts or golden parachutes. I don't think people should have golden parachutes ... They should get paid based upon the performance of the company ...

I think the most important thing was to protect my shareholders and to protect my employees, and I did the right thing for what my job was. The fact that this came at the expense of my job and then, even beyond that, to some extent my reputation was certainly damaged by the aftermath of that -- I still believe in being honest and telling the truth and doing the right thing.

I do a lot of charitable things. And, by the way, I did that before. These are not really new things.

Wow! From the way the transcript reads, it seems as though Mr. Thain is a stand-up, morally upright citizen -- the anti-Wall Street CEO who avoids golden parachutes and always does the "right thing."

Here's the problem:

Right before Merrill closed the deal with Bank of America, it doled out a few billion (yes -- billion) dollars to Merrill workers. I guess this is what Thain means by "protecting his employees." However, this seems awfully contradictory to his comments on golden parachutes, which isn't that far from what Merrill provided -- just a bit modified and wrapped in different jargon.

In early 2008, as a prelude to slashing thousands of jobs at Merrill -- his so-called "protected" employees -- he was spending more than $1.22 million on his own private office! An $87,000 rug here, a $68,000 credenza there -- you know, the usual fixings. Seems like a stand-up guy.

Finally, as estimates of Merrill's eventual $15 billion fourth-quarter loss were ballooning, he hopped a flight to his very own posh Colorado ski resort and hung out for a week. Doing the "right thing"? Dubious.

What now? It seems obvious to me that Mr. Thain is full of contradictions. He claims to do the right thing, but his words and actions aren't in sync.

But what disturbed me the most was seeing him on stage with esteemed and brilliant professor Jeremy Siegel, admired by a room full of MBAs, and consistently applauded for his honest and forthright answers. I mean, c'mon. Give me a freaking break.

Are we so impressed with this man just because he owned up to some of his mistakes? Yes, he would have handled some things differently. Yes, he did say he should have bought less expensive furniture at Ikea. But somehow I find it hard to believe that Ikea was ever in his thought process. Generally speaking, I find Wharton's interviews both interesting and inspiring, but this just left me feeling angry.

Anyone else think it's ridiculous to honor John Thain like he's some kind of post-war financial hero for answering a few tough questions at a business school?

Jordan DiPietro does not own shares of any companies mentioned. Moody's is a Motley Fool Stock Advisor recommendation and a Motley Fool Inside Value selection. Try any of our Foolish newsletters today, free for 30 days. The Fool has a disclosure policy.


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  • Report this Comment On October 06, 2009, at 1:02 PM, slidexperto wrote:

    EASTMAN KODAK and CITIGROUP might close today @ $5.00...!good luck guys.

  • Report this Comment On October 06, 2009, at 5:06 PM, RaulChapin wrote:

    I think the question that needs to be asked is:

    Are these applauding MBA Students looking to be stand up guys who do the right thing... or are they looking for the 6 or 7 figure salaries that people like John Thain command.

    Are MBA Students at Wharton thinking that the hundreds of thousands of dollars spend in getting their education (whether paid by themselves or people giving them grants) have to provide a benefit and if so... how?

    Maybe these MBA students are secretly fooling themselves (or their consciences) into believing that John Thain is a stand up guy, and that them too will be when they take obscene compensation packages with golden parachutes, after all, they are more educated that the 80 thousand strong who demand cushy jobs offering nothing but a BA and no relevant experience.

  • Report this Comment On October 06, 2009, at 5:38 PM, TMFAleph1 wrote:

    Jordan,

    You wrote:

    "Right before Mr. Thain closed the deal with Bank of America, he decided to dole out a few billion (yes -- billion) dollars to Merrill workers. I guess this is what he means by "protecting his employees." However, this seems awfully contradictory to his comments on golden parachutes, which is essentially what he provided -- just wrapped in different jargon."

    I'm no fan of John Thain, but there is no way in which these bonuses can be equated to golden parachutes. These are two separate concepts that shouldn't be amalgamated.

    Annual bonuses are a standard component of the annual compensation structure for many Wall Street employees, but the firm is not generally bound by contract to pay a bonus.

    'Golden parachutes', on the other hand, are contractually defined payments that are made to a company officer in the event of his departure (assuming said departure meets certain conditions).

    Best,

    Alex Dumortier

  • Report this Comment On October 06, 2009, at 6:14 PM, TMFPhillyDot wrote:

    @TMFMarathonMan

    To me, here are the similarities: if thousands of Merrill employees were laid off due to regular termination or because of the merger/takeover, and some of them received million dollar "bonuses" -- then it's all semantics. The bonuses (of which 4 people obtained $121M) may not have been contractually bound, but like I said in the article, to me it's just jargon.

    It just seems odd that a man can be so against giving out golden parachutes when he is paying $3.6B in bonuses, especially when his newly merged company, BOA/Merrill, is a TARP recipient. And why did he expedite the bonuses to be paid in December when typically Wall St. bonuses are paid in mid-January? (to avoid a new bonus tax implemented on TARP recipients) The guy is just full of contradictions and the 'I'm against golden parachutes' was just another illustration in my mind.

    Thanks,

    Jordan (TMFPhillyDot)

  • Report this Comment On October 06, 2009, at 6:17 PM, SLSguy wrote:

    Conflating golden parachutes and bonuses may be inaccurate, but Jordan's point is totally valid. I have heard many excuses for the payouts (e.g. "A couple of divisions did very well. Why should they suffer for the ones that did poorly," etc.) but these excuses are insulting to the shareholders, employees and customers of Merril Lynch. Look at the last 18 months (or more) before BOA took over, and you will see major mismanagement at Merrill and even though Thain is only partly to blame, the very idea of the payouts shows he is more interested in individuals than in the company as a whole. The fact that Wharton students are applauding him is sad, and indicates that the financial sevices community has learned next to nothing from the mess they created a year ago.

  • Report this Comment On October 06, 2009, at 6:22 PM, TMFHousel wrote:

    I thought the most ironic part of his talk was when he said something along the lines of, "If you're going to sell something in finance, regardless of what it is, you have to make sure who you're selling it to understands it. And you have to understand it yourself."

    The reason he's unemployed, and the reason BofA found itself in black hole, is because no one, no one, no one, could truly understand Merrill's balance sheet.

  • Report this Comment On October 06, 2009, at 6:25 PM, NotJesseL wrote:

    I explain his inconsistencies as follows: Either John Thain is fooling himself, or he has contempt for his wider audience. IKEA my aunt Fanny.

    That's how we human's roll, though, we have a seemingly infinite capacity for self delusion and pride.

  • Report this Comment On October 06, 2009, at 6:30 PM, rhymename wrote:

    As a former employee of both Merrill Lynch and Bank of America, I was quite riveted to a documentary program which aired here in Charlotte recently about

    the series of events leading up to BofA's takeover of Merrill Lynch. There were lots of talking head shots of Ken Lewis and Hugh McColl (naturally since this is BofA's home town). The comment that stuck with me was when Lewis explained how at the end of the all night negotiations with Thain, Thain demands a huge number ($50 billion?) for only himself and his top (5 ?)executives. Lewis said it literally made him sick.

    Makes me sick just hearing it.

  • Report this Comment On October 06, 2009, at 6:44 PM, pankaj13 wrote:

    TMFMarathonMan you wrote

    "I'm no fan of John Thain, but there is no way in which these bonuses can be equated to golden parachutes. These are two separate concepts that shouldn't be amalgamated."

    You may be right about definitions of golden parachutes and bonuses and Thain's actions may have subscribed to two different text book definitions. So even if his actions were legal as per definitions, they were still lacking legitimacy as we all know what happened to ML subsequently.

    Quick test of this reasoning - going forward would you feel comfortable owning stock (long position) of a bank that is headed by Thain knowing very well the fate of ML?

  • Report this Comment On October 06, 2009, at 6:47 PM, pankaj13 wrote:

    TMFMarathonMan you wrote

    "I'm no fan of John Thain, but there is no way in which these bonuses can be equated to golden parachutes. These are two separate concepts that shouldn't be amalgamated."

    You may be right about definitions of golden parachutes and bonuses and Thain's actions may have subscribed to two different text book definitions. So even if his actions were legal as per definitions, they were still lacking legitimacy as we all know what happened to ML subsequently.

    Quick test of this reasoning - going forward would you feel comfortable owning stock (long position) of a bank that is headed by Thain knowing very well the fate of ML?

  • Report this Comment On October 06, 2009, at 7:12 PM, windylindy wrote:

    Mr. Thain is a crook - pure and simple. Unfortunately, a very smart one.

  • Report this Comment On October 06, 2009, at 7:21 PM, drewski18 wrote:

    Ironic that Merrill's logo is the bull, because that's what John Thain seems to be full of. Thank god he got that $35,000 "commode with legs".

    What school does Dick Fuld get to speak at?

  • Report this Comment On October 06, 2009, at 7:40 PM, wifeyone wrote:

    This was a bunch of hooey!! The money (whether you want to call it golden parachute or bonus) was a last chance to walk away with the same obscene amount of money that they are accustomed to taking home in bonuses and perks. Mr. Thain is fooling himself and insulting you....His concern for employees or stockholders was a long way down on his his list of "things to do today".

    Wifeyone

  • Report this Comment On October 06, 2009, at 8:22 PM, memoandstitch wrote:

    People are just envious of Thain's employees and shareholders. Those bonuses don't hurt anybody except Bank of America but

    "Bank of America Chief Executive Kenneth Lewis agreed in writing that the bonuses could be paid before Bank of America's acquisition of Merrill closed," according to Thain.

    Until the deal closed in January 2009, Thain had the fiduciary duty to maximize Merrill shareholders' profits (and he did) and the responsibility to take care of his employees. There was nothing morally wrong about asking for someone (Bank of America) to cover his employees.

  • Report this Comment On October 06, 2009, at 9:11 PM, grendeth wrote:

    What I want to know is how John Thain managed to get Ken Lewis to buy his almost worthless company for that much money?. I am sure the government spanked Ken Lewis silly before he agreed to take over Merrill but that was some sales that Thain did.

    Shareholders must have been estactic.

  • Report this Comment On October 06, 2009, at 11:13 PM, alangnahz wrote:

    This guy is 100% criminally minded, although he might not have done anything legally criminal. But his day will come.

  • Report this Comment On October 07, 2009, at 12:10 AM, valari25 wrote:

    grendeth wrote:

    What I want to know is how John Thain managed to get Ken Lewis to buy his almost worthless company for that much money?. I am sure the government spanked Ken Lewis silly before he agreed to take over Merrill but that was some sales that Thain did.

    Because the Feds bankrolled the purchase and forced Lewis to complete the deal. Where have you been the last few months as that story played out? Rumors began circulating the day the deal was announced and Ken Lewis confirmed them in front of Congress.

  • Report this Comment On October 07, 2009, at 12:16 AM, myperspective wrote:

    This was a very well worded article relating to half the facts. There are many other factors to consider and your wording is extremely misleading.

    First, a little background. I myself lost my job when John Thain took over and the lay offs began. I don't blame John Thain for this though, I blame Stan O'neal for the chain of events that lead to Merrill's curent situation. Prior to the loss of my job and continuing to this day though, I blame middle level managers for using the layoffs as an opportunity to eliminate threats to their journey up the corporate ladder. I worked in sales and as a previous and current shareholder of ML/BAC, it infuriates me to see the number of top producers, (those who were generating revenues that the company desperately needs righ now) that were let go due to "downsizing" and position eliminations only for the company to hire new people 3 weeks later to fill the spots. It's funny how no one ever prints an article about this, I guess it's just not as juicy as going after the CEO's even though there are thousand of lower level employees that were served an injustice.

    It's funny how when your bashing John Thain for wanting to spend $1million renovating his office (which I agree is more than is needed) you fail to mention that Stan O'neal collected something in the area of $150million on his way out and O, BTW he only lost the company 60 something billion $ prior to his exit from the firm. I'm not worried about that $1million office renovations, I'm worried about the millions that was handed to the person responisble for Merrill's death spiral.

    I'm sure you are aware of what brought Merrill Lynch down right, as well as the rest of the financial system. They purchased $billions of flawed mortgage backed securities. Why did they purchase these securities? Because at the time, they yielded an attractive return. There was an analyst who advised Stan O'neal that the company was overexposed to these assets and that the assets were not safe. I appologize that I can not remember his name, but he was fired for his opposition to Stan's plan. John Thain hired the analyst back shortyl after he took over as CEO. This leads into the next point regarding the $3.5billion in bonuses. I do not know the exact number of traders who purchased these securities for Merrill Lynch's book, but it's not a great deal, maybe 100, maybe less. Their actions, from this 1 business unit of ML wiped out all of the profits from the other business units and all of the firm's pofits from previous years of "record net earnings" quarter after quarter, year after year. ALL OTHER BUSINESS UNITS OF MERRILL LYNCH WERE PROFITABLE, especially Global Wealth Management where the majority of Merril Lynch employees are located. $3.5billion sounds like a lot of money to be spending on bonuses for a company that's failing, I can 100% respect that. But it's important to understand that there are 1000's of employees who did their jobs well and generated profits and it's rediculous to suggest that these employees and their families should be looked down upon for receiving their bonuses which for the most part are considered when their salaries are set. Some of the people receiving these bonuses have $30,000 salaries and count on it to feed their family. I would love to see the traders, analysts, and everyone else who lost the company money go without bonuses during that time. But I don't blame John Thain for making sure the majority of the employees were taken care of for. For what it's worth, I was not there for the bonuses and did not receive one so I'm not defending it for myself, and yes, some people at the top got way more than they deserve, but don't forget that massive flood of talent, good talent from the profitable business units that have left Merrill Lynch because they were not paid and to make up for the losses stemming from Stan O'neals greedy desire to top Goldman Sach's earnings reports. There's other firms out there that have aggressively bought Merrill's best people. Those bonuses are insurance that top talent will not leave. You have a car, I'm sure it's insured. You have a home, I'm sure it's also insured. As a shareholder, I wish Bob McCann and Dan Sontag had been insured. Without them, I am not only missing out on the profits they were capable of generating, they will most likely be helping other firms compete against us. Not to mention, the massive flood of top advisors that are bound to follow them whereever they wind up and that's horrible for all of BofA's shareholders.

  • Report this Comment On October 07, 2009, at 12:51 AM, thisislabor wrote:

    Interesting perspective. I like how at the very end you state that they will most likely be competeing against "us". yet you no longer work for the company.

    however I still half away agree with your perspective.

  • Report this Comment On October 07, 2009, at 1:07 AM, Maraith wrote:

    If people are so talented, then they deserve a salary commensurate with their skill. Why set it up as bonuses? Presumably to match compensation with performance. Well, sorry. But if the company as a whole loses money, you don't get a bonus. But if you cannot keep them without paying a bonus or they won't do their best work without a bonus, say goodbye. It's a corrupt system and should be eliminated throughout the financial industry and beyond. It encourages short-term decision-making and is bad for America.

    By the way, very few $30,000 salaried employees received a million or even double their salary as a bonus. Usually, it's a percentage of your salary. Certainly that's true if they make $30k.

  • Report this Comment On October 07, 2009, at 6:17 AM, myperspective wrote:

    When I used the term "us" i wa referring to the shareholders.

  • Report this Comment On October 07, 2009, at 12:12 PM, ET69 wrote:

    When I read this kind of thing about these kind of corporate big wigs I am reminded about the good old days in the old Soviet Union...you remember them don't you ? As late as the 80's there were a couple of senior managers/party members of hugh state run enterprizes who sold a bunch of cotton in one case and watches in the other, secretly on the world market. They got caught trying to pull off their own 'golden parachute' and it was considered such a crime against the working class (employees) that they were SHOT ! In a just world there wouldn't be any Camp Cupcake for the Johns, Bernies,and Kens...

  • Report this Comment On October 07, 2009, at 5:18 PM, 2xdrb00 wrote:

    is this the meaning of, " he speaks with forked tongue?"

  • Report this Comment On October 08, 2009, at 11:06 AM, rbashmore wrote:

    Just read the article about John Thain. He and other corrupted Wall Street Executives are by-products of a government system full of officials bought and paid for by Wall Street. Wall Street and the corporations OWN Washington DC. Ask yourself, who has the government served more lately, you, or Wall Street. Do you actually know anyone whose home was saved from foreclosure by any government money sent to Wall Street Banks who continued partying and writing bonuses. Another Example: In 1994, at the request of Wall Street Banking Executives, the government passed the Alternative Net Assets Securities Act. What did the Alternative Assets to get a mortgage then become, basically "thin air." NINJA loans for everybody, Hundreds of Millions in bonuses for Banking Executives, and a financial collapse for the rest of us. What did the government do, at the request of the Wall Street Executives, attempt to rob two generations of Americans of $780 billion and send it right over to Wall Street. The same kind of thin air (as opposed to gold in the old days) that backed these mortgages is now backing the dollar as the printing presses keep rolling. MF: could you do a little more in your email/news letters on stocks/investments that will withstand the collapse of the dollar and include some precious metal investments. Everyone: time to get out and vote in a new government.

  • Report this Comment On October 09, 2009, at 12:13 AM, 2humble2fool wrote:

    I know it's popular to bash execs because they make so much money and have so many percs, but when was the last time you heard anyone say. . . "I'm sorry, but you're just paying me too much, do you mind if I give some of it back?" Too bad there are so few people that can honestly apraise what they would do if placed in a similar situation. Seem's like the first thing they think of is slamming someone cause they did what most of us would do.

  • Report this Comment On October 09, 2009, at 4:03 PM, djdd11 wrote:

    John Thain is history. There will be another "John Thain in the making, he is really of no consequences. The corporations should review how shareholders can have a say in the pay of executives.

  • Report this Comment On October 20, 2009, at 8:33 PM, forbees wrote:

    John Thain should be behind bars with the AIG gang, instead of getting paid for lectures to apparently naive business students.

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