Solved: 1 If you put the issues related to bonuses and

1. If you put the issues related to bonuses and personal perks to one side, how would you judge
the effectiveness of John Thain as the leader of an organization deep in crisis?

2. Where the actions that John Thain took on personal perks and bonuses legal? Were they
ethical? What does this case teach you about the differences between staying within the
bounds of the law and behaving ethically?

3. Why do you think John Thain pushed for such high bonuses in 2008 given that Merrill was in
a deep financial crisis? What might his motivations have been?

4. What might John Thain have done differently? If he had pursued a different set of actions
with regard to personal perks and bonuses, what might the outcome have been for him and for
Merrill Lynch?

5. At the end of 2008, the financial markets were in the middle of the deepest crisis since the
great depression. Losses were increasing in financial institutions by the hour as the value of
their holdings of mortgage-backed securities plummeted. Given this situation, shouldn't Ken
Lewis have expected higher losses at Merrill Lynch? Was Thain really misleading him? Why
might he have been misled?

John Thain ran the NYSE from 2004 to 2007 after his predecessor, Richard Grasso, was
dismissed over excessive executive compensation charges. The NYSE prospered under his
leadership and he was seen as a golden boy. In 2007, Thain was recruited to run (save) Merrill
Lynch which was reeling from losses as a result of the mortgage crisis. Thain immediately
began deep cost cuts, laying off thousands of employees and divesting companies, while
extolling the virtues of tight cost control to his managers and patting himself on the back in the
press. The savings enabling him to raise enough capital to stave off bankruptcy. In the fall of
2008, Thain engineered the sale of Merrill Lynch to Bank of America, with pressure and financial
backing from the federal government. During the buyout, Thain was kept on at Bank of America
reporting to CEO Ken Lewis. It was at this point that Thain's activities while at Merrill Lynch
were made public. Such activities included spending exorbitant amounts on lavish furnishings
and décor for his personal office and authorizing billions in bonuses to executives, while
reporting bigger-than-expected losses in the 4th quarter. Ken Lewis was furious and almost
nixed the buyout. John Thain was excoriated in the press for his hypocrisy and quietly left the
organization three weeks after the deal closed.

ANSWER
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