Merrill: Time runs out for O’Neal; Retailing: Clouds over Office Depot

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Merrill: Time runs out for O’Neal

Days after Merrill Lynch reported a $2.5 billion quarterly loss, CEO Stanley O’Neal retired this week under board pressure, said Landon Thomas and Jenny Anderson in The New York Times. The loss wasn’t the final straw for Merrill’s directors, though. What really riled them was O’Neal’s decision to explore a merger with Wachovia Bank without first alerting the board. As recently as last spring, Merrill shares were trading at $95, and O’Neal, 56, was winning praise “for transforming Merrill into a more aggressive, risk-friendly institution.” But with the stock trading recently at $59 and many at the firm alienated by O’Neal’s “aloof, calculating” style, the CEO had little in-house support. O’Neal also had few “strong-willed subordinates” willing to challenge his decisions, said Randall Smith in The Wall Street Journal. When he took over as CEO in 2002, he purged “a few dozen rivals and their allies,” including executives who urged O’Neal to avoid the risky mortgages whose plunge in value produced the recent loss. Last week’s revelation of the unauthorized overture to Wachovia, which “offended” many directors with its “appearance of desperation,” made O’Neal’s ouster all but inevitable.

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Retailing: Clouds over Office Depot

Office Depot shares plummeted 15 percent this week after the officesupplies retailer said it would delay its third-quarter financial report pending an audit, said William Spain in Marketwatch.com. Members of Office Depot’s board of directors will examine how the company accounted for rebates and payments to vendors. Goldman Sachs analyst Matthew Fassier warned that any investigation, especially one involving the board, “suggests questions about the integrity of the company’s financial statements.” Office Depot may have to revise previously published earnings reports, damaging its credibility with investors.

Investing: S&P introduces Islamic indexes

Standard & Poor’s, the McGraw-Hill unit that rates securities and compiles stock indexes, this week announced three indexes targeted at Muslim investors, said CNNmoney.com. The indexes of health care, utilities, and other sectors will include only companies whose business practices conform to Islamic law. A committee of scholars will examine each company’s adherence to Islamic rules governing business and financial practices. Companies with a commercial interest in gambling, tobacco, alcohol, pork, or pornography will be excluded. The indexes will be monitored daily to ensure that they “maintain strict sharia compliance.”

Clothing: Gap fires a sweatshop

Clothing retailer Gap this week cut ties with a New Delhi clothing manufacturer after a British newspaper revealed that the Indian factory employed children “working in conditions close to slavery,” said Dan McDougall in the London Observer. Gap has a stringent “social audit” program to weed out contract manufacturers that exploit their workers, but “the system is being abused by unscrupulous contractors.” Children at the New Delhi factory work 16 hours a day in a “derelict industrial unit” whose hallways are flooded with excrement from an overflowing toilet. Gap says it will not sell any clothes produced at the factory. “It’s deeply, deeply disturbing to all of us,” said Gap president Marka Hansen.

Autos: Chrysler workers take the deal—grudgingly

Unionized workers at Chrysler this week narrowly ratified a new contract that, like the recent General Motors pact, will allow Chrysler to “shift billions of dollars in retiree health-care obligations off its books to union-run trusts,” said Neal Boudette in The Wall Street Journal. The contract was approved by 56 percent of Chrysler’s production workers and 51 percent of the skilled tradesmen. Many members complained that the deal creates a lower pay scale for some new hires and doesn’t commit the company to build new cars in the U.S. “We had a solid, democratic debate about this contract,” said United Auto Workers President Ron Gettelfinger, who urged ratification.

Spotlight

Mukesh Ambani

Mukesh Ambani is not one to think small, said Sheelah Kolhatkar in Portfolio. Ambani, whose father built Reliance Industries from a few textile mills into “India’s version of General Electric,” isn’t content with having introduced chain stores to India’s mom-and-pop retail culture or having planned the world’s largest oil refinery. He’s also building the world’s largest private residence, a 60-story glass tower in Mumbai, complete with hanging gardens, a staff of 600, and six parking floors with room for 168 cars. Overseeing a family fortune estimated at $63 billion, Ambani is no brash social climber. Shy and awkward, with a personality that mixes “hubris, business savvy, and personal eccentricity, he may be a modern-day Howard Hughes.” He’s also “one of India’s most polarizing figures.” Celebrated for his wealth and entrepreneurial success, he has been lambasted for uprooting poor farmers who stand in the way of Reliance’s expansion plans and for flaunting his “extreme riches,” which “conflict with the country’s Gandhian leanings.” Ambani won’t address the criticisms directly. “I speak by my actions,” he says.