Merill Lynch: Proving Inside Is Out

Jack Flack is glad he gave Merrill Lynch boss Stan O'Neal modest praise relative to his peers when it came to owning up the credit-crunch holes in the 3Q bucket. That's because in this morning's WSJ, Randall Smith tells us O'Neal is much more candid internally.

"I don't think there's a choice in the modern capital markets for firms like us not to take risks," Mr. O'Neal said in a video shown to Merrill employees Friday. Clients demand it, he said, and won't pay for mere "execution." The alternative, he said, would be to accept "sub-par returns" or become part of a "larger entity," depriving Merrill of the ability to "control our own destiny."

That more pragmatic talk is far better than the oblique references to "extended dislocations" in the Merrill's 3Q earnings release. (Or was that an extended reference to a dislocated oblique?)

Either way, it's not unusually for CEOs to speak with more bluntness internally than externally, as the citizens on the inside tend to clap long and loud no matter what you say, while the hostiles on the outside tend to presume you're telling nothing but lies, lies, lies.

The only problem is that this is 2007, and "internal communication" and "external communication" no longer actually exist. The walls of the corporate fortresses began falling long ago, consistently battered by one of the most game-changing innovations in the history of communications -- the forwardable e-mail. The internal and external have become one big swirling mess, as employees are now more likely to get the most timely news on their own companies from Yahoo! news alerts, which are then confirmed two days later in a company press release or memo.

Jack Flack promises to rant more about this later, but the only places that "internal" and "external" remain discrete from each other is in the org charts of most communications functions. Org charts are always the last manifestation of the old model, and the walls between sub-departments always fall long after they cease to make sense, as fearsome bureaucrats fight to the death to defend budget sovereignty.

Think Jack is exaggerating about the disappearance of internal?

OK, then which quote from O'Neal made it to page-one of the WSJ -- the one from the 3Q earnings release, or the one from the internal video?

The only real question in this case is whether the video was captured by an industrious reporter, or strategically leaked by clever flacks at Merrill.

Strategically leaked? Yes, a savvy flack knows that reporters will always be far less interested in something that is targeted at them than in something that is supposed to be kept away from them, particularly if none of their competitors have it.

And oh, there are a couple of other good reasons why the internal quote was page-one material: it's not only far more interesting than the quotes from the release, but it also actually sounds like something O'Neal or another human being might actually say.

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