Win Smith’s father was a founding member of Merrill Lynch, the century old firm responsible for revolutionizing the financial industry—before the new millennium, when a certain CEO who had no respect for Mother Merrill threw out the Principles that the great company was founded on and almost unraveled a hundred years of legacy.
Now Winthrop H. Smith Jr. has written a tell-all book about the perseverance of the founding partners—Charlie Merrill’s creative genius, Eddy Lynch’s brash determination, and Winthrop Smith’s moral compass that all led the way to creating a financial advisory firm that put the clients’ interests first and shaped a Wall Street devoid of greed and corruption. We had a chance to catch up over coffee and talk about the book’s inception at the beautiful Sugarbush Resort in Vermont, where Win has found a career after Wall Street as the owner and president of the luxury ski resort.
Tell me about your book, Catching Lightning in a Bottle—why was this the right time to write the story of your father’s legacy?
Win Smith: It’s a great story about a firm that begin really as a sole proprietorship with Charlie Merrill that by 2001 grew into, arguably, one of the largest most respected financial services firm in the world. It’s a story about the people of Merrill Lynch, so there’s a lot of character, there’s a lot of thrill in it sometimes, but it’s also about the Principles of the firm that allowed it to grow, change and evolve, get through mistakes and yet remain a very solid and respected firm.
It was the right time for two reasons. One, it was approaching its 100th birthday. There are not many companies that can say they’ve been around for 100 years. Secondly it was the 5th anniversary of the acquisition of Merrill Lynch by the Bank of America, which was a bittersweet story, because it had to be acquired or it would have failed.
I wanted to make sure everybody knew the true history of Merrill Lynch and not some of the revisions that were written by the second to last CEO. I didn’t want it to be remembered as the firm that helped to bring down the financial industry in the crisis of ’07 and ’08.
What’s the response been like? You definitely did not hold back. Has there been backlash?
Win Smith: With a couple of exceptions the response has been overwhelmingly positive. I knew that my former colleagues at Merrill Lynch would enjoy the story because they were part of it and they knew the same history that I did. A lot of my colleagues didn’t know the full history—they didn’t know the stories of Charlie Merrill, they didn’t know about Safeway stores, they didn’t know my father’s involvement. It was a great part of the lore. So they really enjoyed learning more.
The other thing is, a lot of people who are still there felt that in many ways this was bringing some of the pride back. This was something they could attach to and identify with. And then some of the new people at Merrill Lynch who just joined have really liked it because it’s helped them better understand the firm that they joined.
I did have one person write me a pretty long eighteen page memo about what he thought the facts were. And I politely responded that I didn’t agree with him and that the facts, as I’ve stated, stand.Tell me a little bit about your father’s goal, Bringing Wall Street to Main Street.
Win Smith: Very often you see successful businesses that start because other people don’t see the same opportunity. And so what my father saw and then sold to Charlie Merrill was this opportunity of doing things very differently after the economic crisis and Great Depression in the 1930’s. It was a time where people didn’t trust or understand Wall Street, and Wall Street was really governed by the one percent. They felt if you did something very differently, created a different paradigm, you could open up a new market. And you could actually not only bring Wall Street to Main Street but more importantly bring Main Street to Wall Street.
It’s a two way street because what you’ve got is the average American believing that they could actually invest in stocks, and by that they brought capital through the intermediation process of Wall Street to invest in companies, growing companies, established companies, governments, municipalities.
That’s what Wall Street is really all about, the intermediation of money. Finding savers to marry with people that need the money, finding investors to marry with companies that need capital to grow. That’s been a fundamental process that is fundamental to capitalism. They realized that the growing middle class of the United States was going to have wealth, not just the institutions. People didn’t see that, other than Merrill, Smith and their partners. That’s what allowed them to really leap ahead in those early days of the ‘40s and 50’s.
They were light years ahead of their time. Charlie even predicted the crash.
Win Smith: When you think about Charlie Merrill and why he predicted the crash, he had common sense. He could see that if something didn’t make sense, if you overleverage yourself, that can’t continue. Sometime it has to burst. That’s really what he saw about the stock market, and that’s what people didn’t see going into 2007 and 2008. If you make mortgages at 130% of value to people that can’t afford it, something bad is going to happen.
The most dangerous words in investing are “This time it’s different.” You hear it all the time. “This time it’s different, the market is going to go to a new high.” “This time it’s different, mortgages aren’t going to break.” It’s only the few people who can see beyond that can recognize, hey, this isn’t different. It’s happened in the past, history is just repeating itself.
Those fundamentals that they brought to Wall Street – do you think that legacy lives on today?
Win Smith: No, I think Wall Street has a big problem today and I think its lost touch with Main Street. Now when I say Wall Street, it’s not the financial advisor in the local town of Burlington, Vermont. The good ones still have great credibility with their clients. In many ways it’s like Congress. Everybody hates Congress but they like their Congressperson. Good financial advisors are still respected by their people, but their people hate Wall Street.
Wall Street has come to represent the greed, the arrogance, the unaccountability that people saw in ’07 and ’08. The institutions need to reestablish their credibility with average America. If they don’t, I fear there will continue to be a backlash and you’ll continue to see legislation from people like Elizabeth Warren or Bernie Sanders that may take Wall Street to the other extreme and take out the efficiency of the capital markets.
What do you think your father would say about that?
I think he’d probably say something very similar. And then you ask, well what can people do? It’s not overnight, it’s fundamental. They’re going to have to step by step regain the trust and credibility. They will have to get out of their limousines and suites and talk to normal people and reestablish that trust and credibility.
What was one of your favorite stories from the book?
Win Smith: Intriguing little things. I loved the stories of Don Regan, who was an interesting person. He was a character, his personality was totally different from that of Charlie Merrill and my father. He was brash, he was a Marine. He was tough at a time when you needed a tough person. He had a set view, he didn’t care what other people said. He said things like, “I don’t give a damn what you guys are thinking, this is the right thing to do and we’re going forward with it.”
One chapter is on Merrill & Smith. You found that Merrill and Lynch were a great partnership where Merrill was the guy with 100 ideas. He was the flamboyant person, and Lynch was the guy who could hold him back. My dad in many ways played a similar role where Charlie was the brilliant thought processor, the marketing genius, and my father, as my mother described him, was the glue of the organization that put everything together. Reagan and Burke were very much like that. There are examples through the Merrill Lynch history of different co-leaderships with their own styles and personalities that actually provided that kind of beautiful partnership that enabled the firm to do well.
Current day, do you think the company culture has been restored?
Win Smith: If you look at the wealth management part of Merrill Lynch that’s part of BOA, I would say they really are intent on trying to maintain the culture and yet change and evolve and that’s really the challenge, right? Change and evolve. Whether that is throughout the Merrill Lynch organization that’s part of the bank, the trading, capital markets, I don’t think it is. I think that’s changed.
Good or bad, I think history will tell.
Talking about people wanting to discard Mother Merrill, I still can’t believe that Stan O’Neal didn’t respect the history of Merrill Lynch.
Win Smith: He really didn’t understand what Merrill was about. The first thing a dictator does is get rid of any history, eliminate competition. Go back in history and you’ll see the same thing.
When you left, it obviously took a lot for you to leave the company where you had been for 28 years and that your father helped co-found. Did you ever regret your decision?
Win Smith: I would say in the early days I really did doubt it a little bit. I lived it, I loved it, I missed it in many ways. But when I thought about it I said, I did the right thing. I would have been a hypocrite if I had stayed. If you can’t work for somebody, take their paycheck and accept it, you should go.
Early on, I did have some doubts. Merill Lynch started to do very well, at least from a bottom line point of view. I was still critical because I thought that was short lived. I didn’t like the nature of the profits. I didn’t ever anticipate it would become what it was. I thought O’Neal would compromise the firm, but I never thought he could ruin the firm. That was the surprise.
I knew it was going to be different and I didn’t want to be part of that difference. I was tempted, I thought about staying on Wall Street and working for somebody else. I did chat with a number of firms. But I couldn’t wake up in the morning and compete against Merrill Lynch. That would have been really difficult.
Coming to Sugarbush was serendipitous. It was initially going to be a passive investment, I had a good friend who unfortunately died of cancer shortly afterwards. We thought we’d invest the money, have people run it, we’d fix it up and sell it and continue to ski here. A couple years later I realized this is not a good passive investment, I should make it an active investment and that’s when I decided to move up here and make it a second career.
How did your time at Merrill Lynch influence what you’ve done here at Sugarbush, revitalizing and rejuvenating the community and local economy?
Win Smith: It’s not just me, I think our team has rejuvenated it. Overwhelmingly I’ve been influenced by my 28 years at Merrill. I’ve borrowed the same Principles, which are pretty fundamental but not everybody practices them.
First is client focus. The client’s interests come first. Second is teamwork. Third is respecting your people and your individuals, forth is giving back to the community, fifth is integrity.
I had to add fiscal responsibility here, because it wasn’t being practiced. We really have to be profitable if we’re going to be sustainable for the future. Starting with the first thing, the customer’s interest, if you don’t have a passion for your client ultimately I don’t think you’re successful.
Our business here is made up of lots of components—lodging, food and beverage, ski lift operations, mechanics—if you’re not operating as a team then you’re not doing the job for the client. We’re a people business. While we have assets and hard material we’re really people based, as Merrill Lynch was. If your people aren’t happy, if they don’t feel good, how are they going to make the client feel good?
We’re in a small community so we’re the big fish in the small pond, but that makes us accountable for taking the extra step to really make sure the whole community is looked after.
And then fifth, integrity, you’ve got to operate truthfully. If it’s raining you don’t pretend it’s snowing. You make a mistake you’ve got to own up to it and correct it.
The book has really great advice—is there a particular piece of advice that really resonated with you?
I’d say all the leaders of Merrill that I talked about, with maybe one exception, they were optimists. They woke up every day seeing the glass half full instead of half empty. When things went wrong and they got knocked down, they didn’t stay down. They got back up. They believed there was going to be a better day. I think that’s really important in anything you do. You always have to worry about the office assassin. There’s somebody out there that wants to be negative, and they want to drag you down too. They don’t want other people to succeed if they’re not. You’ve got to always be mindful of that.
And another thing I’ve learned from my father and Dan Tully, who I’ve mentioned quite a bit in the book, is if you’re in an organization you’ve got to treat all people with respect. You treat the secretary the way you do your boss. You treat your co-worker the same way you do the CEO. If you treat people with respect ultimately you’re going to get respect.
A lot of our readers are aspiring entrepreneurs—a big takeaway from this book is that with perseverance anything is possible. Is there a particular piece of advice you’d like to give struggling entrepreneurs right now?
Win Smith: The best batters in baseball bat 300 right? That means you’re striking out 70% of the time. Very few people get it right the first time. So trying and failing isn’t the end of the world. You’ve got to learn from that failure, build something and try again. Entrepreneurs have to be risk takers. The question is, what type of risk and how much risk? If you’re scared of failure you’re never going to get ahead.
Charlie Merrill had many failures along the way. But ultimately he hit a home run because he kept at it and he was perseverant. I think the biggest issue most entrepreneurs have is when they get to a level of success, how do they move beyond? Sometimes an entrepreneur can’t give up control, can’t bring in the right team, so again understanding when to do that is important. I think if Charlie Merrill had tried to do Merrill Lynch by himself without my father he would have failed, if my father had tried to do Merrill Lynch without Charlie Merrill he would have failed. So it’s understanding how to build the right team and leverage each other’s strengths.
This article is brought to you by Winthrop H. Smith, Jr. as part of Alister & Paine Magazine’s Direct Publishing. Mr. Smith is a former EVP of Merrill Lynch & Co., member of the Executive Management Committee, and Chairman of Merrill Lynch International. He is one of few people who has known every CEO at Merrill Lynch and shares the intimate details of his first-hand experiences in his book, Catching Lightning in a Bottle: How Merrill Lynch Revolutionized the Financial World.