Karen Leary (A)

It did not surprise Karen Leary that her lunch with Ted Chung had turned into a somewhat uncomfortable experience. Although a year had passed since she hired Chung to be a financial consultant (FC), Leary sensed that there was a wide gulf between them. She had tried to get to know him better, but Chung had always distanced himself from her and the other FCs in the office. Leary had hired the Taiwan-born Chung to attract customers from the thriving community of Taiwanese entrepreneurs that had sprung up around Elmville, a Chicago suburb. In his first year at Merrill Lynch, Chung opened the $6 million account of a Taiwanese industrialist and had traded the account actively, generating substantial commissions. Over lunch, Leary and Chung reviewed Chung's performance during the past year. Leary told him that she was pleased that he opened such a big account. She reminded him of her concern about the appropriateness of some of his trades. The client was new to the American market, and she questioned Chung's investments in risky stocks and his use of margin. She also cautioned Chung not to spend all his time with this one account; she expected him to develop other Taiwanese customers. Chung explained that he had been actively developing relationships with wealthy Taiwanese businesspeople and expected to bring in more accounts soon. He also reassured Leary that the Taiwanese industrialist was fully aware of how his account was being handled. Chung then said, in reviewing his own performance, that he was certainly going to be one of the most important producers in Leary's branch, and therefore, he deserved and needed a private office. Leary was taken aback by Chung's request. Of the 45 FCs at the Elmville branch, only eight had private offices and they were the best and most experienced brokers. Even FCs doing substantial business in their twentieth year sometimes did not have private offices. Although Chung appeared headed toward a successful career at Merrill Lynch, several elements in Chung's performance over the past year worried Leary. Given her expectations of the Taiwanese market's potential and her aggressive goals for the office, Leary wondered how she should respond to his request. Merrill Lynch Background In 1985, Merrill Lynch, one of the nation's largest wirehouses, found itself in the midst of a fiercely competitive battle in the retail financial services industry. Government deregulation of major financial institutions and increased innovation in financial instruments had unleashed a head-on clash among a diverse group of players. Merrill Lynch, Citicorp, Prudential, American Express, and Sears had built up impressive arrays of consumer financial services through expansion and acquisition. From the 1940s when Charles Merrill had pioneered the concept of bringing "Wall Street to Main Street," Merrill Lynch had been in the forefront of bringing one-stop financial shopping to all Americans. The core of Merrill's approach to providing financial services had always been the tight bond that brokers formed with their clients. The company had set up a large network of branch offices and supported its brokers with extensive training and topnotch research. Through its efforts, Merrill created the mold for the modern professional broker. FCs responded by showing fierce pride in the company. Most of the senior management, including many of the past CEOs, had started out as brokers. The increased competition, however, had Merrill's top management leading its brokers in new directions. The decision to retitle account executives financial consultants was more than cosmetic; it reflected a transition in the way Merrill marketed its services. (Brokers at Merrill Lynch were first called account executives by Charlie Merrill in the 1940s. In 1983, they were retitled financial consultants.) According to the Merrill Lynch 1985 Annual Report, the company had been moving toward a customer-oriented rather than a product-centered structure. Services were to be "wrapped around the customer." Accordingly, the company introduced a menu of new products, ranging from real estate investments and insurance to centralized cash management accounts. Salaried product specialists had been dispatched to branch offices to aid FCs in pinpointing the proper mix of financial instruments to respond to a client's needs. The new lineup of products necessitated additional training in financial planning pracices and profiling the customers' long-term financial goals. Increased competition and consumer sophistication had also meant smaller margins, and concern about the high fixed cost of operating a large brokerage system. (Merrill Lynch estimates that it takes $100,000 a year to support one broker.) Upper management had targeted goals of cost control and increased productivity per broker while continuing to offer the most professional financial advice possible to the client. The compensation system was restructured to reward asset gathering and top brokers. To be profitable, Merrill's management believed the company must enhance an FC's ability to add value by recognizing and properly satisfying a customer's long-term financial objectives. Some industry analysts, however, provided a sharp counterpoint to the new strategies being employed by financial service firms. One commented, "People still do business with brokers because they like them. You need the entrepreneurial type of guy. What happens if some of a firm's big ideas don't work?" Another observed, "For most brokers, trading remains the most glamorous part of the business; it provides the high-stakes financial rewards and excitement that motivated them to become brokers." Many thought trading would always be a broker's bread and butter. One broker commented, "The industry is always restructuring. It'll probably happen again in a few years, but the bottom line will still be how much you can bring in with commissions."

Leary's Background Leary joined Merrill Lynch as a financial consultant in 1975, after having managed a family business for several years. Besides quickly building her own client list, Leary took on various leadership roles, such as product coordinator, in the San Francisco branch where she worked. I truly enjoyed working with my clients and helping them fulfill their dreams, such as getting the money for a new home or funding the investments that would make it possible for a child to go to college. But I always knew that I wanted to go further in the industry. After six years as an FC, Leary went to the Merrill Lynch assessment center and passed the grueling set of exercises designed to evaluate management skills. She was assigned to a downtown Chicago branch as sales manager. In 1983, she became resident vice president and general manager at the Elmville branch, a substantial office for a first-time branch manager. When I took over the office, there was a large group of people here who had been in production for maybe 10 years or more. Many were average producers who did a lot of options and small trades. A few were oriented toward just getting a commission dollar and were having difficulty implementing a financial planning approach. I felt I would have to change this, that the culture was one that would not allow growth. I knew that even if I brought in new, good people their growth would" be inhibited by the prevailing culture.... Some managers have the philosophy: "If a person is moderately profitable for the firm and no trouble, then fine." I'm not saying that is a bad approach. The firm makes money, the FCs make money, and the manager makes money. It is just that I am more aggressive and my goals are higher. I wanted to build a winning team that would be recognized for the quality and professionalism of its people, that would excel in matching clients with the products, and that would utilize the full range of Merrill Lynch services. I don't want to be a little country office out in Elmville. Leary terminated eight of the FCs that she inherited, some of whom had been with Merrill Lynch for over six years. She believed that these were people who could not follow the firm's strategy. In many instances it was a difficult decision, and Leary helped some FCs find positions with other brokerage houses. Leary initially focused on hiring experienced brokers to fill the vacancies. I interviewed some younger people who had been brokers with other firms. They were already fully registered and for one reason or another had not fit into their firms. To train a person with no experience, it cost Merrill Lynch $30,000, and it is at least six to eight months before an inexperienced person is at all productive. So it is a long-term, expensive proposition. The people I interviewed were fully registered and knew a little about the business. So I took a risk. It was a business decision; it cost Merrill Lynch little. I hired four or five of them and two made it.... But I learned you really can't do it that way and build what I want. It exposes the rest of the office to unsuccessful people and the office needs to view themselves as a collection of successful professionals. So, while it did not cost the firm financially, I think it cost the firm in other areas.

Leary's Management Style Leary made a point of getting out of the office and on to the floor of the boardroom as often as she could. For at least two hours every day, she navigated among the cubicles, where the FCs were talking with clients on the phone and monitoring market indicators and current events on Quotron screens. I do a lot of coaching and counseling informally. I find it's effective and less threatening than to be called into the manager's office and asked to explain yourself. So, I'll frequently sit down at a person's desk and just say Hi. How's it going? Let me see what you're working on. That looks interesting. Have you seen the new tax free bonds up on page eight of the Quotron?" or I will ask them about a problem they had or a stock that they are watching. "Karen is by far the most sales-oriented manager I've ever seen, a veteran Merrill Lynch FC commented. "Literally every day, she finds just the right investment for a client. Now a good broker can get on the phone and use that immediately.... Some managers are content to just check the mail and do the administration. Not Karen. She really is very aggressive in trying to motivate the FCs." Leary's superiors praised her development of innovative sales and training programs. She created a voluntary program of partnerships/internships for FCs both to motivate top, older producers and to help young FCs get started. Some of these older people are doing five or six hundred thousand a year in production and have their business set. They get kind of complacent. At that point in their career, it is very difficult to get these people to prospect or develop new business. On the other hand, younger people need strong role models who are willing to teach them more about the business. I think this program provided a unique opportunity for less experienced FCs to learn firsthand about superior customer service and prudent money management . Leary persuaded a few of her more experienced FCs to take on younger brokers or trainees as junior partners. The young brokers agreed to make the cold calls and draw up the client profiles needed to gather more assets, while the older FCs helped with the clients and with servicing the accounts. Leary hoped that the program would help reinvigorate the careers of some of her older producers while giving younger ones much-needed experience and supervision. Leary stressed training her corps of younger brokers. She often came in before the market opened or on Saturdays to lead seminars designed to familiarize young FCs with financial planning techniques. Through case-by-case review, Leary led spirited discussions of Merrill Lynch products and techniques for profiling customer needs. She also leaned on her young FCs, keeping tabs on their cold calling (they were expected to make 200 calls a day) and overseeing the development of their own customer strategies. Overseeing brokers' trades was an important part of a Merrill Lynch manager's responsibilities, and many of the FCs in Leary's office gave her high marks for staying on top of compliance issues.3 The branch manager was considered the key to a brokerage house's compliance effort, since he or she was in the best position to monitor brokers. Branch managers were charged with guarding against a wide range of broker malfeasance, including churning (doing more trading in an account than warranted), misrepresentation (failing to properly convey the risks of an investment), unauthorized trading, and unsuitability (recommending investments not in keeping with an investor's financial position). One of Leary's first moves on taking over the Elmville office was to bring in a new chief compliance officer, one she felt would get to know brokers better and evaluate their trades. Daily, Leary reviewed all of her FC's account activity and often questioned FCs about their trades. Leary observed, "There is a great deal of concern about protecting our customers. So it is very important to me that we do quality business for them and make sure their investments are right and proper. We deal with money and are very tightly regulated." Leary's aggressive approach to sales and compliance appeared to have paid off. During her first year, business increased by 30%. However, her style had some FCs grumbling. "She rides all the FCs hard," one commented. "She is always pushing you and looking over your shoulder." Leary hoped her innovative approach to management would be beneficial to and recognized by Merrill Lynch. From the Elmville office, her specific goals in 1985 included completing an office renovation, opening another satellite office, and developing the small business trade. Generally, she wanted to build "a high-producing, successful group of professionals who help one another and work together to provide clients with complete service in meeting their long-term financial goals. All recognizing, of course, that we're dealing with egos and that it takes a very strong ego to be successful." Developing the Taiwanese Market Hiring and Training Ted Chung Leary hired Chung to develop the Taiwanese market for Merrill Lynch. "The Taiwanese are not really assimilated into the American system, so we needed a person with a Taiwanese background who spoke Chinese to begin to develop this market. I put some general ads in the paper, and Ted Chung was one of many who answered the ad and one of several Taiwanese." Numerous Taiwanese-owned and -operated businesses had sprung up throughout the Chicago area during the 1970s. Unlike other waves of immigrants to the United States, these Taiwanese had a strong network of contacts and sufficient capital to set up businesses. Through hard work and determination, family run, first-generation Taiwanese businesses had built up substantial positions in a relatively short time. Many active Taiwanese community organizations had formed, and businesses tailored to the Taiwanese had opened their doors. The other Taiwanese applicants were young, and Leary felt she needed a more experienced broker to work with Taiwanese businesspeople. Chung was in his early forties and he appeared mature, stable, and responsible. He was married with four children, and his wife was a computer programmer. In his seven years in the United States, he had been a very successful salesman for a real estate company and had owned his own moving business. He was independently wealthy. He had been born in Taiwan, yet he was westernized in many ways. Leary described hiring new FCs as one of the most important functions of a branch manager. She frequently interviewed people three or four times before making a final decision. She met with Chung eight times in various settings before hiring him. I felt I didn't really know the whole person, but I wrote that off to the fact that he was Asian and I was not, or maybe there was some concern over my being a woman (though he never expressed any concerns). So after a period of time where I could not put my finger on anything that was wrong, I made the decision to hire him because I felt there were so many areas where he fit. I knew his wife, met his children, knew where he lived, and investigated his background, and there was nothing there tha't appeared negative. Newly hired FCs went through an intensive four-month training program. During the first two months, they prepared for the rigorous General Securities exam, and in their third month they learned additional subjects such as portfolio management and selling techniques. The first three months of the program were spent in the branch office, and Leary saw this as a time when trainees could learn how the office operated. Trainees were often asked to fill in for sales assistants or to help in operations. Chung studied hard and did well on his test; however, Leary noticed that he bristled and found other things to do when staff members asked for his help. I called him in and said, You were asked to sit at the sales assistant's desk this morning, and it appeared that you were uncomfortable with this request, and you found some way not to fulfill it. Let's talk about that. He then described how his feelings were hurt. It came out that he didn't like to do those things; that he frankly considered it to be beneath him, particularly if an underling asked him. He told me that if I asked him he would do it for me. said, "Well, Ted, this is an office and a business. As a trainee, you are here to learn and to develop, and I would like you to do that." In their fourth month of training, FCs were sent to the Merrill Lynch training center at One Liberty Plaza in New York City. (Merrill Lynch opened a training center in late 1985 in Princeton, New Jersey.) When Ted went there, he was very well prepared. He had received excellent scores on all of his tests. Before he went, he and I discussed strategies. I told him there were very fine research people there and gave him names of those people and told him he should develop relationships. And he did. Leary noted that Chung was very good at establishing contacts with the Merrill people in New York: Whenever he would go in to meet with a research person, he would bring them something to eat, coffees for both of them, and a doughnut or a bagel. He always made sure to call the person's secretary to find out how they took their coffee and any other preferences. After the meeting, he would send a not along with a little gift, such as a Merrill Lynch pen or cup. He had gone out and bought a whole slew of Merrill Lynch paraphernalia, and he used it effectively. Bringing in the Big Account After four months as trainees, FCs began the often arduous process of gaining clients. Most FCs spent their first months back from training making up to 200 cold calls a day. They also gave and attended seminars on personal investing, identifying clients who could benefit from their expertise. Chung, however, felt that the Taiwanese market had to be developed differently. Ted felt that he could develop the Taiwanese market, but that it was a different market and had to be approached according to Taiwanese tradition. He assured me that in time he would develop very substantial accounts, but that he wouldn't do a lot of business in the beginning, opening what he called "chicken feed" accounts. I said fine. This is a responsible person who wants to be successful. This is the game plan he wants to use, and it makes sense to me. Unlike his peers, Chung did not make cold calls and spent much of his time outside of the office, attending events in the Taiwanese community. He felt that the way to develop the Taiwanese market was to increase his own visibility and prestige. In the first three months after he had completed his training, Chung had yet to open his first account. Leary became increasingly concerned about his lack of prospective clients and business. She met with him occasionally, and he reassured her that he was developing relationships that would lead to substantial accounts. Over time, Leary was becoming more aware of Chung's "stiff" formality and need for privacy. Leary noted: Everything about his desk was spotless. He brought in all kinds of items from past lives, framed pictures of himself from magazines and other displays of his importance. No one was allowed to use his desk. People here can be a little touchy [about their desks), but he was really excessive. He didn't want people using his phone, he didn't want people working at his desk. Normally, an FC will have his desk the way he wants it, and if we are going to have someone else sit there, we usually do the person a courtesy and ask them. But sometimes you just can't. Nobody usually minds. Once you sat at Ted's desk, nothing was an informal meeting. If I sat down there to chat with him, he'd get up and clear all of his papers away and arrange his coat and get everything all set before he would start to talk. In his fourth month after training, Chung set the office buzzing by bringing in a $6.million account. I congratulated him, and we made sure that the account was set up properly. I then made calls to New York to three very good Merrill Lynch analysts and set up some private meetings to support him. I talked to him about the possibility of having the account managed by Merrill Lynch Asset Management, a Merrill Lynch subsidiary that manages substantial amounts of money. I was very uncomfortable with the idea of a brand-new FC handling that kind of money. He insisted that the client only spoke Chinese, that there was no way he would allow anyone else to work with him. Chung said he had come to Merrill Lynch only because of him and the fact that they were from the same village in Taiwan. Chung insisted that he could do it. Leary and her administrative manager, Fred Lewin, began watching the account closely. (The administrative manager is also the chief compliance officer at the branch.) At Leary's request, Chung wrote a letter, in Chinese, to the investor detailing a financial plan that Leary had approved. Chung proposed a conservative stock purchase plan and option-writing program with money (which was coming out of CDs [certificates of deposit] held at a local bank) equally distributed between equities and a conservative fixed-income strategy. Leary commented: Initially, the investments were pretty good. His first five or six investments were appropriate: they were fixed income and good quality stocks. Then he began to get into takeover stocks. It was an explosive time in the market when takeover rumors about many stocks were booming. While most of the stocks he was purchasing had takeover rumors circulating about them, he initially made sure that the stock was still a Merrill Lynch-recommended security. The stocks Merrill recommends are fundamentally fine, well-managed companies, and have nothing to do with the rumor mill. But the direction he was going in was becoming clear. I'd see his purchases show up on the computer screen and call him in. He would swear, "No, no, no, he's buying it because it's good quality stock, love the earnings," et cetera. More and more of the account was being invested in equities, and Chung actively used margin borrowing. He also began purchasing stocks not recommended by the Merrill Lynch research department. FCs were not allowed to recommend these stocks to their clients and could not buy them unless the purchases were unsolicited. After making non-Merrill Lynch-recommended purchases , Chung presented typed, signed, certified letters to Leary from the client attesting that Chung had not suggested the stock and that the purchase order had come at the customer's insistence. When Chung's handling of the account departed from the initial strategy, I told Ted I would need to meet the customer. The customer, a Taiwanese industrialist, spoke little English. Chung brought the customer in, but it was a fairly uncomfortable meeting because our communication was limited. The customer smiled and indicated that he was pleased with Chung's work. Ted interceded after about five minutes and said the industrialist had to catch a plane. Translating for him, Chung told me the client had enjoyed meeting me and thanked me for my hospitality. Leary was now checking Chung's trades every morning. The account was trading actively, and Chung had generated a substantial amount of commissions. Chung was careful to document all of his trading activity formally and to fulfill standard compliance procedures. As time went on, however, Chung became more annoyed with Leary and Lewin's monitoring. He resisted questioning and occasionally became angry at Lewin's inquiries. The other FCs were very impressed with Chung's achievement. In handling the account, Chung had made some good trades and had followed compliance procedures. Although he had not brought in any other accounts, Chung hinted that additional substantial accounts were on the way. Leary commented: When the trades were good, I would call him in and tell him he was doing a good job. I also kept urging him to try to develop other areas. I was always available to him if he needed consultation, and I got him through to people in New York who could help him with the account. These were people most first-year FCs don't ever get to sit down with. Back at Lunch Following Chung's request for an office, Leary mentally reviewed the situation. She felt uncomfortable with several aspects of his performance, and the lunch was doing little to ease her worries. She did not know how involved Chung's client was with the account, and because of the language barrier and Chung's close relationship with the client, she could not check with the client more directly. Chung's growing displays of "ego and temper" also worried her. His request for a private office was totally inappropriate. Leary observed: It usually takes a person a substantial amount of time to get a private office here. They go to very special people who have really earned their spurs through a lot of good quality business and longevity with the firm. So while the FCs in the office were amazed by the business Ted was doing, they also needed to think of the office as their family, where things were basically fair. FCs frequently stated that they considered a private office an important success symbol and worked hard to achieve it. One private office was available, and Chung clearly had his eye on it. Leary talked with Chung on numerous occasions about her expectations and about her views on how FCs should build their business. Chung never openly disagreed with her, but it was difficult to gauge exactly what he was thinking. Although she once had some qualms about Chung's slow start, he was now a strong producer (with this one account), and Leary knew that the Taiwanese market could be further developed. Leary wondered how she should respond to Chung's request, and what impact her answer would have on the rest of the office.

According with the above case and applying the decision-making theories answer the following question:

How would you handle the topic of the office? Please explain your response.