Gender Discrimination at Merrill Lynch

Gender Discrimination at Merrill Lynch

Case Study Reference No. CSR0008 This case was written by Gautami, under the direction of T Phani Madhav, ICFAI Business School Case Development Centre. It is intended to be used as the basis for class discussion rather than to illustrate either effective or ineffective handling of a management situation. This case was compiled from published sources. 2004, ICFAI Business School Case Development Centre No part of this publication may be copied, stored, transmitted, reproduced or distributed in any form or medium whatsoever without the permission of the copyright owner.

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Gender Discrimination at Merrill Lynch

Gender Discrimination at Merrill Lynch

I recall instances when I have been told I would have been given a job if it had not been the managers view that a particular male in the group would not feel comfortable working for a woman.1 Stephanie Villalba I dont see how Wall Street cant take notice. Women have a voice they didnt have before. This is something that cant be swept under the rug anymore.2 Jill Weinstein, a lawyer at Stowell & Friedman Merrills failure to train, counsel or discipline employees who engaged in sexual harassment constitutes discrimination with malice or reckless indifference to the federally protected rights of female employees3 The arbitrators who gave decision in favor of E. Hydie Sumner

Introduction
In April 2004, Merrill Lynch had to pay $2.2 million in damages to Hydie Sumner, a broker at its San Antonio, Texas office, as compensation for discrimination and harassment by her supervisor. 4 By May 2004, the investment bank had shelled out more than $100 million for settling issues of gender discrimination that were raised by nearly a 1000 of its female employees.5 In June 2004, Stephanie Villalba, a senior executive at the bank, slapped a case on the bank for sexual discrimination, victimization, unfair dismissal and unequal pay.6 If she wins, Merrill Lynch is liable to pay her around 7.8 million, which would be the highest payout in Britain for gender discrimination cases.7 At about the same time, another woman, Elizabeth Weston, a solicitor in Merrill Lynch Investment Managers (MLIM), filed a fresh case on Merrill Lynch about the conduct of senior male executives in the company.8 All these cases raised questions about the organisation culture at Merrill Lynch. They also resulted in the establishment of a new order for handling issues.9 Today, Merrill Lynchs employees are no longer required to go through mandatory arbitration for settling their employment claims. A memo sent by Stanley ONeal, Chief Executive, acknowledged that Hydie Sumners sex discrimination case was an embarrassing blot on the banks reputation and contended that We would have liked to have settled this case without going to arbitration, because there is no acceptable excuse for what happened at the office involved.10

Merrill Lynch A Brief Profile

Merrill Lynch, a major underwriter of debt and equity securities, is one of the top financial management and advisory institutions in the world catering to corporate, institutional, government as well as individual clients worldwide. Merrill Lynch operates through hundreds of branch offices in 35 countries in North America, Europe, Africa, Middle East, Australia, Latin America and Asia. It operates institutional offices for corporate and industrial clients in nine cities in the US and in four cities in Canada. The companys total client assets are valued at approximately $1.5 trillion while assets under management are around $513 billion.
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Left, Sarah Merrill Lynch institutionally sexist tribunal told, www.guardian.co.uk, June 11th 2004 Panel Gives Ex-Merrill Lynch Broker $2.2B, www.phillyburbs.com, June 21st 2004 Merrill Lynch discriminated against women, panel finds, www.jsonline.com, April 20th 2004 Sapa, AP Sexism row rocks Merrill Lynch, www.busrep.co.za Merrill CEO says sex bias suit is embarrassment, www.forbes.com, April 21st 2004 Merrill Lynch Sex-Bias Suit Places Global Pay Scales Under Scrutiny, www.careerjournal.com, June18th 2004 Blyth, Alex Banker seeks $21.6m in sex discrimination suit, www.nzherald.co.nz, June 14th 2004 Peek, Laura Another case of sexism and the City?, business.timesonline.co.uk, June 8th 2004 Discrimination Suit alters Merrill Lynchs Arbitration, www.industryweek.com, June 6th 1998 Merrill CEO says sex bias suit is embarrassment, op.cit.

Gender Discrimination at Merrill Lynch

Merrill Lynchs roots can be traced to the establishment of Charles E. Merrill & Co. on January 6th 1914 by Charles E. Merrill. On May 19th 1914, Edmund C. Lynch joined him to open their office at 7 Wall Street, New York. In 1915, the company was renamed as Merrill, Lynch & Co. In the 1920s and 1930s, the company expanded through strategic partnerships and expansions owing to Charles E. Merrills foresight about the economic depression. In the late 1930s, Merrill Lynch was incorporated (without the comma between the two names) with Charles E. Merrill as the Chairman.11 In 1940, Merrill Lynch merged with E. A. Pierce & Cassatt, thus reacquiring its retail brokerage business. The company was renamed as Merrill Lynch, E. A. Pierce & Cassatt. In 1941, Merrill Lynch, E. A. Pierce & Cassatt merged with Fenner & Beane, making Merrill Lynch, Pierce, Fenner & Beane (MLPF&B) the biggest securities house in the world, with operations in 93 cities and memberships in 28 exchanges. MLPF& B founded the first training school for account executives in 1945, which is still popular as Financial Advisors. Two years later, the company released the first issue of We the People, an internal publication, which relates to the employees. Merrill Lynch, Pierce, Fenner & Beane was incorporated as Merrill Lynch, Pierce, Fenner & Smith in 1958, the same year when it became a member in the board of the New York Stock Exchange. Economic optimism in the 1950s helped the firm to expand to France, Great Britain, West Germany, the Netherlands, Belgium, Switzerland and Canada. Merrill Lynch also entered Japan in the early 1960s. In 1963, Merrill Lynch established the Winthrop H. Smith Memorial Foundation, Inc., with employee contributions, to offer interest-free grants and loans to its employees. In 1973, Merrill Lynch & Co., Inc. became the parent company of Merrill Lynch, Pierce, Fenner & Smith, the first company in the securities industry to use the model of a holding company. The company adopted the bull logo for all its subsidiaries to denote its bullish standing in America. In 1974, Merrill Lynch Asset Management (MLAM) was established as a part of the Merrill Lynch group. The 1990s saw further expansion of Merrill Lynch throughout the world. The acquisition of Smith New Court in 1995 made Merrill Lynch the worlds biggest equity company. By 1997, the company had over $1 trillion worth of client assets under management (first financial services company to cross this mark). Merrill Lynch merged with Herzog Heine Geduld in 2000. In December 2002, E. Stanley ONeal took up the post of Chief Executive Officer of Merrill Lynch.

Cases of Gender Discrimination

In February 1997, eight women employees of Merrill Lynch filed a sex discrimination suit against the company. Their allegations ranged from discriminatory treatment in terms of training or support, to unequal pay and unfair dismissal. The first plaintiff in this lawsuit was Marybeth Cremin, a broker at Northbrook, Illinois office, who was fired because her boss allegedly wished women could combine family and career but didnt think it was possible.12 By 1995, Cremin was generating around $400,000 revenue for the company per year and managing $60-$70 million worth of assets. When she had to take medical leave due to pregnancy complications, the company changed her status and docked her benefits.13 Though she was entitled to 26 weeks of paid leave under the companys policy,14 she claimed that she was forced to give up her client list to other brokers in exchange for half the previous years pay. In July 1995, she received termination notice, supposedly, without any explanation. However, Merrill Lynch contended that she resigned. She approached Stowell & Friedman, a civil rights law firm based in Chicago, in September 1995.15 Another plaintiff, Anne Marie Kearney, a broker at the San Antonio office, claimed that she was fired for complaining about the companys policy of unequal pay system.16 Alice Moss, a broker at the Florida office, alleged discrimination as she failed to receive large accounts unlike the male brokers. She said that she was pressurised by her boss, Arthur Borham, resident manager of the Coral Springs, Florida office, to quit and was purportedly sacked when she called the companys confidential employee hotline to complain.17 Stowell & Friedman took up the case on behalf of these women. Protests from the Chicago chapter of National Organization for Women (NOW) made the company devise a new diversity plan and accounts distribution policy (Box 1).18 This new policy was proposed to remove any kind of favouritism while allotting
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Edmund Lynch passed away on May 12th 1938 Reed, Susan, E. Taking the bull by the horns, www.prospect.org Prussel, Deborah Merrill Lynch Women Fight for Equal Treatment - women sues Merrill Lynch and Company Inc. for sex discrimination, www.findarticles.com, September1999 As per Merrill Lynchs Child Care Leave policy, primary caregivers are entitled to 13 weeks of paid leave for the birth or adoption of a child. www.ml.com/careers/life/benefits.asp Prussel, Deborah Merrill Lynch Women Fight for Equal Treatment - women sues Merrill Lynch and Company Inc. for sex discrimination - Brief Article, op.cit. She found that she was paid 30% less than men who had recently graduated from college. Kearny had 15 years of work experience in major organizations. www.prospect.org Reed, Susan, E. Taking the bull by the horns, op.cit. Ibid.

Gender Discrimination at Merrill Lynch

accounts thus providing equal opportunities to even women and minority brokers for handling accounts. Moreover, account redistribution was to be made publicly available from the year 2000 so that brokers can know whether they are getting their fair share or not.19

Box 1: Merrill Lynchs New Accounts Distribution Policy

Merrill Lynchs new policy for account-distribution contains six parameters for determining the eligibility of brokers to handle client accounts. Branch managers can choose any four of the six criteria for determining account allocations. Brokers are to be ranked as per this criteria and if they meet two of these four parameters, they become eligible for walks-ins, call-ins, reassigned accounts and managerial referrals. The six criteria are: At or above the minimum criteria in financial planning points. At or above the national median in Masters contest points. Recognition club membership. First, second or third quintile in growth of priority households (accounts with combined assets and liability products of 250,000 dollars). First, second or third quintile in growth of fee-paying products (measured by absolute assets or percentage growth). First, second or third quintile in production growth (either absolute dollars or percentage growth).

Source: Weinberg, Rick Merrill Revamps Account Distribution Policy, www. registeredrep.com, February 1st 2000 On May 4th 1998, the company agreed to settle the lawsuit by agreeing to resolve the first eight cases individually through an agreed-upon process.20 By the end of May 1998, five out of the eight original plaintiffs had entered into settlements with the company.21 The plaintiffs dropped the class-action suit and were given $600,000, as settlement for acting as representatives for the class-action suit. Both, the company as well as the plaintiffs, agreed that there is no pattern of sexual harassment at Merrill Lynch.22 The company proposed to create a new and better claim-resolution process that can be used by any employee for settling any kind of employment-related issues. The process consists of three stages: submission of claim by the employee, which would be investigated by Merrill Lynch, whereby, a settlement would also be decided upon if the company deems fit; if the claim is not resolved in the first stage, then the claimant can opt for mediation; if mediation also fails, the employee can take the case to a binding, non-industry arbitration forum.23 The 911 women who joined the class action suit24 demanding compensation for discrimination were also asked to go through this process and even a public hearing, if necessary.25 This process may be used by the nearly 2,500 current as well as former women employees for settling any issues that may have cropped up after January 1st 1994. In 2000, Merrill Lynch made settlement offers to 720 of the 911 women who filed the suit. Only 165 of them accepted the proposal. In January 2000, the company offered settlement amounts ranging from $20,000 to $40,000 to 240 women who had less than two years of service at the company. Out of these 90 accepted. In March, around 480 women with more than two years of service experience at the firm were offered settlement amounts ranging from $20,000 to around a million. 75 women under this category accepted. The 555 women who refused to accept the settlement were asked to go through a mediation process, and may even proceed for arbitration hearing if the mediation process fails. 26 Merrill Lynch started arbitration hearings in November 2003. On April 19th 2004, an arbitration panel ordered Merrill Lynch to pay $2.2 million in compensation to E. Hydie Sumner. 27 Sumner was a broker at Merrill Lynchs San Antonio, Texas, office. Stephen McAnally, Sumners supervisor, allegedly harassed her and other minorities in the office. He supposedly reacted adversely to her complaints about him by distributing copies of a magazine that contained an article called Stop Whining, which had an implicit warning that constant complaining can cost you your job.28 For this retaliation, Sumner received $500,000 over and above the $1.6 million in back pay and
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Retkwa, Rosalyn Merrill Lynch to Revise Account-Distribution Policy, http://registeredrep.com, December 1st 1999 Merrill Lynch Settles Gender Discrimination Lawsuit, PRNewswire, May 4th 1998 The amounts ranged between $200,000 and $1 million. Taking the bull by the horns, op.cit. Merrill Lynch Settles Gender Discrimination Lawsuit, op.cit. Ibid. Class Action lawsuit- A lawsuit in which one person or a small group represents the interests of an entire class of people in litigation, www.commerce-database.com As per Securities and Exchange Commissions rules, employees cannot go to court unless their cases are certified as class-action. Nelson, Tom Merrill Lynch Wades Through Discrimination Claims, http://registeredrep.com, October 1st 2000 Sex case clinches Merrill Lynch, www.finance24.co.za, June 8th 2004 Merrill Lynch discriminated against women, panel finds, op.cit.

Gender Discrimination at Merrill Lynch

lost earnings. This was the biggest monetary reward ever made by a panel of arbitrators in Merrill Lynchs claim-resolution process. The decision was also distinctive because it was the first to accept the class claim that systematic discrimination against women employees really existed in Merrills brokerage offices.29 In June 2004, Merrill Lynch was confronted by another law suit by Stephanie Villalba on charges of sexual discrimination, victimization, unfair dismissal and unequal pay. Villalba had joined Merrill Lynch 17 years back. She headed 250 financial advisors placed in 13 offices in Continental Europe and the UK. She was the first woman to become one of the board of directors of Merrill Lynch International Bank (October 2001).30 In October 2002, five months after Villalba was made the head of Merrill Lynchs private client business in Europe, Ausaf Abbas was appointed as the line manager over her. 31 Villalba alleged that Abbas bullied, belittled, undermined and underpaid her.32 She claimed that he passed demeaning comments about her and insulted her verbally in public. For instance, he purportedly described her as high maintenance in an e-mail written to another colleague.33 While traveling in a corporate jet, she claimed that he instructed her to sit in the stewardesss chair and made her serve drinks to all the other male colleagues on the flight. In another instance, when she stated that she and her team were working hard, he allegedly responded by saying Stephanie, my maid works hard.34 Though Villalba received a promotion in 2002, she claims that her salary and bonuses were not more than US$550,000, which is supposedly very less compared to the US$700,000 she received in 2001. In February 2003, she was supposedly removed from her post as head of the private client business in Europe and transferred to another position.35 She felt this was a clear demotion and rejected the offer.36 She says that she was forced to quit after a 3-month sabbatical in July 2003. Villalbas demand of 7.8 million compensation is one of the biggest awards to be sought in through any employment tribunal in Britain. The case was heard by an employment tribunal on June 8th 2004.37 Villalba told the panel, I would describe Merrill Lynch as being institutionally sexist. The problem is not the view of individual managers but of the whole culture of the management team.38 In the hearing, Merrill Lynch denied her allegations of unequal pay and unfair termination and attributed them to her low performance.39 In 2002, the European region, which was under Villalba, apparently registered a record pre-tax loss of $47 million. Revenue fell dramatically from $US124million in the first half of 2002 to $US93million in the second half. This was far worse than the losses in other regions.40 Villalba claimed that her male counterparts, within as well as outside Europe, were paid more than her. While other market executives received anything between $US725,000 to $US1million, she alleged that she was paid $US549,997 in 2002, which comprised of $US150,000 of base salary while the rest was bonus. She also felt that people whom she recruited to work under her were paid salaries between $US600,000 and $US800,000. Though Merrill Lynch acknowledged that Villalba was paid less than her contemporaries, it attributed the not very dramatic difference to her poor performance.41 Merrill Lynch retaliated that Villalbas accusations about Abbas were untrue. She had been asked to quit only because of the losses in her region and had nothing to do with her sex.42 Villalba also told the tribunal that Merrill Lynch has no process for monitoring equal opportunities ... promotion and pay are at the discretion of senior managers, almost all of whom are male. Villalba is the highest ranking woman in the UK to bring a public case of gender discrimination.43 Merrill Lynch responded that she had been substituted by another woman as head of the European private-client business. Out of the five other regional executives, one was a woman. The case has been adjourned till August 31st 2004.44 In June 2004 Elizabeth Weston, a 29-year old Australian, filed a suit against Merrill Lynch for sex discrimination. Weston, a solicitor in the banks legal department in London, claims that Nathaniel Norgren, a senior lawyer in the company, made lewd and disgusting remarks about her and other women in a drunken state at a Christmas party on December 19th 2003. The next day, Weston allegedly complained to her line manager about Norgrens behaviour, which resulted in an in-house
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Sex case clinches Merrill Lynch, op.cit. She was told to serve drinks to colleagues, www.newpaper.asia1.com.sg Ausaf Abbas was previously running the Private Client Business division in Japan. Female banker sues over bullying at Merrill Lynch, www.timesonline.co.uk Ibid. Ibid. She was told to serve drinks to colleagues, op.cit. Sexism and the City, The Economist, June 12th 2004 Under British law, the case is heard by a three-member panel, headed by a person with a legal background. The other two members represent the employer and employee respectively. The rulings from employment tribunals are binding; however, they can be appealed. Sexism row rocks Merrill Lynch, op.cit. Banker in sexism case suffered, www.simaqianstudio.com, June 12th 2004 Calian, Sara Sexism in the City under fire,Wall St Journal; afr.com/articles, June 18th 2004 Merrill Lynch Sex-Bias Suit Places Global Pay Scales Under Scrutiny, op.cit. Banker in sexism case suffered, op.cit. Calian, Sara Sexism in the City under fire,op.cit. Harris, Joanne Sex discrimination goes cross-border, www.thelawyer.com, June 28th 2004

Gender Discrimination at Merrill Lynch

disciplinary hearing. The company also withdrew Norgrens 26,000 bonus. But Norgren got back half of it when he appealed later.45 Weston also claimed that she received a cold shoulder treatment from the other (predominantly male) colleagues after this incident. When she requested for a transfer, in order to escape from the conditions and the resulting depression, she was supposedly told that it would take more than a year.46 Eventually, Weston resigned on June 4th 2004. These law suits changed the way Merrill Lynch dealt with employment disputes. The company formulated a new programme for settling employment claims. The new Merrill Lynch Employment Dispute Resolution Program provides employees with a new binding, independent, non-industry arbitration forum, which also means that employees can approach the courts for settlement of claims.47 The forum would consist of a pool of lawyers selected by both the company as well as the plaintiff. This is different from the usual industry practice of taking all disputes to NASD (National Association of Securities Dealers, Inc.) or NYSE (New York Stock Exchange) arbitration forums under the US Securities and Exchange Commission.48 This is in response to the debate that was raised by regulators and civil rights groups about the righteousness of mandatory arbitration. This case raised the question whether executives in equal positions all over the world should be paid equally (Box 2). In the hearing, Merrill Lynch contended that so many variables affect bonus awards that it is practically inevitable that employees doing comparable work in different parts of ML will receive different levels of total compensation.49 Sue Ashtiany, head of employment practice at Nabarro Nathanson, a London law firm said, This case is shining a torch on the issue of what global businesses are paying employees doing like work, or work of equal value, in different countries.50 This global comparison of pay was challenged by Merrill Lynch in the tribunal hearing of Villalbas case. Since the tribunal system comes under the EU law on equal pay, some lawyers contend that such a comparison is likely to hold well within the European Union. However, the issue relates to comparison of salaries outside the EU. 51

Box 2: (Un)Equal Representation?

Equal Opportunities Commission (EOC) found that on an average, women earn 43% less than men, especially in Londons business district. In 1995, the biggest overall gender pay gap in Europe was in the UK, as women on an average received around 66% of mens earnings. EOC adds that, in the UK, gender pay gap for full-time employees is 26%. Women constitute just 11% of the total board members in Fortune 500 companies. In July 2002, the European Parliament called on the European Commission to update all directives on equal treatment for men and women on the basis of pay, social security, working conditions, employment, combining work and family commitments and other aspects. The employment rate of women (54%) is still lower than that of men, while eight out of ten part-time workers are women. Source: Equal Opportunites Commission Report Advancing Women in the Workplace: statistical analysis, March 2004; Bank accused of institutional sexism, http://www.blackbritain.co.uk, June 13th 2004 After the arbitration panel ordered Merrill Lynch to pay $2.2 million to Hydie Sumner, Stanley ONeal, Merrills CEO, responded by saying, While we have taken many steps to eliminate these types of problems in the years since this conduct was brought to light. It is an embarrassing blot on the reputation of this company and it underscores how wrongheaded decisions made by any individual can have great costs to our entire organization. But, embarrassing as this incident is, it truly would be unfortunate if all of us at Merrill didnt learn from it. Mark Herr, Merrill Lynchs spokesman, said, The firm described in the panels decision is not todays52 Merrill Lynch. We agree, and regret, that nearly a decade ago there was inappropriate behavior in the San Antonio office. It should not have occurred and would not be tolerated today. As of June 2004, the company still had 39 cases pending from the class action suit of 1997.53

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Peek, Laura Another case of sexism and the City?, op.cit. Ibid. Merrill Lynch Settles Gender Discrimination Lawsuit, op.cit. The US Supreme Court upheld the justified the fairness of the arbitration process in June, 1987 and approved its use in 1991. The plaintiff loses the right to pursue the claim in court if he opts for arbitration. The ruling of the arbitration panel is final and binding and cannot be appealed in court (except in the special cases), nyse.com/regulation Calian, Sara Sexism in the City under fire, op.cit. Ibid. Merrill Lynch Sex-Bias Suit Places Global Pay Scales Under Scrutiny, op.cit. The decision was made public on April 20th 2004 Sexism row rocks Merrill Lynch, op.cit.