The rapid fall of Stanley O'Neal from the helm of Merrill Lynch & Co Inc has left investors wondering who else in the banking industry may pay a price for the U.S. subprime mortgage crisis.

O'Neal's downfall leaves Citigroup Inc's Charles Prince, Bear Stearns Cos Inc's James Cayne and Countrywide Financial Corp's Angelo Mozilo among the prominent U.S. chief executives under fire for failing to avoid losses from mortgages and this summer's seizing up of credit markets.

But it is one thing to blame and another to punish. And for a board of directors ultimately responsible to shareholders, sacking the CEO may not always be the way to go.

People can make devastating mistakes, said Jeffrey Sonnenfeld, co-author of Firing Back: How Great Leaders Rebound After Career Disasters and senior associate dean at the Yale School of Management. The critical question for a board is whether the mistakes were the product of a fair effort at good business judgment, or the result of stupidity, corruption or cronyism.

At Merrill, an unexpectedly large $8.4 billion write-down and O'Neal's apparent unauthorized overture to Wachovia Corp for a merger may have made the board's decision to oust O'Neal easier. That followed the exit of Merrill's fixed-income and structured credit chiefs less than a month earlier.

Others could say, 'Here's someone across the street who couldn't get the job done, maybe we should look at our own executives, said David Killian, a portfolio manager at StoneRidge Investment Partners LLC in Malvern, Pennsylvania.


So far, other banks hurt by credit losses have culled the rank-and-file, or let people go who were near but not at the top.

At Bear Stearns, where two hedge funds with risky debt blew up, co-president Warren Spector stepped down in August, and hundreds of jobs have been cut. At Citigroup, a handful of executives left this month, including capital markets chief Thomas Maheras and co-head of fixed income Randy Barker. Countrywide is cutting up to 12,000 jobs.

And a poor quarter in corporate and investment banking at Bank of America Corp led to an expected loss of more than 1,500 jobs in that unit, including President Gene Taylor.

Timothy Ghriskey, chief investment officer of Solaris Asset Management in Bedford Hills, New York, said there is risk in cutting too deeply, especially into real talent. It's much easier to hire one person than dozens.

And Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware, said some business decisions may look bad only in retrospect.

Before you assign responsibility, you have to think about that, he said.

The independent directors who comprise a majority of public companies' boards may not feel beholden to a troubled CEO. But Patrick McGurn, special counsel to the governance unit of RiskMetrics Group Inc, said that does not excuse rash action.

If the CEO is keeping the board in the dark, then perhaps he gets what he deserves, McGurn said. If a company doesn't have the right people in place to fix what's wrong, that can lead to paralysis. You want to leave the necessary pieces in place rather than decapitate senior management.


Prince has faced questions about his leadership from the day he was tapped in July 2003 to replace Sanford Sandy Weill as Citigroup's chief executive. So far, he appears to have the backing of his board and of Robert Rubin, the former U.S. Treasury Secretary who chairs Citigroup's executive committee.

But a $6.5 billion write-down of mortgages, leveraged loans and other debt should leave Citigroup short this year of Prince's goal of boosting revenue faster than expenses. The bank also faces potential subprime exposure through tens of billions of dollars of structured investment vehicles. Citigroup shares trade below where they were when Prince took over.

If I'm in my job for four years and don't deliver, I get shown the door, said StoneRidge's Killian.

Prince has a safety valve of sorts in that Citigroup does not have a clear internal successor should he leave. By contrast, Bear Stearns President Alan Schwartz is considered a logical successor for Cayne at the Wall Street investment bank, and Countrywide Chief Operating Officer David Sambol could succeed Mozilo at the largest U.S. mortgage lender.

Cayne appears to have allayed some concerns after striking an investment pact with China's CITIC Securities Co.

Mozilo, in contrast, faces calls from some investors to resign after presiding over a $1.2 billion third-quarter loss and pocketing more than $100 million in the last year from stock awards. The U.S. Securities and Exchange Commission has opened an informal inquiry into his trading.

Sonnenfeld, the Yale professor, said CEOs can be excused for sagging performance. He said Cisco Systems Inc's board, for example, left John Chambers in charge because it recognized the whole industry was intoxicated with cyberspace before a 90 percent drop in its stock price from 2000 to 2002.

There will be a lot of pressure to come up with a retirement package for Cayne, Sonnenfeld said. People have been stalking Prince since he took over. At Countrywide, I actually think the SEC investigation is going to be more critical than anything else.