Charlie Merrill, Part II
Brian Trumbore
President/Editor, StocksandNews.com

Continuing with our story of Merrill Lynch founder Charlie Merrill, in 1940 Charlie and partner E.A. Pierce issued their "Declaration of Policy," which author David Colbert describes as a "savvy marketing cream puff."

"That it needed to be described in detail," Colbert adds, "reveals much about how brokers operated before the SEC and the public's distrust afterward.

"In fact, during the entire 1940s, Wall Street failed fully to benefit from the growth in the economy. Though the Dow Jones Industrial Average doubled, it fell short of the much greater growth in corporate profits. The public, remembering 1929, still had little taste for investing."

Charlie Merrill's goal was to make it palatable again.

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A DECLARATION OF POLICY
CHARLES E. MERRILL AND E.A. PIERCE
TO PARTNERS AND MANAGERS:

?During the past few years we have been trying to readjust ourselves. Some of us have been a little slow in realizing that the readjustment has to be permanent, and a few doubt the possibilities of any successful readjustment. Nevertheless, we are convinced that the buying and selling of stocks, bonds, and other evidences of liens and ownerships is a fundamental business that performs an essential service?The sooner we recognize that the temper of living may never again be identical with what it was twelve or fifteen years ago, the sooner we shall gear ourselves for success under present and future conditions.

?These policies rest on a conviction - not always uppermost in our minds, we'll grant you - that in order to win success we businessmen have to put the public's interest first. The customer may not always be right, but he has rights, and upon our recognition of his rights and our desire to satisfy them, rests our chance to succeed. It's not banal poppycock to say today that we've got to succeed through the service we can render the investing public. And it's only looking facts in the face to say that a legitimate, honest service is the only justification for success.

?Disturbing is the large percentage of potential investors and speculators in securities who are suspicious of the motives and operations of the security business and the people engaged therein. You and we know the reasons for this lack of confidence and we know that it won't be eliminated until we know that it won't be eliminated until we convince the public that our house is now in order.

?You may be interested in knowing how your senior partners feel about the SEC. We'll tell you. We are in full accord with the fundamental purpose of the Securities and Exchange laws - to give the investor adequate information, and to prohibit manipulation and fraud - and we pledge to our customers a complete cooperation with all future efforts designed to strengthen further these fundamental purposes.

No regulations or policies, however, can pretend to guarantee profits nor insure against loss. But we believe our customers can confidently use the Exchanges for investment and speculation with assurance that there are no stacked cards.

?Let's take a look at our registered representatives, or customer's men. They are going to represent an important phase of our new job, principally because we think we are going to make it possible for them to operate on a different and sounder basis than in the past. One of the troubles in our business has been a potential conflict of interest between the customer and the customer's man, created by compensation practices which we believe were wrong. We're going to minimize, perhaps even eliminate, that potential conflict of interest.

Between ourselves, we think the best name for these men is service representatives, because it best expresses what we would like them to be in our organization?.[They] will assist their customers in getting all desired factual data; they will offer no advice as to the purchase or sale of securities or commodities except under restrictions mentioned [earlier]; they will circulate no rumors, "confidential suggestions," or "hot tips" ?

In closing, we'd like to express our unshakable confidence in the future of our country, in the basic soundness of our type of economy - capitalism - and in the essential place that the security business has in that economy.

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Again, this was brilliant marketing, passed out to all clients and prospects, and while it may sound like much of what you hear in today's sales pitches when it comes to the big brokerage firms, back in 1940 it was revolutionary.

But to switch gears, here's an anecdote from Martin Mayer's 1955 book "Wall Street: Men and Money" concerning Charlie Merrill.

"Some years ago an officer of one of the many semi-official organizations that help police the financial market was sitting in on a Merrill Lynch cocktail party at an investment banker's convention. He was sipping a drink and listening to the cheerful sounds about him, and suddenly he felt a finger tap on his shoulder. He turned around.

"An anonymous minion was standing above him. 'The boss wants to see you,' the minion said.

"The officer rose and followed to the top floor of the hotel, where a dozen men were standing around the living room of a suite, smoking and talking in hushed voices. Every once in a while the bedroom door would open and somebody would come out, move over to one of the men and nudge him toward the bedroom. Finally it came the officer's turn. He walked into one of the best bedrooms that could be offered by one of the best hotels in the state of Florida, and Charles Merrill was sitting on the bed.

" 'What do you want?' Merrill said.

" 'I don't want a goddamn thing,' said the officer somewhat irritably. 'All I know is, one of your people told me that the boss wanted to see me, so I came up.'

"Merrill grinned. 'Sit down, young man,' he said. 'Sit down.' The officer sat down and Merrill said in his best Southern manner, 'I just wanted to tell you that I like the work you're doing. And if you ever need any help with anybody, just let me know. I'll follow your orders.'

" 'Thank you,' said the officer, sincerely.

" 'You know,' Merrill said reflectively, 'there isn't a single trick in this business that I don't know.' He stopped, and grinned. 'And the reason I know them is, I've pulled every one of them m'self. Now that I'm an old man, I don't want to see anybody pulling them on me.'

"It will be understood that Merrill was giving an explanation, not a reason. Although nobody in government or finance is so fanatically devoted to honest practice, most people on Wall Street believe that anyone who tried to gyp Charlie Merrill would get his business throat cut in short order?.

"He is the first authentically great man produced by the financial market in 150 years. The Drews and Goulds, the Cookes, the Morgans and the Livermores - these men existed in a tight little island of their own making, where the public was sheep to be shorn. They made the alleys of Wall Street dark and dangerous places, and they kept for themselves as much as possible of the benefits that came from the system which produced their fantastic riches. Merrill brought in the public, not as a lamb to be fleeced but as a partner in the benefits. Today a man who loses his shirt in the market is the victim of his own stupidity or greed, not of the machinations of insiders. The climate of the thirties helped, the laws helped and many individuals helped; but the prime mover was Charlie Merrill."

Well, Mayer, who's still writing, would probably like to take back the bit about insiders hurting the little guy because that's essentially what the Bubble of the late 1990s / 2000 was all about. But otherwise it's a good summation.

Charlie Merrill died on October 6, 1956. Market historian Robert Sobel comments in "The Pursuit of Wealth."

"(The month Merrill died), there were 18 sessions in which 1 million shares were traded and five in which the 2 million share mark was bested, and the Dow closed at 482 the day before. His legacy was a nation becoming increasingly involved with share ownership. In 1939, there had been fewer than 4 million shareholders. According to the 1952 shareholder census, there were then 6.5 million, and another census conducted in 1962 showed 17 million. By 1966, there were 20 million shareholders. The beginning of what was to be the democratization of wealth had taken place."

Sources (Parts I and II):

David Colbert, "Eyewitness to Wall Street"
John Steele Gordon, "The Great Game"
Martin Mayer, "Wall Street: Men and Money"
Robert Sobel, "The Pursuit of Wealth"
Robert Sobel, "The Great Boom"

Brian Trumbore

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