Playing Golf While Wall Street Burns

January 25, 2012

When Stan O'Neal stepped down as Merrill Lynch CEO last October it was assumed he was being chased out in part for playing too much golf. While the market was melting down in August, O'Neal had turned in 19 scorecards, which to the untrained eye looked like President George W. Bush reading "My Pet Goat" to a classroom of kids on September 11. (O'Neal was also faulted for starting merger talks with a rival bank and because Merrill announced $8.4 billion in subprime write-downs.)

Former Bear Stearns CEO James Cayne, who stepped down in January, also took arrows for playing too much golf. When two of the company's hedge funds imploded last summer, Cayne was blissfully following his little white ball at a club in New Jersey, a fact gleefully reported in The Wall Street Journal: "One creditor, Merrill Lynch & Co., which was owed $400 million, seized the assets that backed its loan on June 15. Mr. Cayne was on the golf course in New Jersey part of that day, a Friday, having left the office Thursday afternoon, according to a Web site that tracks individuals' golf scores." (Cayne was also pilloried for spending too much time playing bridge.)

Just as embarrassing, at least to a serious golfer, is that Cayne's actual scores were widely reported, too. The New York Times noted that on June 14, a day when Bear Stearns had reported a 10 per cent drop in operating earnings for the second quarter, Cayne was busy shooting a 96. A week later, when his company was coming under increasing pressure from banks, Cayne logged a 98.

The detailed information about Cayne's rounds came from the Golf Handicap and Information Network ({C}{C}), the USGA's handicap service. With those two high-profile casualties, GHIN went from being a tool for golfers to a weapon for intrepid reporters and angry activist investors looking for evidence of poor management.

Not surprisingly, in December, the USGA announced rules changes that took effect in January 2008, among them one designed to protect the privacy of the golfer. No longer could a concerned shareholder, say, use GHIN or another handicap computation service to access dates and locations for every round posted by a CEO, or anyone else. It was widely assumed that the new rule was the result of current events, but the USGA handicap committee had approved its changes last June, said GHIN senior director Kevin O'Connor.

"People try to connect the dots," O'Connor said, "but the handicap computation services were notified in writing of the changes in August. And the committee had been kicking around the idea for two years."

What's more, he said, the dates and locations of your posted rounds are not totally under lock and key, as widely reported, starting this year.

"The people that would have the greatest likelihood of participating in peer review still have access to the same information," O'Connor said. Translation: The guy at the club you just fleeced for $40 can still look you up and get just as much information, dates to courses, as he could before. So can any entity that is running a competition. "But the guy off the street scrolling around looking at scoring records is going to have less information to look at," O'Connor said.

Those changes come too late for the reputations of O'Neal and Cayne, but might make golfing CEO's a little less anxious about hitting the course when the market is stumbling. Assuming, of course, their angry investors aren't also members of the CEO's club and still have access to their scores.