“I'll give you as much time as you want,” George McReynolds drawled, leaning back in a chair in his Nashville, Tenn., office.
That, he said, has been his philosophy during the 30 years he has worked as a financial adviser at Merrill Lynch, the brokerage now owned by Bank of America Corp. At 69, he's a slow-and-steady kind of guy: He has lived in the same home for almost four decades; he never drives his tan Chevrolet Malibu over the speed limit. Still, Mr. McReynolds couldn't wait forever to be treated equally by his employer.
Over the years at Merrill Lynch — he started there in 1983 — Mr. McReynolds has gotten used to inequities small and large. With only a few fellow black brokers in the Nashville office, he felt isolated. Often excluded from work social events, he took to eating lunch at his desk. If he was out, he said, the receptionist sometimes told callers he didn't work there. He also noticed that the other African-American financial advisers at Merrill Lynch were rarely top producers — meaning they generated less business than their white colleagues — though they seemed to work as hard as everybody else.
In 2001, his manager asked him to team up with two younger white brokers, pooling their accounts and splitting the profits. The bulk of the combined accounts were his. Right away, there were problems.
“We didn't agree on how business should be done,” he said. After two years, the team broke up, and the office manager gave a majority of the accounts to the younger brokers. Mr. McReynolds said he lost $40 million in client assets and had to give up his office. His new desk was in a carrel outside the ladies' restroom.
“In this business, assets equal income,” Mr. McReynolds said. “It cut my income in half.”
The incident made him consider suing the firm, but he worried that he would never prevail in court. (According to Merrill Lynch, numerous factors could determine how the accounts were divvied up after so long.) Then, in the spring of 2004, an arbitration panel found that Merrill Lynch had systemically discriminated against female brokers, and awarded $2.2 million to a single employee.
At the time, women were a third of managers and executives in finance. African-Americans made up 4%. In 2004, Merrill Lynch had almost 10,000 full brokers, not including trainees; fewer than 150 were black.
The women's victory gave Mr. McReynolds hope. Over several months that year, he and Maroc “Rocky” Howard, a former Army captain in Merrill Lynch's Dallas office, talked about filing a lawsuit. The friends, who had met a decade earlier, knew they faced steep odds.
During the next eight years, their case meandered through the judicial system, its journey marked by personal and professional misfortune, countless legal setbacks, unexpected breakthroughs — and finally redemption, when, last August, Merrill Lynch and Mr. McReynolds announced a settlement. In terms of cash, the $160 million won for 1,400 black brokers was a record for a racial-bias case. A U.S. district court judge approved the settlement agreement last Friday.
It was not the first time Merrill had settled a racial discrimination case. In 1974, the Equal Employment Opportunity Commission sued the firm over race and sex discrimination. The firm, which admitted no fault, settled and entered a consent decree promising to increase the hiring of black brokers from a little more than 1% of the workforce to 6.5%. Merrill Lynch still hadn't met this goal when the pact expired in 1995.
In 1994, Mr. McReynolds flew to Chicago for an informal meeting organized by experienced black Merrill brokers. About 50 attended.
“For most of us, it was like, "Wow, there were other blacks in the firm, and they're just like me,'” said Mr. Howard, who met Mr. McReynolds at the get-together.
They gathered in Chicago annually for the next several years to compare notes. The challenges they faced weren't overt, Mr. Howard said. “There's no group or individual saying, "Let's screw the black guys today,'” he said.
While white brokers often partnered up, blacks were rarely asked to join teams. And they consistently felt shortchanged when managers divvied up new accounts. All these problems seemed compounded by the fact that the bigger a broker's book, the more support — and assets — he or she would get from Merrill Lynch.
Merrill started several programs over the years to help black brokers. The firm ran focus groups and took over the informal annual meetings. Some sessions were helpful, explaining new products and giving tips for attracting clients. The black brokers would later assert in their suit that Merrill's efforts were superficial and didn't address the real issues they believed were holding them back — such as who gets what resources and accounts. Merrill countered that it focused on helping brokers bring in clients because production played an important part in its calculations for divvying up accounts.
CLASS STATUS SOUGHT
In 2005, Mr. Howard and Mr. McReynolds hired Stowell & Friedman, which had represented the women against Merrill Lynch in the 1990s. Ultimately, 15 other brokers joined the suit. The plaintiffs asked the court to recognize a class of black brokers and trainees who worked at the firm from 2001 to 2006.
Merrill reacted swiftly. While it denied the claims made by Mr. McReynolds and his group, it did announce changes. The firm created new minority recruitment incentives, added a diversity unit to the duties of the unit's operating chief and went on a hiring spree that, for a period, more than doubled the number of black financial advisers. Stanley O'Neal, an African-American investment banker who had risen to chief executive of Merrill, met with the plaintiffs in New York, and Mr. McReynolds got his office back.
Merrill Lynch did not dispute that blacks made up less than 2% of its financial advisers and were less likely than white brokers to be top producers. But it disagreed about why.
The firm spent more than $12 million on eight experts who argued that society was prejudiced, not Merrill Lynch. Their data aimed to show that black brokers don't have the same access to wealth as their white counterparts, that they have weaker social networks of wealthy potential clients and that customers are likelier to invest with brokers who are similar to themselves.
Merrill Lynch said this made white brokers more likely to be higher producers, which in turn made them more desirable teammates to other brokers, who picked their own partners. And because the firm rewarded top producers with more account distributions, this also explained any differences in how new accounts were distributed.
More than a dozen Merrill Lynch executives, including Mr. O'Neal, testified that the organization was doing the best it could in a business that depended on getting access to the wealthy in America.
In a 2006 deposition, Mr. O'Neal testified: “The concentration of wealth in most parts of this country ... is mostly in the hands of whites, which means, by definition almost, most African-American financial advisers have to reach across racial ... boundaries to establish those relationships in order to be successful.” That, he argued, “to some degree, maybe a significant degree,” accounted for why white brokers produced more.
The plaintiffs' two experts, who charged a combined $1.6 million, argued that Merrill Lynch's policies didn't just replicate societal realities, they made them worse. They found that black brokers were far less likely to be asked to join teams than white brokers, which in turn limited the size of their books. The experts calculated that this alone accounted for as much as 28% of the wage gap.
They also found that, beginning in the first month of the training program for new hires, the company gave more and larger accounts from new customers or retiring brokers to white trainees. (Merrill Lynch disputed their methodology.) That disparity was compounded by a seemingly meritocratic Merrill Lynch policy rewarding higher producers by giving them even more accounts.
“Even if all you did was give [white brokers] an advantage in Month One, blacks would always fall behind,” said Linda Friedman, a lead attorney for the plaintiffs.
Amid the drawn-out discovery phase, the plaintiff group was rocked twice. In October 2007, Mr. O'Neal was ousted as Merrill Lynch collapsed under the weight of flawed subprime-mortgage securities in a downward spiral that eventually would lead to Bank of America buying the firm. Three days after Christmas that year, Mr. McReynolds had a heart attack and a quadruple bypass. He remained in intensive care for three months.
GLIMMER OF HOPE
In August 2010, U.S. District Judge Robert Gettleman ruled that the brokers didn't have enough in common to be called a class. That essentially invalidated the suit. Then came a ruling that changed their luck. In the summer of 2011, in a 5-4 decision, the Supreme Court ruled that Wal-Mart Stores Inc. giving local managers the power to hire and promote workers did not constitute a nationwide policy discriminating against women. But for Ms. Friedman, the case had a silver lining: The justices spelled out the type of formal policies, set at the corporate level, that could give employees the common experiences necessary to be considered a class.
The McReynolds team now argued that Merrill Lynch had nationwide policies for how brokers teamed up and how the bank doled out accounts. They lost in district court, but with a twist: In denying their class once again, Mr. Gettleman encouraged Ms. Friedman to appeal his own ruling in light of the Wal-Mart decision: “You've made a good argument,” he said, “and I think it deserves to be put to rest one way or the other.”
The 7th U.S. Circuit Court of Appeals agreed to hear the case, and Ms. Friedman drew on a trick she'd learned over years of civil-rights cases. Whites, even judges, sometimes seemed to understand gender discrimination better than racial bias, so she likened Merrill Lynch's teaming policy to when police departments first allowed women into the force.
If departments allowed veteran officers to pick their own partners, the force would never have been integrated, Ms. Friedman reasoned. This, she argued, is what was happening to black brokers at Merrill Lynch.
Judge Richard Posner pounced on the analogy, asking, “Is it like a fraternity? They're not picked?”
About a month after the hearing, he and the two other judges ruled in the plaintiffs' favor, ordering the district judge to certify the class. Mr. Posner wasn't saying that Merrill Lynch did discriminate — but that the brokers did face companywide policies. He wrote that the teaming policy could set off a “vicious cycle” where black brokers aren't chosen for teams, so they earn less and don't get as many accounts given to them, which in turn makes them less likely to be put on teams in the future.