On January 22, 2009, CNBC’s Charlie Gasparino broke the story that Merrill Lynch spent $1.2 million in office renovations and decor for John Thain’s executive suite.  The news shocked corporate governance hawks and everyday Americans.  But for savvy corporate real estate professionals, the profligacy is amplified by understanding the modest scope-of-work and complete lack of project controls, both evidenced by the ML internal documents obtained by CNBC.

Among the plain excesses are:

• $106,859 for a “Private Dining Room”, including
  • $36,904 for “6 chairs”
  • $3,072 for “Labor to Reupholster chairs”
  • $3,579 for “Dining room chairs”
• $35,114 for a “Commode on legs”
• $87,783 for a “Pair of guest chairs” in “John’s Office” (not including >$80k for various other chairs throughout the suite, and >$43k for the dining room chairs mentioned above)
• $68,178 for a “19th C Credenza”
• $16,020 for a “Custom Coffee Table”
• $3,917 for “Light Bulbs & Ext. Cords”
• $1,404 for “Parchment waste can” (a la Tyco’s Kozlowski)

To anyone with project audit experience, the multiple (apparently redundant) lines for dining room chairs would be one of many red flags.  Even if the work and costs were justified, the descriptions would have been clarified.  This is one of the clear indicators that even basic project oversight or controllership was absent.  Further, there is no line indicating designer Michael S. Smith’s management fee, which indicates he may have profited through markups on the furniture/supplier items; a blatant violation of most modern purchasing programs.

But there was a curious omission in the documents leaked to Gasparino.  While they include complete detail for the $837,698 of costs related to Smith (including all of the above items), there is only a summary line for the other major bucket: $385,111 for “ML Project Services” (including construction, architectural & engineering fees, and non-capital).  Considering construction work was limited (a few new electrical fixtures?), this is an equally astounding figure for a refresh & decor project.

Presumably “ML Project Services” represents the PM group within Merrill Lynch Global Corporate Services.  (Whether this is just an internal moniker / cost center or a full legal entity remains a mystery – one that could have its own story.)  But since the documents surely leaked through someone inside (or near) ML GCS, it seems that Deep Throat didn’t want to expose their own group’s largesse along with Thain and designer Smith.

Clearly, controlling capital spending on a high-profile executive project is a difficult task, requiring incredible backbone.  But corporate real estate executives are nonetheless duty-bound by fiduciary obligations to the corporation.  In fact, it may be argued that a proactive CRE/CS team would protect busy executives like Thain, who are not specialists in office decor projects.  The evidence in this case suggests complete passivity, and perhaps additional culpability.

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