REGAN ON HIS OLD FIRM
By Donald Regan

(FORTUNE Magazine) – Just before he set off on tour to publicize his new book, former Merrill Lynch chief executive Donald Regan talked to FORTUNE in the offices of his investment firm, Regdon & Associates, in Alexandria, Virginia. For the first time since leaving Merrill, the former Treasury Secretary spoke about his old firm. Excerpts:

On what went wrong after Roger Birk succeeded Regan: Some of the people under Roger got a little too headstrong and a little fat and lazy. Merrill was not exactly run in a spartan manner. Eventually costs became a problem. They got too used to limousines and perks. Look at the new headquarters. Mahogany paneling everywhere. The swish dining rooms. The chauffeured cars. See you in Boca Raton. See you at the Louvre. That attitude has permeated Merrill as well as the rest of Wall Street.

On the performance of current top management: I have no problem with their trying to take Merrill in a new direction, but how long does it take to get your act together? Most FORTUNE 500 corporations give the CEO one to two years.

On management's statement that it is investing for the long term: You don't have the luxury of the long term. It's a cold, cruel world out there. After all, would Merrill recommend to its customers that they buy the securities of a company whose business isn't improving?

On management's strategic vision: Great, they have vision. But are they certain that they have expenses well under control? Are they willing to defer compensation until the performance improves? Why pay top executives who have been leading Merrill's mediocre performance? Would they leave if you didn't pay them? Maybe, but maybe that's not so bad.

On Chairman William Schreyer: Very sophisticated in the ways of Wall Street. Well-rounded background. People naturally like him. A charming and good natured personality. He can be an inspiration to people. He has a game plan and is trying to execute it.

On President Dan Tully: He is a salesman's salesman. The big producers like him. A heart of pure gold.

On whether Merrill needs new top management: I don't know. Some think yes, some say, ''Who would do any better with a firm of this size?'' If you say Peter Cohen ((the combative head of Shearson Lehman Hutton)), then you might lose all of the top managers.

On the challenges ahead at Merrill: First, how are they going to handle deregulation? Second, they have to figure out how to control costs and control the allocation of capital. They must minimize the risks of losing their capital. Third, they must keep control over their people so that they do not get into the insider trading problems afflicting so many other firms. Fourth, they must make sure that they have enough good people to get the job done.