The last tycoons: the secret history of Lazard Frères & Co

by William D. Cohan

  But the new partners had to make some adjustments before the good times started. First, One Rockefeller Plaza was no One William Street. Whereas the Lehman bankers were happy to display their immense wealth both in their opulently appointed offices and at their homes, Lazard's offices remained shabby. "We live in cramped quarters--it's like something out of Victor Hugo's Les Miserables," Pizzitola told Fortune. Then there was the famous lack of infrastructure. Bill Loomis wrote an amusing memo to Sid Wolf, the resident Dickensian overseer, about the woeful state of the firm's photocopiers. (Many partners thought there was something poetic about a man named Wolf being responsible for keeping costs at the firm low.) "As is often the case," Loomis wrote, "I find myself on Monday morning sending out a series of tables to clients that appear to have been photocopied in Moscow in the 1920s. It is particularly aggravating after working hard to have the final product so unprofessional in appearance. A second frustration with our machines is that frequently they don't work at all. One recent week the machine on 32 broke literally every day. While I appreciate maintenance is always a problem with these machines, this one is clearly a piece of junk. It is very depressing at night to go floor to floor trying to find a machine in reasonable working order." He recommended Wolf replace the machine on the thirty-second floor with "a very sophisticated and expensive" one that could produce work that "is professional in appearance." Another Lazard banker called Wolf and asked him for a new bookcase after something fell on the old one and it shattered. "And he says to me, 'Andre wouldn't like it.' And I said, 'Sid, he's been dead for four years, buy me a new one.'"

  For his part, Glanville told Cary Reich, with amazement, "The secretaries have to go outside to buy typewriter ribbons. We don't stock them here." But he drew the line of his frustration at the infamous Lazard weekend list, which Andre had instituted with a certain amount of logic. The idea was that each partner had to give Andre the number to reach him. "You don't have to say with whom," Michel once explained--with, according to Reich, "a Gallic twinkle in his eye"--"but you have to say where." Andre would distribute the list only to his real partner, Pierre, not to the other titular partners. Michel at least had the decency--at Loomis's urging--to distribute the weekend list around to all the partners, as a way of inculcating in them his inviolate philosophy, learned from Andre, of always being available to clients and to colleagues. "We are in a service business," he reminded everyone.

  Glanville would have none of the weekend list. "Do you want to know what I do with it?" he once asked a visitor. "I put it right in there," pointing to his trash can. Glanville also did not take kindly to the micro-management of his expenses. Wolf used to produce printouts of partners' telephone calls, and then attempt to figure out which calls were business related and which were personal. The personal calls were charged to the partner's internal expense account. One day, Wolf had examined Glanville's calls and found that he made a call or two to Darien, Connecticut, where he lived. Wolf sent Glanville a bill for $1.25. The immensely wealthy Glanville never paid the bill, so Tom Mullarkey, Wolf's boss, showed up in Glanville's office to demand payment. The two had quite a row, needless to say, and never spoke again.

  Woods also was surprised to find his partners a bit demoralized. "I found a group of very smart, very experienced, and generally beat-up partners, who had survived under Andre Meyer, in what must have been the most brutal environment, but enormously intelligent and capable," he said. Loomis recalled that Lazard had a reputation as a "dark place" and that "Andre Meyer was someone you would not want to work for." He explained that one of the Gang of Four told him after they arrived at Lazard, "Don't kid yourself, if Andre were running the place, we wouldn't be here." He himself "was horrified by how backward it was." He was one of only six associates, and there were no analysts (the most junior professionals, generally right out of college, who are expected to crunch all the numbers and do whatever they are told to do by the associates). "We were treated like serfs," Loomis said. "There was no communication between the partners. There were no [deal] books. Analysis was a letter."

  But the Gang of Four, led by Glanville, did do a fair amount of business at Lazard. "My clients are my friends," Glanville was fond of saying. Indeed, Damon Mezzacappa, formerly Lazard's longtime head of capital markets, believes that in terms of clout with his clients, Glanville nearly rivaled Felix. "He had a powerful grip on his clients," Damon said. Roger Briggs Jr., a longtime investment banker, remembered when he was at Salomon Brothers working on a deal where Lazard and Glanville were Salomon's co-advisers. "We went to this meeting, and the first thing Glanville does is turn to us and ask, 'Do you guys have the books?'" he said, referring to the presentation bankers often prepare for their clients. Briggs said he couldn't get over the fact that the Lazard bankers had produced nothing in writing but Glanville had figured, correctly, that the Salomon bankers would. "That's how great his relationships were with his clients," Briggs continued. The second thing he remembered about Glanville was how after asking about the books, he turned to the associate and said, "Could you go downstairs and get me a couple of cigars." He said he felt he had just witnessed the essence of Lazard.

  NOT A SINGLE one of the crew Michel recruited from Lehman is still at Lazard, and not a single one--aside from perhaps Loomis--was able to crack the Lazard code. One observer close to Lazard believed the Lehman group, particularly Woods, McFarland, and MacGregor, were unsuccessful at Lazard because of their own inability to adapt to the firm's quirky nature. MacGregor was the first member of the Gang to exit Lazard. Two years after he arrived, the British prime minister, Margaret Thatcher, recruited MacGregor to run the failing government-owned British Steel Corporation. Incredibly, the Thatcher government agreed to compensate Lazard for losing MacGregor's services. Naturally, this was extremely controversial, especially when it was revealed that the British government had agreed to pay Lazard up to $4.1 million depending on whether MacGregor achieved certain milestones (a total of $2.2 million was actually paid to Lazard). Several members of Parliament described the payment as "monstrous" and "farcical."

  Michel conceded the MacGregor episode "created somewhat of a problem" as the Scot had just arrived at Lazard. Michel said MacGregor believed the British Steel job to be "the crowning challenge of a long career." But he said the payment "was presented in a light which did not please me very, very greatly." MacGregor became a Lazard limited partner in July 1980. He proceeded to "restructure" British Steel by ruthlessly cutting a hundred thousand jobs, many of them in Scotland. The many who despised him afterward dubbed him "Mac the Knife." Ward Woods, who was immensely successful at Lazard, left in 1989 to become CEO of Bessemer Securities, a private investment fund affiliated with the Phipps fortune. Over the past few years, he and his wife have donated $40 million to Stanford University, Woods's alma mater. Alan McFarland also left Lazard in 1989, to start his own investment banking boutique, McFarland Dewey & Co.

  While the Lehman group struggled to adjust to its new surroundings, where the ghost of Andre loomed large, Michel was having his own problems escaping the influence of the former senior partner. He may no longer have stepped foot into the Lazard offices, but whether in Crans-sur-Sierre or at the Carlyle, Andre was giving Michel fits. Long gone were the days, in the early 1960s, when Andre romanced Michel, his only partner's son. Now Michel was the boss, and Andre was having difficulty coming to grips with that. Felix said Andre made life "miserable" for Michel. "I remember Michel coming to see me after some great scene with Andre where Andre just--Andre could lash people pretty badly," Felix explained. "Also, he could second-guess people, which was always an uneasy thing. It made life very difficult for Michel. I was kind of surprised that he was able to take it and carry on. But it was obviously the right decision." Andre's treatment of the young Michel bordered on the humiliating. "Andre Meyer treated Michel extremely badly," one partner remembered hearing. "There were times when he would take him up to the Carlyle and literally undress him, tell him, 'You're not up to runnin
g this bank. You were born with a silver spoon. How dare you think you can take my role?' You know, really tough. He almost reduced him to nothing. To tears, in fact, is what a lot of us were told." Frank Pizzitola remembered a lunch at the Carlyle with Andre, Felix, and Michel, where Andre spoke of Michel in the third person, as if he weren't there. "He is a boy," Pizzitola recalled hearing Andre say. "And Michel just began filling up. It was a real punch to the gut."

  Michel remembered well what it was like for him in New York the second time around while Andre was still alive. "When he did ask me to come back, it was extremely difficult," he said. "He was not terribly well. He was not often in the office. He was very, very--I could say physically jealous that I was leading the firm. I knew that it would be difficult because the normal way for that gentleman was to take every decision." Even on his deathbed, Andre would summon Michel up to the Carlyle and demand that he respond to one question after another for him, causing Michel to go back and forth to the office to search for an answer. Michel added, in another interview, that at the beginning of his tenure running New York "I was not sure I could, and I was very iffy for a while in my relationship with Andre Meyer. But my relationship vis-a-vis the place changed overnight. This place was in good shape because of Andre Meyer. It had extremely low overheads. Comparatively, we have high overheads today. I have been a spendthrift by comparison. It was making money in bad times and in good. Consequently, the partners were not wondering whether they would eat the next day--which in New York is truer than you think. Wall Street is a dangerous place. You are on top of the world one day and out of a job the next."

  Michel recalled the essence of the psychological warfare in which Andre would engage, the Andre method. Andre had the ability to make powerful men fear him, among them such shrinking violets as David Rockefeller, Bill Paley, David Sarnoff, and Bobbie Lehman. "Bobbie Lehman I can testify to it because I was present during one conversation and he was obviously petrified by Andre," Michel explained. "He had the art of making people feel guilty. Finally, I discovered that, and it didn't work with me anymore. It dawned on me that it was maybe not on purpose, but a trick. All of us can be made to feel guilty. It's very easy. I think I even know how to do it, but I've always consciously refrained from doing it because of my experience with Andre Meyer. He used that too much."

  Compounding Michel's expected problem with Andre was yet another problem, this one unexpected--an inkling of wanderlust on Felix's part. Having just turned fifty, Lazard's most important business generator and by far its most famous partner was casting about. "There are just so many deals you can make before it takes on a certain sameness," a banker who knew Felix told Newsweek in 1981. Ever since his friend Harry Oppenheimer's Anglo American Corporation had taken a meaningful stake in Charles Engelhard's company, Felix had gone on the board as Oppenheimer's representative. Eventually, he went on the board of Anglo American, too. One day, around the time that Michel took over New York, Oppenheimer approached Felix about heading up Oppenheimer's growing business outside of South Africa. The job, which Felix opted not to pursue, would have been based in London. Felix also indicated to Governor Carey that after three years as the chairman of MAC, he intended to step down. The July 1978 Times article announcing this news indicated Felix was "about to leave the spotlight and is wrestling with the problem of what to do for an encore." According to the Times, he sat for a "long, reflective" interview in his "small, spare" Lazard office and confided: "I will always invent deals. But simply doing deals does not fulfill my life. I certainly don't expect that doing deals will be 100 percent of my professional life. But it may be 90 percent for the next two or three years. I need two or three years to think through and analyze the jumble of sensations and flashes that I have."

  The article, as usual, turned out to be quite a kiss to Felix. "Unlike most governmental officials, Mr. Rohatyn is accessible, informative and frank," wrote the Times reporter. "He not only enjoys power, he courts it and he is indefatigable in pursuit of the solution to whatever problem he is working on." Something must have been in the air that day thirty-two floors above the street in Rockefeller Center because it is clear that Felix, while not exactly humble, displayed a rare semblance of self-awareness bordering on humility, a trait not typically associated with an investment banker, let alone one of Felix's stature and accomplishments. "My being able to command press, to command space, is one of my weapons for dealing with politicians," Felix said. "Politicians equate words written about one with power, and now I will be written off as a power. This is an interesting test of character for me. Giving up power is like giving up smoking." (Felix had been a big smoker--as many as two packs a day--in college and in the army, until his first wife convinced him to give it up.) Felix also reflected upon how he felt when Geneen invited him onto the ITT board. "That was really something," he said. "I have always been a maverick, an outsider. I didn't have the right background or go to the right schools. I am not a big club-man. I am not a big school-reunion man." The Wall Street Journal also profiled Felix, with his tenure at MAC supposedly coming to an end. "He is the Big Apple's Henry Kissinger, an institutionalized compromiser," the paper wrote. "He's the darling of the city's powerful news media. He's a skillful financial mechanic. He is, of course, Felix G. Rohatyn. While other public officials have fallen, Mr. Rohatyn has flourished during the fiscal crisis that littered New York City's sidewalks with broken careers." As to what he would do after MAC, he told the Journal he just wanted "some breathing room right now" but admitted he was "going to miss the exposure." (The speculation turned out to be moot since Felix stayed as chairman of MAC for another six months, and then came back again.)

  A few months later, Felix gave a luncheon speech at the Pierre hotel, before the French-American Chamber of Commerce, that not only continued to show his palpable melancholy but also was a damning assessment of President Carter's first two years in office. "Our economy is out of control, our currency is in danger, our institutions of government is [sic] unresponsive or inept.... We are at war today. With inflation, with unemployment, with lack of education, with racial discrimination. We are, furthermore, not winning. If we lose, our system of government may not survive." Felix then added an unfavorable comparison between New York's now-solved fiscal problem and the burgeoning one in Washington: "If the President loses this fight, if, collectively, we cannot create the climate to help him to win, the result will not be noteholders with a moratorium imposed on them or a wage freeze on the unions, but it could be the end of a form of government which, since the days of the French Revolution, had done more for people than any other system ever invented. There will be no winners or losers then, simply the history of another nation that was unable to count its blessings and lost sight of its values." Felix made these comments almost six months to the day before Carter's infamous "malaise" speech to the American people.

  Felix gave another interview, also in his "modest, somewhat cluttered office" in Rockefeller Center, in February 1979 to W, the fashion bible, just as his MAC responsibilities appeared to be ending. His reflections about his public tenure were a mixture of pride, melancholy, and pure ego. "Being in the public eye really grabs you," he said. "It's very heady stuff, a businessman all of a sudden becoming a star. Suddenly I find myself on the front page of the New York Times, and I read what I say and I begin to think I'm a pretty smart fellow. I'm not sure that's all to the good." With his time freed up from MAC, Felix said, "I'm going to try to patch together my private life, which I have neglected. I plan to spend a little more time with my children"--then twenty, eighteen, and fifteen years old. "I'll do some writing, listen to some more Bach and Mozart, read some books and go to the theater. I'll be a private citizen but not uninvolved." Interestingly, he made no mention of Lazard or of his impending nuptials to Elizabeth Vagliano.

  CHAPTER 8

  FELIX FOR PRESIDENT

  In the end, of course, Felix stayed at Lazard and redoubled his commitment to the firm and to doing deals. His timing wa
s impeccable, as the stock market was about to embark on an unprecedented bull run. As a corollary, the size of M&A deals--and the fees paid to investment bankers, who often receive a fixed percentage of the total consideration--exploded as well. "From my point of view, my position at Lazard was quite ideal.... I spent a huge proportion of my time, certainly in the seventies and even into the eighties, on the stock exchange crisis in the seventies and on the city all the way through, and I can't imagine any other place giving me that luxury," he said. "Now, I made up for it by making a lot of money for them."

  Michel and Felix worked out what Michel described as a "bicameral" approach to running the firm. They had a symbiotic relationship. Michel took care of the day-to-day management that Felix abhorred. Felix used his unparalleled access and M&A skills to keep Lazard at the top of the deal league tables. They made each other even richer. They shared, at least in the early years of their partnership, a similar devotion to low overhead, business lines (like M&A) requiring little capital, and a desire to remain unique. They thought about resurrecting Lazard's risk arbitrage and private-equity businesses. And Michel wanted to increase the firm's municipal bond trading business. Mostly, though, they focused on giving the respected bankers who worked there the room to run, increasingly free from Andre's micromanaging. "In the last couple of years we have probably had four, five or six different partners working start to finish on large transactions, partners other than me and Andre Meyer," Felix told Institutional Investor. "They are capable of taking on a piece of business and putting it through without the need for me or the equivalent of Andre Meyer getting involved. That's a new thing around here, people going off on their own. It gives a dimension to the place and a spirit it didn't have. We've had a flowering of people who had been in our shadows." In the old days, he continued, "We had Andre Meyer as a superstar and me as a junior superstar. People were encouraged to bring in business but they weren't left alone, partly because Andre had great difficulty trusting anybody other than a very, very small number of people. He would go along with me doing my own thing but not many other people. It takes a while for people to come out of that. If you asked me whether there has been any real change in what we are trying to do, I would say, no there hasn't. But in terms of how we do it, of course there has. You don't go from Julius Caesar to the Third Republic without having a change in how you do business." Observed one partner, fresh from a two-week, uninterrupted vacation in Mexico that was far from civilization, "That's the new Lazard."