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

by William D. Cohan

  Steve had moved with Eric Gleacher, a former marine and later the founder of the M&A boutique Gleacher & Co., to Morgan Stanley from Lehman in the spring of 1984, primarily because Morgan Stanley was then, and today still is, considered the bluest of the blue-blood investment banking firms, with the best and most loyal clients. In 1984, Gleacher was hired from Lehman to run Morgan Stanley's new M&A department. Steve went with him. For Steve, the Morgan Stanley business card would certainly prove that the Jewish kid from Great Neck and former reporter had begun his ascent of the investment banking summit.

  In short order and true to form, Steve attracted attention at Morgan Stanley. He recalled later for Vanity Fair how "soon after I got to Morgan Stanley, I wrote a memo saying that one of our major objectives had to be to handle a significant sale of a major television station. This was the sine qua non." He was a vice president, head of the firm's media and communications group, and worked on a number of increasingly high-profile media deals, including those defending CBS from the hostile entreaty of Ted Turner and helping the Pulitzer family evade A. Alfred Taubman's unfriendly advances toward the St. Louis Post-Dispatch. He also--per the script--advised Henry Kravis and the investment bankers who owned KTLA, an independent TV station in Los Angeles, on its sale to the Tribune Company for $510 million, then the largest amount ever paid for a single television station. The station's owners doubled their money, at a profit of $255 million, three years after buying it from the movie star Gene Autry. The New York Times included Steve in a story about Wall Street's "upstarts," and Channels magazine featured him in a story. He spoke of the "big money" to be made from companies "ripe" for deals and of the "frightening" similarities between M&A advisory work and reporting. "I used to develop sources, now I develop clients," he said.

  He was also the subject, in 1986, of a revealing and lengthy profile in Charles Peters's iconoclastic Washington Monthly, "Hello Sweetheart, Get Me Mergers and Acquisitions: The Rise of Steven Rattner." Steve said he was worried about the appearance of the article--"nothing good was going to come of this," he explained--but decided to cooperate after a few months of stonewalling the reporter. "If something is going to get written, you're generally better off cooperating than not cooperating," he said in acknowledgment of his journalistic roots. Although less fawning than the profiles of Felix in The New Yorker or the New York Times Magazine, the Washington Monthly piece was a watershed nonetheless, for it tried to capture the gestalt of what was luring the best and brightest minds of a generation into the then-obscure profession of investment banking. Here for public consumption was the story of Steve Rattner, the well-off oldest son of successful New York businesspeople, who was willing to chuck away his career at the top echelons of journalism for Wall Street. Of course, Steve had chosen to cooperate with the magazine; he had agreed to allow himself to become this iconic figure. Word was, though, among some Morgan Stanley associates working with Rattner at the time, that Steve bought up all the copies of the magazine in the vicinity of the Morgan Stanley building on Sixth Avenue (whether out of embarrassment or pride is not clear). In any event, this was not your usual investment banker. The buzz was he was making about $1 million annually, a staggering sum at the time for a young banker.

  Aside from his legendary drive, the Rattner resume is fairly straightforward, without any of the Sturm und Drang Felix experienced. Yet there is a certain inevitability about him, in a John P. Marquand Point of No Return kind of way. He is the eldest of three siblings, with a sister who is a gynecologist and a brother, Donald, who is an architect. His parents owned and operated Paragon Paint, a Long Island City paint manufacturer, before its liquidation in the late 1990s. His father ran the business successfully for forty years. When his parents divorced, his father left Paragon Paint, and his mother took over its day-to-day operations. (The business had been in her family originally.) In short order, she ran it into the ground after trying to bust the company's small labor union and after being cited repeatedly by the National Labor Relations Board for malfeasance.

  But the Rattners prided themselves on their intellectual bent as well. Selma, Steve's mother, had a graduate degree in architecture. In the 1980s, she was an adjunct professor at the School of Architecture and Planning at Columbia University and taught at the New York School of Interior Design. She was very knowledgeable about the work of James Renwick, the architect of Grace Church, at the edge of Greenwich Village, and of Saint Patrick's Cathedral, on Fifth Avenue. Steve's father wrote nine "serious plays," including one, The Last Sortie, that was staged as part of T. Schreiber Studio's 2000-2001 theater season on West Twenty-sixth Street alongside a production of Wendy Wasserstein's The Heidi Chronicles.

  "It's tough to be a first child brought up in a place like Great Neck and not be a little hard-driving," Steve once said. Peter Applebome, a reporter and editor at the New York Times, also grew up in Great Neck and described the town, in part, as a "kind of 'Goodbye, Columbus' suburban experience--privileged, insulated, largely Jewish but essentially secular--so familiar as to occasion an almost reflexive rolling of the eyes." After graduating from Great Neck North High School in 1970, Steve moved on to Brown University, from which he graduated in 1974 with honors in economics and received the Harvey A. Baker Fellowship, awarded annually for graduate study abroad to members of the graduating class who have "high scholastic standings; have participated in college activities; and have shown qualities of leadership."

  While in college, he devoted himself to the Brown Daily Herald, furthering an interest in journalism that had started in high school. When he was a senior at Brown, he served as the editor; he was the chief writer of editorials and the overall leader of the paper. In keeping with the times and the function of the editor of a college newspaper, he was an aggressive and outspoken critic of the university's administration and especially of Donald F. Hornig, Brown's president. Rattner believed Hornig to be isolated and detached from the students and kept a running tally of the number of days since Hornig last met with students in a public forum (674 and counting, as of October 1973). Steve facetiously hoped Hornig wouldn't "surpass Babe Ruth's mark."

  Steve's final editorial urged his fellow students not to let "those folks in University Hall and the office building and in all the departmental offices get away with things that they shouldn't get away with. And that's one of the main things we tried to prevent this past year. We blew it occasionally, but we think we came up with more heads than tails...for God's sake let the Herald know when your blood boils. You're all we've got, folks." Next to these strident words was a picture of a long-haired, baby-faced Steve Rattner and four of his colleagues, unsmiling and buck naked, strategically holding posters of themselves naked (yes, it's complicated) with the request that students "get involved" by joining the staff of the paper. Steve is sitting, with his poster facedown in front of him, revealing his bare chest. He has long since made his peace with Brown; he has given at least $500,000 to the university's endowment and is now the chairman of the Budget and Finance Committee of the university's Board of Fellows.

  From Providence, Steve shot straight to the top of the journalism profession, serving as clerk for the legendary New York Times man Scotty Reston--an assignment that has been described as "the most honored job for a young man in journalism, something like beginning a legal career as a Supreme Court clerk." Steve had been planning to use his Harvey A. Baker Fellowship to attend the London School of Economics in September 1974 and then move on to law school. But fate intervened when he applied for a summer job in 1974 at the Vineyard Gazette, on Martha's Vineyard, and met on-island with the paper's owners, Mr. and Mrs. James Reston. He got dinged for "not being folksy enough" for the Vineyard, and so lined up a summer job at Forbes instead. But in June, Scotty called him up out of the blue and asked whether he wanted to come to Washington to be his clerk at the New York Times.

  One of the great attractions of the apprenticeship with Reston, of course, was the expectation that at its conclusion, the Times would
proffer a full-time position to the tireless clerk. Steve was a natural at the Times, reveling, at all of twenty-three, in his stature as a full reporter on the metro desk of the world's most important newspaper. He hung out with Paul Goldberger, then twenty-five and on his way to being the Times's influential architecture critic and a Pulitzer Prize winner. Some of their former Times colleagues believe Rattner, for a time, modeled himself after the uber-sophisticated Goldberger, soaking up the latter's savvy knowledge of contemporary art, fancy clothes, and New York culture. "Steve and I were both involved with plenty of women, but somehow we still found lots of time to hang out with each other," Goldberger told Vanity Fair. "We used to shop for art together and we spent Saturday wandering down Madison Avenue going to art galleries. He started collecting contemporary prints and at times he bought the same things I had on my walls. People said I gave him a sensibility. Maybe. He gave me a lot of good companionship and a loyal friendship that lasted 20 years."

  Steve moved quickly from the metro desk to a coveted role covering energy policy during the oil crisis of the late 1970s, when his reporting from the Middle East impressed his bosses. "I don't know how people get to be so smart, so savvy," the Times's former business editor John Lee recalled about Rattner. "He walked in the door and knew what to do." In April 1977, at twenty-four, he won the plum assignment of covering Carter's energy policies in the Times's Washington bureau. "Something no one of my age or experience had any right to," Steve recalled. Eventually, he covered economic policy. "He was very bright," said Bill Kovach, the former bureau chief and the founding director and chairman of the Committee of Concerned Journalists. "His ideas were faster than his ability to talk." It was in Washington, not surprisingly, that Steve befriended Arthur Sulzberger Jr., the current chairman of the New York Times Company and its controlling shareholder. The Rattner-Sulzberger clique also included the other twenty-something reporters Jeff Gerth, Phil Taubman, and Judith Miller, whom Rattner dated for much of the time he was in Washington.

  Together, Rattner, Miller, and Sulzberger and his wife, Gail, rented a house, the Blue Goose, on Maryland's Eastern Shore, sealing their lifelong friendship. "There is no one outside my family to whom I'm closer than Steve Rattner," Sulzberger has said. When Rattner was a Times reporter, he referred so regularly to Arthur's father, Arthur Ochs Sulzberger, by his nickname, Punch, that Joe Laitin, a spokesman for the Carter Treasury Department, asked Rattner if he was indeed a member of the family. Rattner's response: "No, but you're not the first person to ask me that." Sulzberger junior, nicknamed "Pinch," is regularly quoted about Rattner and is one of his firmest public champions. "What I like about Steve is his mind," he said once. "It is always a challenge to keep up with him." They take vacations together, "something tough and invigorating," such as scuba diving in the Cayman Islands or hiking the Appalachian Trail. Almost every New Year's Eve, the Sulzbergers and Rattners celebrate together. The two are so close, in fact, that Sulzberger, for a time, regularly faces questions about whether Rattner would one day join the New York Times Company in some partnership role. So far, both parties deny the likelihood of this happening.

  Steve also developed close ties with many of the younger Carter administration officials, as often happens between reporters and their sources. This kind of relationship is a sensitive one, comprising daily calibrations of where lines should be drawn and how thickly. These decisions are immensely personal, reflecting the values, morality, and character of each party as much as anything. There are no written rules or laws, only constant judgments. Some reporters choose to be aloof, drawing the line at social interaction. Others choose a more intimate path, believing a complete understanding of the personal and the professional will provide rare insight and access. There is no right answer.

  But a reporter's power to influence is substantial, as can be the consequences of choices made, or not. For an ambitious young man in his mid-twenties, this can be extremely heady--but complicated--stuff. Steve clearly understood the power he possessed and the choices that had to be made. He wrote about it for the Brown alumni magazine in 1980. "For my part, I have tried to walk something of a middle line, although frequently wondering whether my friendship with people working in government on issues similar to those I report on compromises me," he wrote. "I have particularly avoided friendships with officials with a leadership role on issues I cover." But he certainly cut it close. He shared a house on Martha's Vineyard with Ralph Schlosstein, who was then working for Stuart Eizenstat, Carter's chief domestic policy adviser. He was also friendly with Walter Shapiro, a Carter speechwriter, and with Josh Gotbaum, who held many positions in Democratic administrations and who later, for a time, was Rattner's partner at Lazard. He was friendly with Jeffrey Garten, who worked for Secretary of State Cyrus Vance.

  Steve quickly grasped the power his position gave him to influence policy and to influence careers. He walked a tightrope here as well, but generally in favor of his distinguishing characteristic of cozying up to important people. He wrote approvingly of Robert Strauss, the ultimate Washington insider and dear friend of Felix's, that he "has always been careful, as he collects friends, not to collect them indiscriminately." His 1980 New York Times Magazine cover story on G. William Miller, Carter's Treasury secretary, described "Bill Miller" as "businesslike as his dark suit, white shirt and striped tie. Poise and self-confidence are key components of that executive image, as is a strong measure of personal control." For his part, Felix attributed to Miller a good measure of the blame for the failure of his Textron-Lockheed rescue deal when Miller was CEO of Textron. A profile of George Shultz, Nixon's Treasury secretary and Reagan's secretary of state, included the softball "The lack of force in Mr. Shultz's manner belies an abundance of force in Mr. Schultz's ideas." Just as he had aspired to be the overzealous college newspaper editor, Steve naturally sought to be influential as a Washington reporter for the New York Times. "The thing I loved about reporting was the actual impact on events," he once said. "Helping inform intelligent opinion, affect administrators' judgment of things." Which, when he did, "made me feel it's all worthwhile."

  In a move of questionable judgment, though, Steve risked throwing away his growing influence at the Times when he flirted dangerously with the all-important line between reporters and their sources. The Council of Economic Advisers was central to Rattner's economics beat, as was its chairman Charles Schultze. Over time, Steve developed a high regard for Schultze, a very high regard. In 1979, he applied for the position as special assistant to Schultze. The job was not dissimilar to that of being Scotty Reston's clerk. It entailed working on economic reports, handling the press, and managing the staff of the council. It's "the world's best job in economic policy if you're not a big enough shot to be a principal," according to Susan Irving, who got the job instead of Rattner.

  The Times never knew that Steve had attempted to cross the line from reporter to source, and so there were no repercussions for him or for the paper. The incident behind him, Rattner kept reporting on the Carter administration's economic policy and continued to write glowingly of Schultze. He described a series of lectures Schultze gave at Harvard as "a modern classic, the Das Kapital of the regulatory reform movement."

  In the spring of 1981, Steve got promoted to be a foreign correspondent, as the rookie in the three-man Times London bureau. The Schultze matter proved, among other things, though, that Rattner was getting antsy at the Times. In truth, Steve had been considering the switch to investment banking for some time but held off in favor of moving to London, reasoning that he could always be a banker but the chance to report for the Times from London was once in a lifetime.

  Helping him to make this decision was his friend Arthur junior, who had been a foreign correspondent for the Associated Press for two years, in London, in the 1970s. Pinch also shared with Steve some names of people to look up while in London, one of whom was Maureen White--his future wife--who was working for a Japanese TV agency. (They didn't hit it off at first; Sulzberger
had to reintroduce them when they all had returned to New York City. They were married in June 1986 at the Lotos Club on East Sixty-sixth Street.) Of his time in London, the consensus seemed to be that Rattner's reporting from there was less inspired than it had been in Washington, in direct proportion to his distance from the nerve center of American power. He worked with another Times legend, R. W. "Johnny" Apple Jr., the bureau chief, covering the Falklands War and reveling in the older man's insatiable appetites. "Steve and I talked about architecture," recalled Apple. "He did up his flat in London in a modern style very successfully. London is not a late town, and we were working late hours, because of the timing in Argentina, and we'd end up at 12 at night, and to unwind we'd go to Joe Allen's in Covent Garden to eat and drink double margaritas on the rocks, which Rattner christened 'Depth Charges.'"

  One of Steve's best Times articles, in which he compared the productivity of a Ford plant in Germany with one in England, ended up in the Business section, an ocean away from the Times's front page, to which Rattner had grown accustomed. But he also has conceded, in a rare moment of self-doubt, that his skills as a writer were limited. "I once watched Apple write a cover story for the Times Magazine in four to five hours with a glass of vodka next to his computer," he told Vanity Fair. "Johnny was so talented. I was only the palest imitation. The story in London was more of a writing story than a reporting story. It was my belief that the great correspondents were great writers, and I always thought I was, at best, an ordinary writer." There was also the matter of making money and accommodating his soaring ambitions. Some believe Rattner's move to banking was a prescient acknowledgment that the world was changing quickly; others believe he was motivated by a desire to get rich. Steve said his decision was simply a matter of calculating his best option. "I wasn't going to go into the clergy," he said.