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

by William D. Cohan

  Although there was no mention of Stern being a successor to Felix during Felix's dalliance with the Fed--when there was much public speculation about what would happen if Felix finally left Lazard--the subject of Stern as a successor to Michel was part of Andrews's "Felix Loses It" piece. There was a picture of the menacing Stern seated in a conference room at Lazard in Paris, underneath a portrait of a Lazard founder. Felix, though, said he doubted Edouard would be the One. "I don't think Edouard will run the firm," he told Andrews. "Michel thinks it's important to have him around, as a continuum after Michel leaves, but I don't think he wants him to run the firm." Felix also added during his interview with Andrews: "Edouard is a nasty piece of work." An unnamed man said that Michel had asked the partners about Edouard and had received a blunter message: "If he elevates Stern, there are many, many partners in New York who would leave."

  While it seemed certain to many at Lazard that Michel was positioning Edouard to be his successor, his impatience and impertinence were leading him down a path of self-destruction. First, it was around this time that his marriage to Beatrice started to crumble. He was said to have had numerous affairs. Although he denied it, Michel supposedly told one of his partners, "Beatrice would be better off if she divorced Edouard." While he was running Paris, a number of up-and-coming younger partners quit in his wake. A whole generation of younger future leaders in Paris left from a combination of Edouard's style and the ongoing refusal of the Parisian old guard to relinquish control or access to clients.

  While Stern was running Paris, he hired Anne Lauvergeon, then thirty-seven and a former economic adviser to the French president, Francois Mitterrand. She spent a few months working in New York and became a partner in Paris in January 1995. She was the only woman partner in Paris and one of only four female partners in all of Lazard. A year later, the CEO of Pechiney, the newly privatized French aluminum giant, asked Lauvergeon to join the company's board of directors. Such a request to a banker is considered an honor, especially for such a young partner. Edouard, though, was incensed. He had been Pechiney's adviser, not Lauvergeon, and he thought he deserved the board seat.

  Some believe that Michel was behind the selection of Lauvergeon as a Pechiney director, knowing full well that he had found his son-in-law's breaking point and the choice would infuriate Edouard. He was right. And the "Cobra," as Edouard's colleagues in Paris called him, was ready to strike. In his mercurial way, he fired Lauvergeon in November 1996, initiating a series of confrontations with Michel that led to Edouard's rapid downfall at the firm. Just after his blowup with Lauvergeon, news of the fight began to seep into the press in Paris. During an interview with Le Monde, Michel referred to the matter and praised Lauvergeon. "Ms. Lauvergeon's professional and personal qualities, since her arrival at the house of Lazard, have made an appreciable and appreciated contribution to the firm," he said. The Times picked up the story on November 13 and reported, to firm denials, that Edouard was on his way out of Lazard after "a furious dispute" with Michel in New York the previous week.

  Accounts of what transpired between the two men differ, but the gist is that Michel was upset with Edouard for firing Lauvergeon unilaterally and blabbing about it throughout Paris for ten days before flying to New York to try to make amends with Michel. At that fateful meeting in Michel's New York office, Michel told Stern to "leave Lauvergeon alone." Stern then erupted. "Either I am going to be the boss or I am not," he reportedly said. "You picked me to run this firm, and if I don't, I am going to go." Another version of the meeting, one partner recalled, had Edouard telling Michel: "I want you to retire. I want to run the firm. I've got this position in Paris. You can't fire me, and I'm just not going to listen to you anymore. I'm going to keep running Paris." Michel remembered Edouard coming into his new office at 30 Rockefeller Plaza and attempting the Thanksgiving putsch. "I treated him like my son," Michel said. "He treated me like his father!"

  Some Lazard partners have speculated that part of the impetus for Edouard's attempted overthrow was that at that time Michel was ill. He didn't look well. He wasn't around much. But Michel denied any illness. Still, Lazard partners wondered often about Michel's health. When he would come back from Paris after a few weeks away, partners in New York would go into one another's offices and chat: "Have you seen Michel? I just saw him. He really doesn't look well. What do you think?" He never looked particularly healthy. He often looked pale and blotchy. He put butter and salt on his baguettes. He inhaled his ubiquitous Cuban cigars. He never exercised. His tight-fitting shirts often revealed his stomach rolls. He once broke his arm after he slipped off a wood gangplank, covered with wet straw, leading from the yacht he was on traveling down the Nile. "Michel does know a lot about medicine," Loomis observed wryly. Once, when Loomis had a cold, Michel told him: "You know what you need to do? You need to smoke cigars." Loomis took his advice. But he still didn't feel much better. And he told that to Michel when he saw him the next day. "Oh, you have to do it for a week," Michel responded.

  IT IS SAFE to say that every major article that has ever been written about Michel David-Weill--and there have been many over the years--at some point describes his passion for cigars. And each time, the description is nearly identical. Early in the conversation, the reporter observes Michel taking one of his signature Cuban cigars from his wood humidor, if at his office in New York, or from his silver-plated humidor, if at home on Fifth Avenue or in Paris. He chops off one end with his silver cigar-end chopper and, inhaling deeply, lights the stogie up, spewing smoke in every direction. Michel would take a few puffs to make sure the cigar was well lit, and then launch into a long, seemingly thoughtful answer to a question while the cigar slowly burned itself out. He relights it once or twice, before dropping it into an ashtray, three quarters unsmoked. Then, at some point, he reaches for another cigar and repeats the whole pas de deux. What never got mentioned was that these cigars cost around $20 each. Also, most people who smoke cigars really just puff cigars, taking the smoke into their mouth and letting it escape. Michel actually inhaled. "Michel is the only person I have known in my life who inhales cigars," said Kim Fennebresque. "And he puts salt on his butter. He has fucking balls that I don't have." Curiously, while Michel's love of cigars has been well documented over the years by the press, he declined to be interviewed for a lengthy 1995 Cigar Aficionado article about CEOs who smoke cigars. A spokesman for Michel noted that while he "enjoys cigars," he did not "feel comfortable" talking about smoking.

  Cigar smoking was as much a part of the Lazard DNA as secrecy, ruthlessness, and money. The old Lazard offices at One Rockefeller Plaza may have been notoriously ratty, but they fairly reeked of the rich smell of cigar smoke. You could tell you were at Lazard with your eyes closed. Andre Meyer smoked cigars, a fact captured by a famous black-and-white photograph of him sitting behind his office desk with cigar smoke unfurling all around him. Michel favors Cuban cigars, which are not legally purchased in the United States, such as Hoyo de Monterrey Epicure No. 1. He buys them by the "fucking bushel," according to Fennebresque, at Gerard Pere et Fils in Geneva and has them shipped to him at the office. Or, to be accurate, he used to have them shipped to him at the office until one day the U.S. Customs Service intercepted one of his bushels--of some fifteen hundred cigars--at the airport in New York. Instead of the cigars, Michel got an official letter from customs telling him what he needed to do, if he wished, to retrieve the stogies. After a quick consultation with Marty Lipton at Wachtell, Michel decided to ignore the letter and let the cigars go unclaimed. "So some Puerto Rican is sitting in his apartment in Queens smoking some $25 heaters," Fennebresque said, with a smile.

  Michel then had his cigars sent to Mel Heineman's attention. When Heineman left the firm, Michel took another tack. Now when his friends come to New York for a visit, they bring him some of his prized cigars. Customs seems to allow individuals to bring into the country a small number of Cuban cigars, although once Michel got caught doing this, too, and the cigars were confiscat
ed. So he stopped trying to bring them in. "The law is very strange," he commented. "When I open some magazines, I've seen recently--as a matter of fact--an advertisement for Cuban cigars out of Canada in the U.S. press. And so I don't really know.... They have the list of the stores in Europe which send cigars, and if they see something sent by them, they stop them."

  As with so many of the Lazard customs, what Andre and Michel did had a huge influence on their partners' behavior. "Lazard is like Wall Street was in the early 1980s" one insider said a few years ago. "Cigar smoke is thick on the floor by 10 in the morning, they're all smoking." (Felix, though, never smoked cigars; he smoked several packs of cigarettes a day when he was younger, and then smoked a pipe when he was trying to quit smoking altogether. Nowadays, he does not smoke.) As an indicative sample, Robert Agostinelli, Kim Fennebresque, Al Garner, Bill Loomis, Michael Price, Luis Rinaldini, and Dick Torykian all smoked cigars. (Steve Rattner, an occasional runner, does not smoke.) Naturally, the cigar-smoking habit trickled down to the ambitious vice president types. Kamal Tabet, now a big deal at Citigroup in London, used to chain-smoke cigars. Being a Big Swinging Dick in training, Tabet would, of course, ignore the pleas of his office mate to stop smoking in their small office, and so forced the overwrought guy to construct a stack of fans blowing constantly at Tabet to push the smoke back in his direction. Eventually, Tabet was moved to another floor (people were moved constantly, so this was not unusual), and he developed an ulcer. Tabet's doctor told him no more cigars. Another vice president cigar smoker was Tim Collins. Looking very much like an imitation of Andre, Collins used to puff away on a big cigar as early as eight-thirty in the morning. On the wall of his office was the infamous picture of Andre smoking a cigar. Collins is now a billionaire and the uber-successful head of Ripplewood Holdings, a buyout fund. He is a regular at Herb Allen's Sun Valley conference.

  For some partners, emulating Michel's cigar-smoking habit was such a preoccupation that it caused them to do strange things. Loomis, for one, took to heart Michel's odd advice that cigar smoking could help relieve his flu-like symptoms. So he amped up his consumption of them briefly to test the supposition.

  KEN WILSON REMEMBERS a curious incident involving cigars and Robert Agostinelli. At the time, Wilson was head of banking and looked at his partners' expenses from time to time. In 1996, Ira Harris, through his friendship with Ron Gidwitz, the CEO of the beauty products company Helene Curtis Industries, brought into the firm the assignment to sell the company. Agostinelli was assigned to work on the deal and commuted regularly to Chicago to execute it. Explained Wilson: "Agostinelli had his girlfriend in Chicago, and his expenses were just unreal. He'd shack up for a weekend, and I'd see all these bills for limos. And the one thing that did catch my eye was that he bought several boxes of Cuban cigars for Ron Gidwitz. Well, it just so happened that I was out at the Grove"--the Bohemian Grove, a highly exclusive twenty-seven-hundred-acre compound in Monte Rio, California--"with Ron, [and I] was in his camp. He's a friend of a friend of mine, and we're talking. I said, 'You know, Ron, you must really love these Cuban cigars.' He said, 'What do you mean?' I said, 'Well, we're paying for 'em.' I said, 'I just approved the expenses for, you know, two boxes of Cohibas and another three boxes of something else.' He said, 'What do you mean? I never saw those goddamn cigars.' I said, 'Well, you know, we paid for 'em.' And then he went absolutely ballistic. It was Agostinelli and that lady." Agostinelli eventually made it up to Gidwitz by donating $15,000 to Gidwitz's unsuccessful 2006 campaign to become governor of Illinois.

  Then there was the time Kim Fennebresque invited his friend the chairman of Beneficial Finance for lunch with Michel in the Lazard dining room in New York. At the end of a meal there, the tradition was that the waiters would pass around cigars to the clients and the bankers. But with Michel in attendance, he insisted that the waiter fetch his own cigars. "He had someone send for his stash because basically they put shit in the partners' dining room except when Michel was there," Fennebresque recalled. "I mean, it was just rolled camel turds. So when Michel came in, they brought the real stuff, right? So Michel offered one to the client, who said no. And I'm sitting there, smiling, like, 'I'll take one,' and you could just see as he handed it to me, the notion, the insubordination of one of his fucking domestic staff--moi--would deign to have one of his heaters was just too much to bear. It was a very funny moment, and I'll never forget it." Annik Percival would also have some fun with Michel's cigars. She would permit partners she liked--Fennebresque among them--to help themselves to Michel's cigars in his office humidor when Michel was off in Paris, London, or Sous-le-Vent. "She'd call me," Fennebresque said, "and I'd go fish some out of his humidor because they'd be stale by the time he'd get back."

  But sometimes Fennebresque, now the CEO of the publicly-traded investment bank the Cowen Group, couldn't wait until Michel went out of town to get his Cuban cigar fix. At the partners' meetings on Monday mornings, he would watch in amazement as Michel went through his typical cigar-smoking ritual. "I used to watch Michel," he said. "And he'd smoke these things. He'd light them up and smoke them and literally smoke three-eighths of an inch and then put it in the ashtray and then light up another one. And I just thought this was fucking ridiculous. So I made sure I was the last guy to leave the partners' meeting. And I would clip both ends of his cigars in the ashtray, and I would fucking take them. So every Monday, I had two $15 cigars. And no one ever knew."

  MICHEL CATEGORICALLY DENIED being ill when the Cobra attempted his late-1996 strike. "You know, in life, sometimes you have people who create a problem for you because what they're saying makes sense," Michel said. "So you have to consider seriously what they say." But to Michel, Edouard's actions were unfathomable and did not fit any discernible logic. "It didn't make sense. It couldn't have happened even if I'd said yes." Had Michel acceded to Edouard's demands, the fallout in terms of partner objections would have been immediate and substantial. And for a man as logical as Michel, whose every move was designed for incremental, rather than radical, change, Edouard's behavior was simply unacceptable. "We do not like to make revolutions," he once said in 1993. "When you have to do that, it means you have somehow failed. We favor evolution." Asked once in Paris by his younger, incredulous partner Gilles Etrillard about his apparent lack of recollection about Lazard having forgiven a client's $50 million debt, Michel replied, "If I were not sure, I would be able to recall something; and as I cannot recall anything, I must therefore be sure." ("Brilliant," the witness to this display remarked to himself.)

  "Edouard was very impatient," Michel continued, "and temperamental, and I'm not even sure he planned it, you know? I think he thought maybe he was losing ground, that I was getting a little discouraged with him, and he said, 'Okay, I'm going to call his bluff and say I leave if you don't.' And I said, 'You leave.'" And that was it. Edouard was swiftly removed from the two main operating committees in Paris and New York. He remained a partner of the firm, focusing on private-equity investments, while the details of his much-gossiped-about departure were being worked out. In New York, the Lazard partnership agreement allowed Michel to dismiss a partner in his sole judgment and authority. In Paris, it was not so simple--theoretically--for him to remove a partner; there, the partnership had to unanimously vote to remove a partner. In reality, though, Michel always got his way in both places. It took more time for partners in Paris to be removed, but "people basically respected my decisions," he said, although Edouard would retain his equity in Lazard in Paris, causing problems down the road for Michel.

  Although the firm denied that anything like Edouard's attempted coup d'etat had occurred, a story this juicy could not be contained for long, especially given its ability to upset the political dynamics inside the firm--a calculus already confounded by the likely departure of Felix, the apparent sidelining of Rattner and Loomis (who was by this time far away in self-imposed exile in San Francisco, where he had reestablished a Lazard office, the firm's first presence in the city in a
hundred years), and Messier's quitting. Edouard's departure was bound to create a massive power vacuum. The details began leaking out in earnest during the first few weeks of January 1997. Although one partner familiar with the feud described Edouard as having "a kill-or-be-killed mentality," the firm still officially deflected the story, calling the falling-out "overblown." Finally, on January 11, 1997, the Financial Times published an on-the-record interview with Michel where the closest he came to admitting what happened was to say he was amused by the press reports about it. "What caught me by surprise was the idea in France that he was clearly and surely going to be my successor," he said. "It shows how royalist the French are at heart," before adding, "Mr. Stern is a man of many gifts but he reflected on what his career should be too publicly." He said turmoil in a successful investment bank is inevitable. "Any investment bank is by necessity full of people who are pretty highly strung because the talent needed to win customers is made up in equal parts of confidence in yourself and insecurity." Without conceding he was even contemplating leaving, he did allow that he was thinking about appointing a new management committee "of three or four or five, not more," Lazard partners to run an increasingly tighter-knit global firm.