Throughout my life I had thought of myself in all sorts of roles: father, husband, businessman, soldier, developer, golfer (well, sort of), even art collector. But a white knight? I didn’t own a set of armor and was not great on horseback. And I kept reminding myself that for every fair maiden a white knight encountered, there were dragons, sorcerers, and legions of warriors wanting his head!
Next, Peter Wilson, who had led Sotheby’s through its most successful years of growth and profitability, visited with me in my New York apartment. He was a tall, inspiring character and an amazing salesman. I remember his magnificent voice and the sincere passion he expressed for the business. I promised to take a hard look at the company.
The harder I looked, the more I liked the opportunity. At the time, there was an annual turnover of fine art around the world of approximately $25 billion. Yet with all that art changing hands every year, Sotheby’s and Christie’s together accounted for less than $1 billion in sales. That left a tremendous share of the art market up for grabs. Sotheby’s had a unique franchise, a strong worldwide reputation for expertise, and there were enormous barriers to entry in the art auction business. You couldn’t just print a catalog, rent a hall, and hold an auction in this rarified world of art, authenticity, and prestige. As a customer, I thought I knew just where improvements could be made to build on the company’s assets. Sotheby’s wasn’t a retail business like the retailers I had come to know as a landlord and investor—and therein lay an opportunity.
Like all other auction houses, Sotheby’s had always catered primarily to dealers, or as they say, the trade. Professional art dealers would purchase items at auction for essentially wholesale prices and mark them up substantially for retail sale in their shops. Only a relatively small number of individuals—usually very wealthy individuals—had the confidence to buy directly at auction. Those who did, found the experience to be fun and rewarding.
I was one of those individuals, and I was convinced that a much broader market of potential auction customers existed in the United States and around the world. Every day, at our centers, I saw the growing interest among a broad swathe of consumers in design, in fashion, in mass luxury. Now, Sotheby’s could never attract the volume of traffic that thronged to Woodfield every day. But there was more to the auction house than million-dollar impressionist and old master paintings. People buying wall-to-wall carpeting for their living rooms could instead bid on unique 150-year-old Persian carpets. Unlike factory-made carpets, these beautiful heirlooms would continue to gain in value over the years and stimulate conversation at every dinner party. People wanting to enliven their homes with antiques could meet with Sotheby’s experts to experience the joys of collecting. People seeking enriching entertainment could attend Sotheby’s exhibitions and participate in exciting, glamorous auctions in energy-filled auction rooms.
As I saw it, Sotheby’s also had some distinct advantages over retailers. The items (or lots) auctioned at Sotheby’s were sold on consignment, which meant the business operated without the normal, and very real, inventory risks experienced by traditional retailers. Unlike Macy’s or Woodward & Lothrop, Sotheby’s did not have to lay out significant capital for inventory and hope that things would sell. The auction house was simply creating a marketplace for the exchange of other people’s property.
I really shouldn’t use the word “simply.” Creating a vibrant, rational worldwide marketplace for art is anything but simple. Sotheby’s had been working at it for more than two centuries. But there was a powerful force keeping individuals out of the auction rooms and holding Sotheby’s back from dramatically increasing its business and market share: threshold resistance.
I had experienced it myself at both Sotheby’s and Christie’s. Even though I was a good customer, an avid collector, and financially well-off, representatives at both houses were rude, unresponsive, and often condescending. Had they been shoe salesmen, they wouldn’t have lasted long in any store in any Taubman mall. God help you if you had the nerve to visit an auction house expert seeking an opinion about Grandma’s silver or Uncle Frank’s sporting picture. It’s hard to overstate the level of consumer angst created by these institutions. Buying art at auction was perceived as a rich person’s sport. Unless you were a dealer or a duke, stepping over the threshold of a major auction house took real courage and self-confidence. An appointment at the dentist was far more appealing. At least the dentist doesn’t question your taste and insult your possessions.
“Christie’s are gentlemen trying to be businessmen, and Sotheby’s are businessmen trying to be gentlemen,” a popular line went. But I couldn’t find much evidence that either house was particularly gentlemanly or businesslike. And the auction process itself, for most people, was drenched in threshold resistance. What if I sneeze? Will I own the Van Gogh? Didn’t that happen to Lucy and Ethel on an episode of I Love Lucy? And what should my strategy be in the salesroom? Should I bid early, or wait for the last possible moment to raise my paddle for the first time?
I believed that if we could break down the threshold resistance, the auction business could be transformed into a far broader, more profitable enterprise. And this could be accomplished without jeopardizing any of the glitz, glamour, or prestige of the business or the company. But would the leadership of Sotheby’s trust me to make some fundamental changes to their attitude and business without taking their own lives?
For whatever reason, I was immediately more palatable than “Toboggan and Skid.” Having earned a name for themselves by acquiring and repositioning undervalued companies, Cogan and Swid were proud owners of General Felt Industries and Knoll Group, a respected manufacturer of modern furniture. Cogan was on the board of the Museum of Modern Art. Lord Westmorland informed me, however, that Sotheby’s first face-to-face meeting with the American entrepreneurs had been a disaster. He assured me, however, that the boys on New Bond Street (where the company had been headquartered since 1917) were looking forward to meeting me.
It turned out to be one of the strangest encounters of my life. My attorney and trusted adviser, Jeffrey Miro, and I were invited to dinner in London with a dozen or so Sotheby’s directors, officers, and experts. Physically, Jeffrey and I could be described as an odd couple. I am six feet two inches tall and have been described by the never very sensitive press as “burly,” “portly,” and “bear-like.” Jeffrey, on the other hand, is about five-six and boyishly thin. I wear three-piece suits; he prefers blazers and bow ties.
We all gathered in the jewelry department, across the street from Sotheby’s London headquarters. There was a large rectangular table in the wood-paneled room. As we took our assigned seats, Gordon Brunton announced that Jeffrey and I would stay put at our places across from each other throughout the meal, but that every fifteen minutes, when a bell rang, Sotheby’s personnel would shift one seat to their left with their plates, glasses, and utensils. This unusual version of musical chairs was designed to create the opportunity for each executive to chat directly with “the Americans” during dinner.
Chat we did, for several hours. It actually turned out to be informative and fun. As my wife, Judy, will tell you, I always eat too fast and enjoy talking through dinner. Jeffrey and I would exchange reassuring glances with each rotation, taking advantage of the momentary lull to swallow some food. We learned a lot about Sotheby’s with each new conversation, and they learned as much or more about us. Other than trying to get a better idea of my taste and knowledge of art, their top concern was stability—would I commit to stick around and provide the financial strength to operate in something other than crisis mode. (They grilled Jeffrey, too, who held his own just fine. His wife, Marsha, was the arts editor at the Detroit Free Press, and Jeffrey has an extraordinary business mind.)
In a very real sense, with every personal exchange we were overcoming threshold resistance—their resistance to us. Throughout life, everyone faces similar challenges. Maybe it’s an acquaintance you would like to know better, a banker you want t
o impress, or an investor you’d like to buy shares in your company. In each of these scenarios, the most important things are to listen and be yourself. Because Jeffrey and I were just as interested in the quality and concerns of Sotheby’s management as they were in our vision for their business, we listened carefully to their concerns and ideas. We also didn’t pretend to be auctioneers or authorities on Chinese porcelain. We were businessmen, marketers, and lovers of art.
Despite its unorthodox choreography, the dinner was a success. You could sense that these executives loved what they did and had the greatest respect for their company. We seemed to have a common view of the business and where it could go. Encouraged by Brunton and Westmorland to make an offer, I bought out the interests of Cogan and Swid and assembled an investor group. Joining me were several of my Irvine Ranch partners: Max Fisher, Henry Ford II, and Milton Petrie, along with Les Wexner, Connecticut residential real estate executive Bill Pitt, art publisher Alexis Gregory, Italian businessman Emilio Gioia, and Ambassador Earl E. T. Smith, the former mayor of Palm Beach who had served as our nation’s last, pre-Castro ambassador to Cuba. Each of my friends brought valuable perspective and relationships to the table. I put up $38.5 million for 60 percent of the stock, while my fellow investors contributed around $30 million, and we borrowed $70 million from Chase Manhattan Bank. Members of the art press, especially Rita Reif of the New York Times, were apoplectic over the $139 million purchase price, which they considered far too high. Their analysis of the deal reminded me of the early reviews of my Irvine Ranch acquisition. For the record, as I write this book (October 2006), I sold a portion of my Sotheby’s stock in 1992 for about $100 million, received dividends over the years the company has been public of $100 million, received $168 million in September 2005 for half my remaining stock, in April 2006 sold 3.98 million shares for $110 million, and still own a 4.9 percent stake valued at more than $100 million (based on the company’s share price as of January 16, 2007). Even when you factor in inflation, that’s not a bad performance for an initial investment of $38.5 million. I respect Rita and her art journalist colleagues very much, but rarely consult with them for stock tips.
Our offer was enough to close the deal with Sotheby’s public shareholders and place the matter before the UK’s Monopolies and Mergers Commission, which must approve any investment in a public company by a foreign investor of more than a certain percent.
The situation was complicated by the fact that Sotheby’s wasn’t just another British company. It was considered a British national treasure. For centuries it had honorably administered the transfer of precious property—first books and then the entire spectrum of fine and decorative art—from one generation to another. The distinguished members of the Monopolies and Mergers Commission wanted to make sure that an American owner would respect the institution’s traditions and assure the company’s survival.
My hearing before this august body should have been intimidating, but I actually enjoyed answering the commissioners’ questions. I also apparently raised some eyebrows when I personally greeted each member after they took their seats in the chamber, introducing myself with a handshake over the dais. Apparently, that had never been done before. But we got along famously. The transaction was blessed and completed in September 1983.
Sotheby’s was now a privately owned company incorporated in Michigan with dual headquarters in London and New York. Just a few days after taking control, I turned my attention to the firm’s most important asset—its people. It was time for some straight talk and tough love. I had the deepest respect for the expertise and talent of our associates, but I was far less satisfied with the level of service we provided to our clients at every level. “Being knowledgeable,” I explained, “does not give us the right to be rude.”
From now on, Sotheby’s was going to embrace a service mentality and treat everyone with respect. We were going to introduce the auction experience to a broader audience of consumers around the world and encourage the development of new collectors and connoisseurs. Together we were going to open up and make more transparent what had been traditionally a closed and unnecessarily intimidating business.
In short, we were going to break down the threshold resistance that had been holding us back and stifling the art market for as long as I could remember.
To deliver this frank but energizing message face-to-face, I started the day with an all-staff meeting in London, jumped on the Concorde, flew into Kennedy International Airport, and addressed the troops in New York as they arrived for work. The Concorde, rest its soul, made the trans-Atlantic trip in three and a half hours. So with the five-hour time difference and the absence of e-mail, I was able to limit the preemption of my message between offices.
In both London and New York I could sense sincere enthusiasm and a great deal of relief. It’s stressful to come to work wondering if your company and job will survive the day. It’s equally frustrating to see little growth or improvement in your industry. That’s what it had been like for the employees of Sotheby’s. If nothing else, I offered resources, stability, and a much clearer vision of where we wanted to go. Even though change was a significant part of my message, the vast majority of my new colleagues in London and New York welcomed the challenge and expressed their support.
Over the next few years we had great fun breaking down barriers, winning new customers, and selling some of the most interesting art, antiques, and collectibles ever offered at auction.
We also made a few enemies.
ELEVEN
Cookie Jars and Irises
Management consultants and business school professors have developed all sorts of methods and approaches to positioning or repositioning a company for growth. The Harvard Business Review introduces new acronyms and fancy names with every issue. Developing things like missions, visions, and values is certainly helpful in getting everybody on the same page. But there is one other thing I like to do to stimulate management’s creative juices.
Identify the forces and factors keeping your customers from coming over your threshold. Be honest. Brutally honest. If you’re operating a restaurant, consider the quality of the food as well as its price and presentation. Does your menu appeal to your clientele? Analyze the comfort and character of your premises. Does the music playing in the background set the proper mood? Is your location convenient for your target customers? What about your waitstaff? Are they dressed appropriately, and focused on service and responsiveness? What restaurant options are in your immediate trade area, and what makes them popular?
If you’re a trustee of a private high school struggling with declining enrollment, be honest, brutally honest. Is the faculty top-notch; are the facilities competitive? Are your graduates getting into the colleges they and their parents respect most? Do you offer the right sports and extracurricular activities? Is your reputation what it should be? Are there any major problems with the student body—drugs, discipline, attitude?
Analyzing threshold resistance is difficult because it’s always easier to talk with the existing customers, the ones who have already crossed over your threshold. Of course, their opinions are critically important, and you don’t want to lose their business or weaken their loyalty. But to grow, you have to bring new people into the store. Most companies—especially new businesses—don’t have the money to bring in Yankelovich as we did at A&W. But even firms with very small budgets can take the crucial first step of being brutally honest with themselves. Challenge your management team with this assignment: “Let’s pretend that we leave our company and create the toughest competitor we’ve ever faced. What would we do to beat us? How would we do things differently and better? What would we keep the same? Remember; we want to win, and the opponent is us!”
Shortly after we took Sotheby’s private and I had recruited a new chief executive officer, I posed similar questions to the auction house’s senior managers. “Let’s walk across the street and start a new art auction company to beat our brains in,” I sai
d. “Don’t hang on to the things we’ve been doing for two hundred years unless they’re worth saving. You know our weaknesses, you know our strengths. You know the improvements you’ve always wanted to implement but were told you couldn’t. Now’s your chance. Sotheby’s is the best auction company in the world, but we can beat us!”
We had a creative team in place, and this fun but very serious exercise got their creative juices flowing.
Michael Ainslie, our new CEO, stepped right out of central casting. Just forty-one years old, the tall, preppy southern gentleman exuded confidence and trust. Educated at Vanderbilt and Harvard, he had joined us from his role as president of the National Trust for Historic Preservation in Washington, D.C.
John Marion, our vice-chairman, was a legend in the auction world. His skills as an auctioneer and salesman were exceeded only by his Irish wit and charm. John, whose father was Louis Marion, an early partner and later the president of Parke-Bernet, an auction house in New York (which Sotheby’s purchased in 1964 to establish a presence in the U.S.), had literally grown up in the business and had commanded the gavel at some of the most high-profile auctions in history. It was not unusual for customers to consign their property to Sotheby’s with the condition that John be the auctioneer on the evening their treasure was offered for sale.
Diana “Dede” Brooks, who had joined the company several years earlier essentially as a volunteer, was a decisive, fast-rising financial executive. She had been a member of the first female graduating class at Yale, and her background as a senior loan officer at Citibank made her stand out from the typical Sotheby’s associate. Frankly, so did her energy, self-assurance, and aggressiveness (traits that would later metastasize into recklessness and dishonesty).
Threshold Resistance Page 10