The last tycoons: the secret history of Lazard Frères & Co (28 page)

Not surprisingly, these revelations added a new, even more nefarious element to the ITT stew of gluttonous misbehavior. Just after the Kleindienst hearings wrapped up but before the Senate had voted on his appointment as attorney general, Senator Frank Church, Democrat of Idaho, decided to convene a hearing of a subcommittee of the Senate Foreign Relations Committee to investigate the allegations that ITT had attempted to meddle in the internal affairs of Chile. Unlike with the Kleindienst hearings, though, the subcommittee agreed that "to insure a fair and balanced investigation," the hearings--sure to be controversial--should be postponed until after the 1972 presidential election. The Church hearings, which commenced on March 20, 1973, also sought to ascertain the broader influence of multinational corporations in U.S. foreign and economic policies.

Felix, as an ITT board member, appeared before the Church Committee on April 2, 1973. After he was sworn in but before his questioning began, the public was treated once again to a passing glimpse of the increasingly close ties between the power of government and the power of Wall Street. In this instance, the curtain was pulled back on the long personal relationship that Felix had with Charles Percy, then the senator from Illinois and previously the chairman and CEO of Bell & Howell, a Lazard client. Felix met Pete Peterson through Bell & Howell as well, after Peterson himself served as chairman and CEO of the company from 1963 to 1971, following Percy. And then, of course, Felix had served as the trustee of Peterson's blind trust. "In accordance with the practice that I have followed in the past, when witnesses have been before us that I personally know, I would like to indicate that Felix Rohatyn, a partner of Lazard Freres, was very active with me in business," Senator Percy conveyed to the audience. "Lazard Freres were bankers for Bell & Howell Co. I am sure that Mr. Rohatyn knows that my friendship with him and business acquaintanceship with him and relationship with him would not in any way interfere with my constitutional responsibilities in helping to conduct this investigation"--thank goodness for that!--"but I welcome him to this forum." Under questioning, Felix testified that the topic of Chile and whether ITT's assets there would be nationalized was a constant one at ITT board meetings in the spring of 1970, including whether ITT's insurance would cover any potential problem. But he insisted that the ITT management never informed the board of either Geneen's meetings with Broe or ITT's million-dollar offer, just as he had insisted that he was unaware, as an ITT board member, of the $400,000 San Diego contribution.

"Do you feel as a director you should have been informed?" wondered Jack Blum, the committee's associate counsel.

"I think that is a very difficult question, Mr. Blum," Felix responded. At which point Senator Church interjected, "What makes it difficult?"

"Well, Senator, what makes it difficult was the fact that the offer was not accepted," Felix answered. "I believe that a management committing a company, prior to committing the company has to go to its directors."

"But the offer," Senator Church countered, "if Mr. Broe's testimony is accurate, the offer was not made upon condition that the board of directors would subsequently approve it or ratify it. It was made outright. ITT was prepared to offer a substantial fund if the CIA would be a conduit, and the purpose of the fund was to help finance the election of Mr. Alessandri [a rival to Allende] as President of Chile. I think that is a very significant offer of a large amount of money that would plunge the company deeply into the internal politics of a foreign country. You say it is a difficult question when you are asked whether such an offer ought not to be communicated to the directors of the company. What makes it difficult?"

"Well, Senator," Felix tried again, "I said the question that I was raising was indeed whether Mr. Geneen did make an unconditional offer. If he did make an unconditional offer then it should be passed by the board before the offer was made. If Mr. Geneen was engaging in an exploratory discussion subject to coming back to the directors with a proposal, did he have one, then that would be another thing."

"So if Mr. Broe's testimony is accurate, in your judgment, it would have been the kind of offer that ought to have been first communicated to the board of directors before being made to an agent of the CIA?" Senator Church wondered.

"If it were an unconditional offer, yes, sir," Felix allowed, completely ignoring the propriety of a major U.S. corporation enlisting the help of the CIA to interfere in the politics of a sovereign country.

This very question--of propriety--was very much on the mind, though, of the committee's chief counsel, Jerome Levinson, as well as of Senator Church. "Mr. Levinson is asking, if I understand it, if there isn't another consideration here, and that has to do with the propriety of making any kind of offer at all for such a purpose, whether it is conditional or unconditional. I think that is a very legitimate question," Senator Church said, adding that other CEOs with business in Chile at the same time had testified that ITT's offer was "highly improper" and unacceptable. "You are a member of the board of ITT," Senator Church continued. "Do you take a different view?"

Now squarely on the hot seat, with the real issue joined, Felix responded, "No, Senator. I am sorry if I didn't make myself clear. I didn't say that had Mr. Geneen made such an offer for the purposes as you stated them and had he come to the directors and asked us to approve it I am not at all sure that I would have. In fact, I think I would probably have objected to it. I am dividing the question into what does a management have the authority to do without asking the board from the question had they come to the board would we have approved it." But for whatever reason Felix still had not made his thinking clear to the committee, prompting Senator Church to once again wonder, "But do you want to leave the record in such form as to support that ITT's management has the authority to dabble in the politics of foreign countries without prior approval of the board?"

"No, I certainly wouldn't," Felix answered. "I couldn't leave the impression that the board or at least I, as a director, am insensitive to the propriety of a management interfering in the internal political activities of a foreign country. However, as I said before, the management of the company assured me and assured the other directors that they had not done so." Felix admitted that the board itself had never undertaken an investigation of Geneen's activities with the CIA in Chile although two law firms were engaged to study whether ITT would be able to obtain the insurance payments. Felix ended his testimony by making it clear that under no circumstances would he have considered a payment to the CIA by ITT to be an expense "in the ordinary course of business" that could be made without the board's approval.

AS THE WASHINGTON wrangling continued unabated, back in New York--as if in some parallel universe--Felix set about rehabilitating his teetering reputation.
BusinessWeek
obligingly served his cause, with a March 1973 cover story, "The Remarkable Felix G. Rohatyn," a paean to Felix's M&A prowess (and his facility with some members of the press). The lengthy profile, just weeks before his Chile testimony, featured a youthful and earnest picture of the forty-four-year-old Felix, calling him a "model of the new breed" of investment banker, and, thanks to the information released by the Celler commission, listed ten years of Lazard's M&A deals and corresponding fees. The magazine mentioned in passing that Felix was "reluctantly exposed to the public eye" by the congressional "flap" over ITT and the Hartford, preferring instead to concentrate on his fascinating background and his role advising the leaders of corporate America.

The piece added to Felix's growing mythical status a jewel of a story about how one of his partners, the avuncular Albert Hettinger, had recommended that Felix meet with Hettinger's acquaintance Paul Williams, the president of O. M. Scott & Sons Co., the rural Ohio manufacturer of lawn-care products. Williams had wanted to find a way to buffer the perceived cyclicality of Scott's business by merging the company into a larger, more stable conglomerate. Felix flew to Marysville to the rescue. "You would not believe what a wonderful place it was," he said in the
BusinessWeek
article. "They even offered me apple pie. I decided then and there this company had no business merging with anyone." Felix succeeded in dissuading Williams from making the deal with a small chemicals company. But when Williams called Felix again a year later, in 1971, to say that a large company was preparing a bid for Scott, the concern in Williams's voice gave Felix the idea that ITT should buy the company instead. He called Geneen. "I told him that it was a business I found attractive because much of their product is sold in hardware stores, and I'm a great believer in hardware stores as outlets," Felix told the magazine. "We would have to accept a certain amount of dilution [to earnings], but in a company of ITT's size you wouldn't even notice it." Within four days, Geneen had met with Williams and a deal had been hammered out, agreed to by the boards of both companies, and announced publicly. ITT paid Lazard $400,000 for its week of work.

Such a charming story added immeasurably to Felix's status. Here was an investment banker making clear he was above doing a deal for a fee; here, apparently, was an investment banker who stood for something far more valuable than a fee--the ability to provide impartial, non-self-interested advice to a CEO who was not even his client. So what if Felix was the only source of this self-serving gem. Scott was a precious piece of Americana--"They even offered me apple pie"--that required the right home, which, it turns out, just happened to be ITT, Felix's best client.

The
BusinessWeek
article once again raised the specter of succession at Lazard. And again Andre lavished praise on Felix, his protege. Felix "can negotiate anything," Andre said, an extraordinary blessing indeed from the master negotiator himself. Andre also allowed that Felix had been one of the few Lazard partners to generate business. "In my lifetime I have given opportunities to many people," he said, "and only some of them have been able to grasp that chance. Felix did so in such a way that I don't believe personally that I would have been able to do so well." But as ever, Felix seemed preoccupied with doing deals, and his unwillingness to take the reins in New York from Andre left the older man with considerable agita, or so he claimed. "I am sorry that Felix is so highly motivated in what he is doing," Andre said. "I have said that I consider him my son, and I would not say that if I did not mean it. I had hoped that he would take over this firm, but he has turned me down." For his part, Felix said, "I do not think I could do what Mr. Meyer is doing but I know I can do what I am doing, and do it well. I think what I am doing is important to the firm, and I want to keep it that way."

Naturally, this being Lazard, there was more to this matter of Felix and succession than met the eye. There was also Andre's reaction to Felix being on the cover of
BusinessWeek.
"Andre didn't like it one bit," Felix explained years later. Indeed, according to Felix, Andre was sufficiently jealous of this press coup that he insisted that Felix arrange for
Business-Week
to put them both on the cover. "I had the worst time with Andre about that article," Felix explained. "I mean, I didn't quite know how to--because I knew they were doing an article. I didn't know it was going to go on the cover. And when they said to me that I was going to be on the cover, I said, 'But I've got to talk to Mr. Meyer, I mean, he's going to go ballistic.'" When Felix spoke to Andre about it, Andre told him, without a trace of irony, "'This will be terrible for you. It'll be terrible for you. You know, all this publicity, it'll come back to haunt you. But I want to help you, [so] tell them that I'd be willing to go on the cover with you.' And I said, 'Well, thank you very much.'" But the
BusinessWeek
editor Lou Young, who was a friend of Felix's, wouldn't hear of it, according to Felix. As a compromise the magazine agreed to include a separate boxed spread, in the article, on Andre alone. As to why he never wanted to succeed Andre, despite the attendant prestige and power of such a promotion, Felix confessed a truism about Lazard that defies the conventional wisdom about ambition on Wall Street. "Andre first talked to me about running the firm sometime in the late sixties," Felix confided. "And I knew that wasn't serious. This was Andre venting. It was our little theater. He would ask, knowing that I would say no. But I also knew, because I had seen it happen with other people, that the moment you said yes, you were dead, especially if you were in the firm to begin with.... I was always convinced that Andre, who was a very lethal person if you didn't handle him right...that the first time I tried to exercise any kind of control would be my last." The extraordinary insight that a partner as important as Felix would be eviscerated the moment he tried to assume or to exercise a leadership role at the firm is essential to understanding the post-World War II Lazard history.