The last tycoons: the secret history of Lazard Frères & Co (37 page)

Robert Ellsworth once said that Patrick Gerschel, Andre's grandson, told him, "Pierre was so smart that he was smart enough to hire Andre Meyer and trust him." Michel believes his father never received enough credit for reviving both the Paris partnership and his own fortune after World War II. "My father had, in my opinion, an exceptionally hard life, but he was exceptionally courageous," Michel explained.

But because if you think about it, there is a fellow who at the age of thirty-two has no money left, and has to fight. And has to fight to get the firm back on track. At age forty, the firm is taken from him, and the Germans come in, and he has to fight to liquidate the firm decently so that nobody gets hurt. At age forty-two, he arrives back in the U.S., which he had never lived in but had visited plenty of times, and has to fight with Washington because of the Trading with the Enemy Act because of the way the liquidation involved money coming from elsewhere. Then he has to deal with Andre Meyer, which was not that easy. Then in 1945, he has to rebuild from scratch Lazard Freres Paris. From scratch. There was nothing. There was not an office. There was not an employee. Not an easy life.

The partnership economics made clear, though, that after Andre reduced his stake to 7.236 percent, as promised, this was now Felix's firm--at least from a day-to-day perspective--indicating definitively that the entire ITT-Hartford fiasco had little effect, if any, on the trajectory of his career. Felix retained his partnership share of 10.796 percent, so he would take home $1.1 million in 1975 (the firm made $10.2 million that year). Pierre David-Weill took the next-largest share at 9.431 percent, while Andre, who had the largest share in 1974, reduced his share, per his memorandum, in 1975 to 7.236 percent.

WITHIN TWO WEEKS of Andre's memo, fate intervened, and Pierre David-Weill died unexpectedly. At Pierre's funeral, Disque Deane, by then a very wealthy man, was said to have made change in the collection plate. (Deane denied this.) "He was an immortal," Patrick Gerschel said, with some sarcasm, about Pierre. "So everyone at the funeral, which was in a big church in Paris, was in their finest uniform. But his mistress wasn't allowed to come. She had to send a wreath." Pierre David-Weill was buried in the Montparnasse Cemetery, in Paris, in the same catacomb as his father, grandfather, and brother Francois, who died tragically in 1934, at age twenty-seven, after the plane he was piloting crashed on landing at Orly Airport in Paris. After his father's death, Michel took over the running of the Paris partnership, but he remained some distance removed from New York, as Andre's intimidating influence was still strong, despite his Christmas memo. When the partnership agreement was amended next, six months later, to account for the hiring of two new partners and the retirement of one other, Felix had his percentage lowered slightly to 10.671 percent, and Pierre David-Weill's stake had been shifted, per the partnership agreement, into the David-Weill family account under "Lazard Groupement," which now received 18.735 percent of the firm's profits.

But this new arrangement lasted barely a year, as Felix continued to have little interest in managing the firm. Around Thanksgiving 1975, with Felix increasingly consumed with solving New York's fiscal crisis and Andre debilitated by the pancreatic cancer that had been diagnosed in January--indeed, after an immediate operation, doctors gave Andre forty-eight hours to live, which he characteristically defied, but he had slowly been reduced to wearing a bathrobe and slippers around the Carlyle while awaiting his daily toast and tea--Lazard Freres in New York turned to an outsider, Donald Cook, then sixty-seven, to be the firm's "managing partner," effective March 1, 1976. Cook had been a close friend of Andre's, as well as chairman of the SEC under President Harry S Truman and the CEO of American Electric Power for fourteen years in the 1960s and 1970s. In the quaint argot of a simpler era on Wall Street, a
Times
article explained that Andre had been looking for "an industrial man." Cook was given a 4 percent profit share; Felix's share was
increased
to 11.5 percent (in 1976, Felix was paid $1.43 million; he took no compensation as head of MAC); and Andre's was decreased again, to 6.56275 percent. "I have a certain degree of influence but I am not the boss," Andre told the
New York Times.
"The new boss is Mr. Cook. The managing partner of the firm is Don Cook."

In the same article, which mentioned the ITT-Hartford fiasco only in passing, Andre lavished praise on Felix yet again. "Mr. Rohatyn is a very important man," he said. "He is absolutely unique. He could have been boss years ago if he had wanted it, but he wasn't keen for the responsibility." Indeed, the article touted Felix as a potential New York City mayoral candidate or for an important position in the Carter administration. Felix denied an interest in politics and said he didn't want to move his family to Washington "at this stage in my life."

In an article five months earlier that attempted to predict who might end up in a Carter cabinet, even though it was still some two months before the election, Felix was of course mentioned as a potential for the Treasury post. He had been part of a gathering at the "21" Club in Carter's honor hosted by a group of New York businessmen in angling mode. He said, though, going to the nation's capital was "not something I yearn for." In another
Times
article, in March 1976, this one a fawning profile in the Sunday magazine titled "The Wizard of Lazard," he also denied interest in going to Washington. But it was more in the nature of--in keeping with the Nixonian shadow still looming in national politics--a nondenial denial. "Suppose I was appointed Secretary of the Treasury," he mused. "Can you see me driving up to the gates in my old BMW?" The
Times,
though, made clear Felix's associates "say" that the Treasury position would be "welcomed."

The
Times
profile thought it curious that Andre would have selected Cook over Felix to run Lazard, but as usual, Felix proclaimed no interest whatsoever in running the firm. "I run my side of the business--corporate finance--with enormous freedom and that's all I want to do. That's enough." He confirmed Meyer's assertion that he could have run Lazard at any time had he wanted to. "What I do for this firm," he said, "I do it in my head. I can do it from here. I can do it from Morgan Stanley, or from my apartment at the Alrae. So if I didn't like this decision, I could leave. But it was something Mr. Meyer and I agreed to between ourselves."

Unfazed by the internal politics or Lazard's idiosyncratic history, Cook set about, at his own peril, actually trying to
manage
the firm. On July 2, 1976, he reiterated the existence of the three-person management committee with himself as chairman and Felix and Kniffin as the other two members. Mullarkey was an ex officio member. Cook promised a further "reorganization" of the firm's "structure" in "due course," with "priority consideration" to be given to a "New Business Department." On August 19, six weeks later, Cook made good on his promised reorganization by announcing, in a seven-page, double-spaced memo, that the "New Business Department" would be reorganized and expanded to form the "Corporate Finance Department." Cook explained the title "New Business Department" was actually a "misnomer" since new business development occurred not just in M&A but across various of the firm's products. "Felix Rohatyn will, of course, continue as Partner in Charge and Frank Pizzitola will serve as Deputy Partner in Charge of the reorganized and expanded Department," Cook wrote.

But Cook also recognized the reality that Felix had "substantial public service demands" on his time and would be out of the office frequently, requiring "Cook [to] spend a large part of his time in the overall coordination of the activities of the Corporate Finance Department." Cook discerned that certain Lazard partners were "business getters," chief among them Felix, while others were "business processors," such as Mel Heineman. The failure to formally recognize these distinctions between the Lazard bankers, Cook suggested, resulted in a number of "readily apparent" disadvantages, including "an inadequate flow of new business into the firm," "an uneconomic utilization of the talents of the partners," and "difficulty in organizing a suitable program for the development of new business opportunities." So Cook's reorganization formalized these distinctions between the banking partners and grouped them into "business getters" and "business processors." In his conclusion Cook wrote, "It is believed that the above described reorganization and expansion of the 'New Business Department' to create the 'Corporate Finance Department' should result in making it possible to achieve a significant increase in the net income of the firm. This reason alone suggests that the fullest measure of cooperation should be given by each and every member of the Department to achieve the desired result. Of course there are other reasons as well for expecting that cooperation. That cooperation is earnestly requested." His huge, sprawling signature ended the memorandum.

Predictably, Cook was a disaster, principally because the unruly bunch of "jungle warriors" had no interest in being managed
at all.
And of course, because Andre still breathed. Cook attempted to run Lazard "like a business," one former partner explained years later. He organized meetings that nobody attended and asked partners to tell him what they did all day long. They ignored him. "And it went from bad to worse," Patrick Gerschel said. "And it got more and more peculiar. He had these decoration ideas. And so the whole place started getting decorated in pinks and mauves, with his wife. And I thought, 'Okay...'" Then one day a sign appeared on Cook's office door--"Trespassers will be shot, by order of Donald Cook." In the end, "some of the other partners simply cut his balls off," said someone who worked with Cook. "He fizzled from day one." Said another, Cook "thoroughly alienated people." As Felix suspected, chances were good that any effort at all by anybody to manage Lazard would have alienated people. Cook just happened to be the guy who tried.

Seven months after Cook's hiring, in September 1976, Andre and Michel tried to calm the growing unrest in the firm with a poignant, confidential, five-page typewritten memorandum sent to, simply, "The Partners" and signed by both men in their own hand. The memo began:

At the suggestion of Donald Cook, this memorandum was prepared during his visit to Switzerland to deal with some aspects of the organizational structure and the distribution of responsibility and authority among the partners of the firm.... We have been fortunate in adding Don Cook to the team, as a partner in the firm and he has been with us for almost four months. During this time, he has had an opportunity to become acquainted with the partners, the firm's business, and the means by which the firm's business is handled. In addition, he finally took a much needed vacation and has now returned, both rested and largely free from his nagging problem of laryngitis. His full availability is of considerable help to us in completing our overall plans for the management of the firm for the foreseeable future.

Andre and Michel then laid out the second stab at a management committee to run the firm's "day to day operations," which consisted of Cook, Felix--when he was around--Howard Kniffin, who by now was ill with emphysema and on doctor's orders to slow down, and Mullarkey, the firm's general counsel, as an ex officio member. Patrick Gerschel was appointed the secretary of the management committee. The committee was to meet at 8:45 a.m. each business day, just like the first one. Cook was named chairman and was "known as the Managing Partner." But in a foreshadowing of the future, Andre and Michel made clear in the memo they remained in charge.

They concluded the September directive with their belief that their partners would do as they instructed. Pointedly missing from Cook's authority was the ability to set partner percentages. The memo was both the beginning of the end of Cook and the first evidence of the inevitable coronation of Michel as the Lazard patriarch. Four days after this memorandum landed on partners' desks, Cook invited all partners to an afternoon meeting in the large conference room on the thirty-second floor of One Rockefeller Plaza. "The meeting is important and we would appreciate it if you would make an effort to be there." Almost no one showed up.