The last tycoons: the secret history of Lazard Frères & Co (54 page)

WHILE FELIX FOUND himself momentarily subsumed by his charity crusade and Michel by his own extraordinary foray onto the pages of
W,
Bill Loomis was embarking on a lonely crusade of his own: nothing less than a total revamping of the infrastructure and the quality standards for Lazard professionals, partners included. In September 1986, he wrote Michel a lengthy confidential treatise about what he thought needed to be done to maintain and increase the worth of a Lazard partnership, absent which he feared the position would be devalued. The memo at once highlighted Loomis's substantial intellect and writing skills, the depth of his appreciation for the firm's uniqueness, and, of course, the quintessential irony that now that
he
was a partner he wanted to raise the bar higher for other candidates. There was also a masterful display of sycophancy and advocacy. Loomis began: "In
Euromoney
six years ago, you said about becoming a partner, '...if you are serious with yourself, you will know it at the same time as I shall know it.' This is a wonderful statement. It motivated me, encouraged me to develop substantively, and at the same time, provided reason for patience. The values appeared to be leadership in terms of transactions and relationships, independent judgment and already acknowledged stature within the firm. Partnership was also valuable because there were so few."

The problem, as Loomis saw it from his perch, at all of thirty-seven years old, was that the standards for a Lazard partnership had been increasingly lowered--partnerships had become a "reward" for "hard work and excellence"--from the amorphous and subjective standards articulated by Michel in
Euromoney.
A "two tier" partnership structure had evolved: the real, rainmaker partners were getting paid a profit percentage of 1 percent or above, and as the standards fell, partners who were focused only on executing deals were getting paid far less. "Such a change at Lazard is analogous to going off the gold standard at a time when other firms are more rapidly devaluing the currency of partnership," he continued. "The standard for partnership is a critical part of our franchise which is in danger of being eroded, almost imperceptively, in a series of individual decisions. As other firms become institutions where partnership is merely a title, Lazard should be moving in the opposite direction, as the stature of partners is critical to differentiating the firm commercially." Without a midcourse correction, Loomis feared, Lazard would by the early 1990s have sixty to seventy partners (which is exactly what
did
happen). "In terms of motivating young people, we will be in a box with a wrenching purge as the only alternative to mediocrity," he wrote presciently. He urged Michel to reduce the partnership ranks by "four or five" and to tighten the selection process. "The ability to be generous with the economics of partnership should not extend to generosity with the position itself, or it will lose value. The issue is criteria and absolute numbers, now and in the future. This is not a subject where consensus and exclusivity are contradictory concepts. Lazard would benefit from a return to partnership as your personal, and closely held, prerogative."

There had surely been nothing like this Loomis memo in the 138-year history of the firm. In the early days, partnerships were passed within the Lazard or David-Weill families, or among their close friends, and from father to son. Then Andre had divined, in his own judgment, who from outside the founding families was worthy of a Lazard partnership. True, unlike many other early Wall Street partnerships, Lazard had always been open to inviting non-family members into the firm--a point that Michel made frequently.

By 1986, the explosion of M&A deals and the introduction of spreadsheet software had exponentially increased the need for junior bankers with greater technical skills. For the first time, Lazard now had ambitious associates, many of whom were recruited from MBA programs or other firms. They were not content to just have a
job
at Lazard; they demanded a
career
at Lazard that included a clear shot at becoming a partner.

ONE PART OF this initiative was to find a new partner to work in London for Lazard New York. Now, the mere thought of this was plenty controversial inside Lazard, regardless of who was hired for the post. Since the creation of Lazard Partners in 1984, Michel had taken some preliminary steps to have New York and Paris work more closely with London. Given the historic idiosyncrasies of the three firms, cooperation was not natural, especially with London. Not only had Andre and Felix basically ignored Lazard Brothers, but also Pearson's fifty-three-year control of the firm made it a far different culture from that in New York or Paris, despite being in many of the same business lines. London was not a partnership, and since the near liquidation in 1931 senior bankers there had no share of the profits. Lazard Brothers--often referred to as the "House of Lords" because of the preponderance of British aristocrats working there--was by and large a far more insular, genteel, and haughty place than its scrappier and meaner cousins in Paris and New York. "They were Pearson men," one former partner recalled. "They were--you know what they were? It was almost a priesthood. As far as they were concerned, they were in an independent bank with a shareholder, and they would not be intimidated or altered in their course."

Then there was also the matter, discussed rarely and only sotto voce, that some of the leading lights at Lazard Brothers may have harbored more than a passing feeling of anti-Semitism, which, given the very Jewish nature of both New York and Paris, could not have facilitated cooperation. (Michel denied feeling any sense of anti-Semitism directed toward him but conceded that at Lazard Brothers such sentiments were possible. "I don't think these people thought for a minute to be anti-Semitic, but they didn't think for a minute of recruiting any Jewish people, either," he said.)

In any event, with Lazard Partners more than two years old and Michel feeling the tug of his DNA, he decided the time had come to attempt to forge a greater sense of business cooperation among the three houses. To that end, he decided Lazard Freres, the New York partnership, should have its own representative in London, working out of the Lazard Brothers offices. The idea was not only to promote cooperation among the three houses and to participate in cross-border M&A transactions but also to begin to transfer the cutting-edge M&A techniques--the firm's intellectual capital--to London from New York. While all of this sounded rational, many of the leaders of Lazard Brothers suspected that what Michel really wanted in London was a spy who would allow the Sun King to get increasing control of London, too.

In November 1986, Loomis recommended for the job a thirty-three-year-old American, Robert Agostinelli, who was then head of Goldman Sachs's M&A business in London. After a four-hour interview the prior evening, Loomis wrote Michel, "In my judgment, we should hire him, and I believe that there is now an opportunity to hire him."

Agostinelli, born to immigrant Italian parents outside Rochester, New York--where he was known as Bobby--graduated from St. John Fisher College, a Jesuit school in Rochester, and from Columbia Business School. Agostinelli had wanted to work for Lazard after graduating from Columbia. He had even managed to work his way into the office of the Lazard partner Disque Deane, whereupon Deane offered him a job and asked him how much he expected to be paid. The going rate for associates on Wall Street at the time was $35,000 a year. However, Agostinelli recalled telling Deane, "'Given the opportunity and the ability to work with you, I'll take a discount. I'll take $25,000.' Because I thought that was the right way to deal with this guy." Deane was appalled. "Let me understand this," Deane said to Agostinelli. "You want me to pay you $25,000 a year for me to make you a multimillionaire? Son, don't you realize that this is a guild? That Lazard is one of the great Florentine guilds? That I'm one of the richest men on Wall Street today, and it's all because of learning at the right hand of Andre Meyer, and we're giving you--we don't hire people."

Deane urged Agostinelli to go work on Wall Street for a "wire house" for three or four years before considering a return to Lazard, which is pretty much what Agostinelli did. Spurned by Lazard, Agostinelli first went to work for Jacob Rothschild and then Goldman Sachs. Reinvented as Robert, a suave, sophisticated, energetic international financier with extravagant tastes and slicked-back jet-black hair, who pretended to speak Italian but could not, he worked briefly in New York at Goldman before being dispatched to London to build the firm's fledgling M&A effort there. "I thought my career was over," he said about the move overseas and away from the Goldman power center at 85 Broad Street in New York.

But in fact, he caught the wave. American know-how was beginning to have a major impact on London's financial markets at the very moment the M&A boom had spread to Europe. Goldman, led by Agostinelli, started to dominate the M&A league tables in London. Agostinelli started to get noticed, including by Michel, at the very moment he began to feel the intellectual pull, yet again, of Lazard.

"Bob is not normal," Loomis's memo to Michel about Agostinelli continued. "He has been successful at Goldman, in part, precisely because he is not typical of Goldman." But there were words of caution, too. "Bob clearly has a large ego," he wrote, "and can be abrasive.... Quite apart from where he might actually be from, imagine him as a tough, confident Italian kid from Brooklyn who is in a hurry and is not willing to let anyone get in his way. He could be an enormous asset." Loomis strongly urged Michel to meet Agostinelli and consider him for the posting at Lazard Brothers. Soon enough, the requisite Michel meeting had been arranged, this time for breakfast at Michel's apartment at 810 Fifth Avenue. After a long chat, Michel told Agostinelli, "You are Lazard, and you should be a partner of Lazard. Certain things exist, and other things don't exist--this exists. You are a partner. You belong in Lazard, and you need to come here." Agostinelli joined the firm as a partner in early 1987.

Having successfully orchestrated Agostinelli's arrival in London, Loomis turned his attention again to recruiting junior bankers. On January 20, 1987, he wrote Michel another confidential memo about his assessment of the Lazard associates and the need to actively recruit more of them. While noting that six associates had left the firm in the past year (including Mina Gerowin, the first female associate), he was complimentary of the ones who remained. But the combination of the associate departures and the pickup in M&A business made the need for new associates acute. "There are, for example, more partners than associates in M&A and Corporate Finance in aggregate," he wrote. He recommended to Michel an active recruiting campaign and even outlined the names and assessments of seven candidates then under "serious consideration" for jobs at the firm. Today, of the seven, three are partners at private-equity firms, one is a member of Parliament, one owns his own information services firm, and one, Michael Price, rose up the ranks at Lazard to become a partner. In the late winter of 1987, as the market was reaching dizzying heights, Loomis met with MBA candidates at Wharton and extolled the virtues of Lazard and how the firm prided itself on being different. It was an extremely seductive elixir. "Even senior people at other firms know remarkably little about Lazard," he told them. "We see no advantage to publicity. Indeed, there is a private quality integral to our franchise." He dismissed many of Lazard's competitors as "processors of capital" and celebrated the firm's differences. "We will not be all things to all people," he said. "The world is large and our firm is small. We will, however, continue to find companies that do not want to go through the checkout line of a financial supermarket." Furthermore, Loomis took up the fight for the junior professionals at Lazard who were expected to slavishly put together materials for a client meeting, only to be excluded from it at the last moment. Life at Lazard for the younger bankers was always a hard one, caught as they were between extreme overwork and the desire to emulate what they perceived as the idealized version of the suave Lazard partner who never unbuttoned his suit jacket in the office, all the while swilling Evian and smoking Montecristos. They often worked in sweatbox-like conditions, literally. In the summer, the air-conditioning in One Rockefeller Plaza was turned off at 11:00 p.m. One year, in the early 1990s, as the late evening hours bled into the early morning, and it became hotter and hotter inside the Lazard offices, the young male bankers still there took to sitting at their desks in their T-shirts and boxers. Finally, after a few days of this, a group of them worked up the courage to ask the administrative partner, Nancy Cooper, if she would ask the building management to keep the air-conditioning on until 2:00 a.m. "You people are the most ungrateful group we've ever had at this firm," she told them, completely seriously.