The last tycoons: the secret history of Lazard Frères & Co (69 page)

Much of the
Vanity Fair
piece was given over to revealing aspects of Steve's personal life and to attempting to answer the central question of whether he was the man to succeed Felix at the firm. Klein, a longtime colleague of Steve's from the
Times,
seemed to be advancing Rattner's cause. "Today, when C.E.O.'s want to do major media deals, they no longer pick up the phone and ask for the Gleachers, Hills, and Wassersteins--all stars in the 1980s and all still active to one degree or another in the 90s," he wrote. "Often, the person they think first of calling is Steve Rattner." There was the requisite homage from Steve's mogul friend Arthur Sulzberger Jr. And then Felix added his rarely bestowed imprimatur. "Andre Meyer used to say that you can explain things to people, but you can't understand for them," he told Klein. "Which means that if you're going to be an adviser to important people, you not only have to have the intellect to decide the right advice but also the authority to have that advice be listened to. The other person has to recognize you as a peer. Steve clearly has all that."

Steve's reaping so far, the article revealed, had already yielded him a rich harvest. His annual compensation for 1993 had increased to "about $8 million" (some 60 percent more than the
Journal
estimated a month earlier) from the $60,000 he received in 1982 as a
Times
reporter. The Rattner's foundation by then had assets of $2 million (now more than $3 million, public records show). Also reiterated in the article were Steve's perks: the Dakota apartment, noticeably underdecorated, did hold his burgeoning collection of modern prints, among them those by Ruscha and Motherwell, in addition to those of Lichtenstein and Warhol. And then, of course, there was the ubiquitous twin-engine Cessna 421--since upgraded--on which Klein accompanied Steve for a trip up to Providence for a Brown trustees meeting. Then there was the house on Martha's Vineyard, although no mention was made of the one in Kent, Connecticut. Somehow, though, Steve and Maureen, with Klein's help, turned all of this conspicuous consumption into an example of the "upright, self-depriving attitudes of the Bill and Hillary Clinton era," a soon-to-be-plenty-ironic observation. Maureen explained that she had no interest in going back to Wall Street "because we don't need to add to our income level" and because "we already live well below our means, and I don't want any more money." She said when her children get older she would look for something "more socially useful [to do] with my life."

Steve elaborated extensively on this theme of modesty. "At times," he said, "it crosses my mind: What am I doing this for? But I think, I wouldn't quit and do nothing, because it would set a terrible example for my children.... We live comfortably but have deliberately changed our lifestyle little since our children were born, largely to prevent their values from being adversely affected"--and here he referred again to a detail
someone
supposedly told the
Journal.
"When I take the boys to school, it is on the M72 bus, even though a car and driver is certainly within our means. Maureen buys their clothes from discount catalogues, not trendy Madison Avenue boutiques.... I often take the subway to and from work, in part, because I don't see how one can have a view about the problems of the city without experiencing the city on at least some level as typical people do." This lovefest did contain a few shots across Steve's bow, though, some surreptitious, some direct. One of his "best friends" described him as the "Michael J. Fox of investment banking." For his part, as he puffed away on his cigar, Michel listed Steve as merely
one
of the firm's important partners, preferring instead to tell Klein how well positioned the firm was in its three financial capitals. He brushed aside talk of successors and the future. But "a friend of both" Felix and Michel told Klein: "Felix has always been a problem for Michel. Felix has always been a very big producer for Michel, but if you're the guy who owns the business, you say to yourself, 'This guy Felix controls too much of the business, and what happens if he gets hit by a bus?' So Michel has tried to get away from the star system and diversify the business by bringing in new blood and integrating his three firms to make a network."

Steve's remarkable financial performance in such a short time appeared to provide Michel with the outlines of a much-needed insurance policy for the inevitable day when Felix decided to leave the firm. And Felix was aware of this. Along with his unqualified praise of Steve, he served up what could only be taken as a warning. "Talking about an heir is a meaningless thing in a firm like ours," he said. "I came to this firm in 1948, when Andre Meyer was the senior partner. Since 1948 we've had two men running this firm--Andre and Michel. Michel and I became senior partners on the same day in 1961, and we go back to the days of Andre. We have an extraordinarily close relationship. We have similar European backgrounds. I'm 65 and he's 60. We'll be around for a while. I can't transfer my background and my relationship with Michel to someone else." He then continued, more explicitly: "We're all worried for Steve about this story that you are writing. I've been through stories like this at Steve's stage in life. The firm was a lot smaller then, but still these kinds of articles inevitably create internal tensions. The mergers-and-acquisitions side has become very personalized and show-biz. In M&A, you have marquee players. Obviously, being a marquee name is nice, as long as everything is wonderful. But it makes you a target. People are unforgiving if you falter.... It's heady stuff, a little scary, because for every marquee name that stays up on the marquee, there are 10 shattered names on the sidewalk."

AN ADVANCE COPY of the
Vanity Fair
article, sent by the editor Graydon Carter, landed with a thud on Felix's desk. He obviously knew the extent of the praise he had lavished on Steve, but when he read the article in toto, he was beyond incensed. The combination of the boardroom leaks, the top billing given to Steve, and his fey stabs at humility sent Felix into the stratosphere. "Felix went berserk. Berserk," according to one Lazard partner at the time. Another said,
"Of course
Felix was pissed." Still another: "Felix ran that deal, not Steve." Steve's nearly five-year honeymoon with Felix evaporated like rain in the Sahara. "He goes hot and cold on people," one partner said of Felix, echoing the earlier observation about Felix's successive loyalties. "Steve was his favorite son for a while. He was going around telling people, 'Steve's my guy, and when I can't do this anymore, Steve's the guy.' And then the
Vanity Fair
piece came along." And that was the end of their relationship at Lazard. The
Vanity Fair
article was "a real oh-shit moment," Felix said subsequently. "Michel and I were appalled."

It wasn't just Steve's shameless self-promotion that so upset Felix. The Paramount deal was one of Felix's most important and complex assignments of the decade. Not only did the spotlight's glow on Steve necessarily detract from the light on Felix, or so Felix thought; there was also the revelation of those confidential details from inside the boardroom. After he read the galley, Felix insisted that Marty Davis be called immediately and informed about the article's contents. Steve was in Arizona at a conference when he got Davis's call. "Marty went berserk," Steve recalled. "And he had every right to. We were in the middle of a deal. He called and screamed at me, which he did all the time, so there wasn't anything unusual in that." Steve denied to Davis he had been the source of the boardroom leaks. Felix, though, blamed Steve. "Steve," Felix said publicly, "made it seem like he was talking right out of the boardroom." Questioning another partner's loyalty and judgment, in public no less, was the worst sort of professional affront. Steve once again denied he was the source of the leaked information. "That's bullshit," Felix insisted. (Steve continues to insist he was not the leaker and that a careful rereading of the article will reveal Deep Throat; a subsequent
Vanity Fair
article about Marty Davis showed
him
to be the "loose-lipped cannon.")

As the
Vanity Fair
article came out in the middle of the Paramount deal--a deal experience he now believes was a "horror" and "one of the most awful deals that I've ever worked on"--Felix felt obliged to take action against his younger partner. "Steve was almost fired over that," Felix said. "I demoted him on the deal and put Bob Lovejoy on it. The only reason I didn't take him off the deal completely was because it would have created press stories." The consensus among the senior partners was that the
Vanity Fair
article was a mistake for Steve and for the firm. "I have the utmost respect for Rattner," Damon Mezzacappa said. "I think he is a brilliant guy, very open, at least with me. And direct. And honest. I'm a big fan of Steve's, a big fan. But I raised hell with Steve when they did that article in
Vanity Fair,
and I told him I thought it was a stupid thing to do and I was really pissed off at him. He was surprised. He thought it would be helpful to the firm. Well, it was helpful to
him."
For the more junior bankers at Lazard, so steeped in deference and the importance of hierarchy, the
Vanity Fair
story was a serious wake-up call about Steve's ambitions. In particular, the quotation that set tongues wagging incredulously from the Hudson River to the East River was Steve's entirely serious description of taking his kids to school on the crosstown bus, "even though a car and driver is certainly within our means." In any event, this high-profile saber rattling was beginning to remake the secretive, mysterious Lazard into a noisy public battlefield.

The fallout was immediate. The first person to become radioactive was Kim Fennebresque, though he had nothing to do with the article, nor was he even mentioned. Fennebresque decided he no longer had the stomach for the battles raging inside the firm. Whether it was Felix being increasingly irked by Steve's favorable publicity or Loomis's brooding in exile, the fun had vanished. When the Loomis loyalists wanted a scalp, they came after Fennebresque's. His higher profile and marginal productivity made him a sitting duck. Plus, he always knew the job as co-head of banking "was a death sentence." And then he had a falling-out with Loomis himself, who a few months after he took the job began to think Kim "was disloyal to him" because he stopped coming around as often to seek his counsel on how to run banking. "But I really wasn't doing much," he said by way of explanation. "I was there to help Steve. I was not there to be a hero." Loomis and Fennebresque stopped talking. When he got a call from a headhunter at the start of 1994 about a senior position in investment banking at the Union Bank of Switzerland in New York, complete with a multiyear, multimillion-dollar contract, Fennebresque pursued--and then took--the job "purely for the money" and the financial security. The memory of the seven-figure debt to First Boston remained fresh. He left Lazard without saying good-bye to Loomis, a recollection that still makes him a little melancholy. "I was unbelievably happy for the first eighteen months at Lazard," he said. "I was proud to be a partner there. The name was incredibly lustrous. I loved using the words 'my partner.' I just loved the whole thing. And then that one night when Michel said, 'Will you do this?' I never recovered. I became unhappy, and I knew it was a ticking bomb. I knew the day I got it, it was a ticking bomb and it would go off and blow up."

Michel made no effort to change Fennebresque's mind--not that he expected that to happen. "My guess is that in the end he didn't care," Fennebresque said. He called Steve and told him of his decision to leave. Steve said he "sensed that this was coming." Maureen called Kim in tears. Fennebresque's wife was pregnant with their fourth child, and Maureen told him, "You know, you and Debby will now have the time and money to really enjoy this," he said. "It was really a bittersweet moment for the Rattners and the Fennebresques."

Steve was now all alone running banking, although he had successfully dished off many of the more ministerial duties to Steve Langman, a vice president, as he had wanted to do. This gave him more time to focus on deals and his outside interests. He more or less gave up trying to make reforms. "When I ran banking the first time, our mistake was to think we could accomplish as much as we set out to accomplish," he said. "Bill was good at it in part because he understood the limitations of what could be done in the context of the firm and 150 years of history. London. Paris. New York. Michel. Felix. The feudal lords, all this stuff. I was more naive." But there was still the small matter of Felix's continuing rage. Unlike Kim, Steve had an ability to generate huge fees that made him nearly untouchable in the mercenary Lazard firmament, but he soon realized that he could no longer effectively run banking without Felix's support.

And it was obvious around the firm that his heart was not in it. He was aloof, cool, and distant within the firm's corridors, although he could turn on the charm with clients and in social settings. Some of the other, long-tenured partners were beginning to be put off by his diffidence. His year-end obligation to the nonpartners became even more perfunctory than it had been the year before; the highlight of the five-minute sessions was being able to see, up close, the original Warhol lithographs alongside the black-and-white etchings of old New York on the walls of his office. It was nearly impossible to carry on a conversation with him, as he rarely made eye contact with subordinates and preferred monosyllabic responses. He executed this duty with a detached efficiency. Steve said he did not think he was particularly good at running banking at that time. "I didn't and I still don't particularly like conversations where people are trying to figure out what's in it for them," he said. "But I do enjoy the process of trying to move the firm forward, getting good people to come, thinking through the business and strategy, and going to get clients."