The last tycoons: the secret history of Lazard Frères & Co (97 page)

The executive committee reconvened for two days of meetings on February 20 in New York. Loomis kicked things off, in his understated manner, by admitting he had "received the impression" that the "unto death" equity scheme he had proposed in Paris was unpopular. The ensuing laughter helped break the tension that had been building for weeks. Michel then asked if anyone wished to speak in support of the proposed equity plan. Nobody spoke. Michel chaired a lengthy discussion, inviting dissension. Ralli got so upset at one point he threw his pen on the floor. Michel then delivered his version of an inspirational speech. In written form, the words seem incoherent and rambling. Perhaps it was better delivered live. "Our name in the world is excellent," he told his senior partners.

We have valuable business and valuable talents. But there is doubt about our ability to survive. The doubt is pervasive among you, the top people at the firm. I am trying to give you the greatest opportunity any banker can hope for. The conduct of Lazard in the years to come: it seems obvious to me that this firm in five years can be at least twice as profitable. We can make $200 million net in money management, we can make a hundred million in capital markets; we can make $500 million net in M&A, which would result in $900 million of profit. I strongly believe these are realistic goals. In the meantime, it is evident that we can have poor years but you are in a position to do something about it. I have to admit that whether we adopt a lifetime ownership for some partners or some other form of incentives is secondary though important. What is needed now is full commitment. We all agree that Bill Loomis is decisive and courageous. He can lead the firm but needs a totally constructive attitude toward him.

Just before the end of this "commitment fest," as Evans called it, the partners discussed a new, two-pronged attack from Edouard Stern. He was threatening to sue the firm over his perception that LF Capital Partners, a small private-equity fund the firm owned, had been mismanaged. He had been one of the largest investors, and he had lost money. He was upset and wanted $10-$15 million to "keep quiet." (He sued the firm anyway, and the matter was settled.) He also wanted to disrupt the pending Eurafrance and Azeo merger. "Michel made it clear he had had it with Stern," Evans observed. "Bruno is clearly deeply concerned about all this and he is the most exposed," which explained Roger's subdued manner at the meeting. There was also concern that a disruptive Edouard Stern "could impact the timing of the commitment of any funds to Lazard's Alternative Investing activities," Evans observed.

Evans met privately with Michel after the executive committee meeting, and they agreed the meetings were better and people were now "bound in" to the firm. While they were together in Michel's office, Felix stopped in to say hello, having returned to New York from Paris. He and Michel were in the midst of a months-long discussion about whether Felix would return to Lazard. After Felix had left the office, Evans told Michel that his return would be like reliving the Stern fiasco. Michel appeared to agree with Evans's assessment.

Felix's tenure as ambassador to France ended a month after the November 2000 election. While sitting in the den of his Fifth Avenue apartment, surrounded by his Labrador retrievers, Noodles and Nobu, he told the
New York Times
in January 2001 that he had no intention of returning to Lazard. He reiterated his desire to write his memoirs--a "good book about what I have seen in my life"--and perhaps start a small advisory boutique with a few associates. He also said he would serve on the boards of Comcast, Fiat, and a few unnamed others. He also joined the Council on Foreign Relations. "I decided that I couldn't go back to Lazard in any full-time capacity," he told
Institutional Investor
in May 2001, "because it wouldn't be good for Lazard and it wouldn't be good for me." Yet, as Trollope might have said, in the "yellow leaf" of his career, he also said he thought about quietly retiring "not at all."

More than once during Felix's three years as ambassador, Michel had asked him to come back to Lazard, even though Felix had denied at the time that such conversations had taken place. A number of Michel's requests to Felix came early in his ambassadorship and so were dismissed by Felix as random musings. There was also his concern about whether Liz, his wife, would be able to successfully battle the breast cancer that had been diagnosed soon after the Rohatyns arrived in Paris. (Liz did win this fight.) On these occasions, Felix said he repeatedly told Michel, "No, you know I can't do this. I can't go back." This time Felix once again declined Michel's offer. But he also asked Michel for something: to release him from a provision of his noncompete agreement that prevented him for three years from working for a Lazard competitor. Felix had signed the noncompete when he left Lazard in April 1997 as consideration for his lifetime of pension payments totaling millions of dollars. He had been fielding a number of opportunities back in New York, and although, as he told Michel, he doubted he would accept any of them, he wanted to feel free to at least think about them without concern he might violate his noncompete. He also told Michel he doubted the noncompete provision was legally enforceable and that, in any event, he would be happy for Lazard to be the first place he negotiated with about returning on some basis.

Michel chose to torture Felix, instead telling him: "Well, we can't do that. I'll put it to a vote" of the executive committee. According to Felix, Michel went through this "extraordinary exercise" of soliciting the views of the other senior partners of Lazard to see if they would be willing to agree to let Felix--next to Andre Meyer the single most important person in the history of the firm--out of his noncompete provision. Felix told Michel, his anger rising, "I could go to court, and in five minutes I would get a declaratory judgment. [But] I'm not going to do that.... Go ahead and vote, and then look me in the eye." Apparently unmoved and without a trace of irony, Michel reported back to Felix that the partners decided at the February executive committee meeting they could not vote on this request. Felix said Michel told him, "If they voted to release you, it would look as if they wanted to get rid of you, and they can't think of doing that." There was supposedly no vote. But there was agreement on the executive committee not to accede to Felix's request. Two points were communicated to Felix: there would be no "unilateral" rescinding of his noncompete, and he would be welcomed back to the firm even though only Michel held this latter view. "Another bizarre affair," Adrian Evans wrote in his diary, "is Felix Rohatyn who has asked us to release him from his non-compete clause so that he can decide where he is going to practice once he leaves Paris. Our view was that we should not release him (all agreed) and that we should not encourage him to come to Lazard (MDW disagreed). In any event, he is unlikely to come here. If he does, he will be massively disruptive." Felix was
not
released from his noncompete, nor did he rejoin Lazard.

Instead, in order to comply with his contractual obligation, he spent the three years beginning April 2001 in a suite of Lazard-paid-for offices on the fiftieth floor of 30 Rockefeller Center, ten floors below the firm's actual offices. He hung out his own shingle, Rohatyn Associates, to provide advice to corporations. A memo sent around inside the firm explained that Felix would be a "senior adviser" to Lazard. It said he would also run Rohatyn Associates and spend some of his time managing his family's money and his philanthropic activities. He elaborated on how this new arrangement actually worked. "The idea was that Lazard could use my name with clients that still had a relationship with me," Felix said. "And wherever possible I would still try to bring business to them if it was in my power to do that. I was totally independent to do business on my own in any way that I wanted, even with competitors of Lazard. And we did, and we did very well. I had my clients; I had my retainers. I was on three boards in France. I tried to put Lazard in a couple of deals. On one I think I succeeded, and on the others I think it didn't work. But that was it. My only obligation was in good faith to try to bring them business, and at the end of three years they paid me, and that was it." Lazard paid him $2.5 million in 2001, in addition to what he made from his own firm.

He was a controversial, if not particularly welcome, presence back at Lazard. Certainly, Loomis wanted nothing to do with Felix, as the memory of their early 1990s feuding was still fresh. The younger bankers, those partial to Internet chat rooms anyway, seemed utterly indifferent to him. After the memo came around about Felix's new role at the firm, one anonymous author wrote, "So Felix is back. Has anyone seen him? Any guesses on what impact he will have? On the one hand, he seems to have hedged his bets re starting his own firm. On the other hand, this is one of the most renowned bankers of the last half-century. I think this can only be good for Lazard but I am interested to hear what others have to say."

A lot, as it turned out. "Isn't Felix in his early 70s?" someone asked. "I am curious about his motivations at this point. I doubt that he has the zeal to revive Lazard on his own. The departures of Rattner, Wilson, etc. might have been too much for even old Felix to overcome." This prompted the response: "Even with his return, that is not going to mean anything. Lazard is not the company it used to be. When Rattner left the firm, that's when the ship started to sink. The only way this firm will stay afloat is if it is sold. All the big guns are gone. Oh, that's right, there is Vernon Jordan who is bringing in tons of money. Right? Ha Ha Ha!!!" One disrespectful wag wrote, "I think bringing Felix back won't help the firm at all.... It's like bringing grandpa back from the nursing home to run your business when all he talks about is how full his bladder feels." Another wise guy also failed to see how Felix would be useful. "Seems like Felix is taking over the 50th floor at 30 Rock," he wrote. "He's got a staff of around 10 waiting to drain some Lazard resources. I think they are going to be allocated like this: two to clean his thick glasses (1 per lens); one person to type out his rhetoric, as he can't use a PC; two for mistresses (one for him the other for MDW); and five hired thugs to stop him from strangling Vernon Jordan! Lazard's got its future in the right hands."

All this chatter evoked a blistering defense of Felix from his former partner Richard Emerson, then still at Microsoft: "Felix is truly the best banker that I have seen, from the details of the analysis through to the macro issues and on to the respect of the board. He is extremely diligent and motivated. Anyone who says less hasn't been around him and certainly hasn't earned his respect. And I was proud to be called his partner."

In addition to pursuing his deals, Felix worked on his memoir for a while, tentatively titled
Money Games: My Journey Through American Capitalism, 1950-2000.
Simon & Schuster, the book division of Viacom, was to have been the publisher, and Alice Mayhew, the respected editor of Bob Woodward and James Stewart, among others, was to have been Felix's editor. Felix, along with two ghostwriters, penned the book, and then stashed it in a drawer, where it remains unpublished, after he reread it and decided it was too deal-oriented and too much about himself. Vernon Jordan said Felix decided not to publish it because he had taken too many potshots at his fellow Lazard partners. He returned his advance to his publisher. James Atlas, the writer and founder of Atlas Books, has been after Felix to publish a slimmed-down version of his memoir. Instead, he is now writing a book about the important investments--such as the Louisiana Purchase and the transcontinental highway system--that America has made over its history. Rohatyn Associates, Felix's once thriving advisory firm, moved to a suite of offices at 280 Park Avenue that he shared with his son Nick, a former senior banker at J. P. Morgan, who now runs a $500-plus million hedge fund and who, in December 2000, paid $7.4 million for a forty-foot-wide mansion in Manhattan's Carnegie Hill. In August 2006, Felix all but shuttered Rohatyn Associates and joined Lehman Brothers, of all places, as a senior adviser to CEO Dick Fuld and chairman of its international advisory committee. He keeps an office both at 280 Park and at Lehman on Seventh Avenue.

AT THE JANUARY
31 meeting, the executive committee decided that an immediate way to increase profitability was to fire people, something Lazard had never,
ever
done before in difficult times. When Michel arrived in 1977 to find the firm almost in shambles, he departnered seven men, but never before had across-the-board layoffs been necessary, in contrast to almost every other firm on Wall Street. But the situation was now increasingly desperate. Loomis's top objective at the time he became CEO was to reduce head count by at least 275 people globally in three to four months. The time had come to implement his plan. By early 2001, the dismissal process started with the seemingly odd decision to fire about fifty information technology employees, about one-third of the department, whose combined pay barely added up to that of one partner. The idea was to reduce the IT expenses by $9 million.