The Limited would eventually fail in its effort to win Carter Hawley Hale. But given his continuing concern about his fellow bankers' behavior in this and other hostile deals, he used the Times Magazine platform to rail, once again, against his chosen profession. "I guess I'm getting to be like a friend of mine, a very successful defense contractor, who says to me, 'It's more and more difficult for me to run my business because I don't believe in the defense budget.' Sometimes it's getting more and more difficult for me to do the things we do, because in the last analysis, I don't think that's what I want on my tombstone."
What he did want on his tombstone, of course--former U.S. secretary of the Treasury--was also a topic of discussion between Felix and his muse. "This is my time," he told McClintick when asked about his interest in a cabinet position. "There's going to be an enormous amount of financial engineering required to redo the national and international financial systems that have grown out of control and are going to have to be put back together. It won't necessarily be me, and I truly don't yearn for it, but it'll be people like me"--and then he made his pitch. "There are going to have to be people involved in public policy who understand financial structures, and who understand the relationship between financial structures and the real world. There are lots of people who understand financial structures but who don't understand the real world, and vice versa. At least I've had experience with both." The Times Magazine article followed on the heels of the publication of his collected essays and speeches, which itself spurred a wave of media focus on Felix from CBS Morning News, The MacNeil/Lehrer NewsHour, and, according to McClintick, the possibility of Time putting him on the cover. (It never happened.)
Then, as if all that were not enough, four months later, in December 1984, Felix appeared on the cover of Institutional Investor, the industry trade magazine, doing his best imitation of Fred Astaire. Felix appeared in white tie and tails, top hat and dancing stick. "Felix: The Making of a Celebrity" the cover screamed. Finally, in one neat package, was the Felix phenomenon captured in all of its deconstructed complexity: the consummate deal maker, the media manipulator, the social doyen, and the frustrated wannabe high-level political appointee. Clients and rivals weighed in on his supremacy as a corporate adviser. "I am satisfied with the counsel Felix gave us," commented Leslie Wexner, despite the Limited's failure to win its prize, "and I would use Lazard again for other acquisitions"--something Wexner did repeatedly from then on. "You can't underestimate the longevity factor," said a competitor from Lehman Brothers. "Felix has been doing deals since I was in second grade." And there was the requisite homage from one of his partners. "His mere presence at the firm helps me wherever I go in the world," purred Lou Perlmutter. "I may bring in a new client, but the fact that he's one of my partners is very important."
The competitive daggers were out in full force, though, when it came to commenting on the surfeit of Felix's fawning press coverage. One competitor chirped: "When he sneezes, the New York Times gets a cold." The iconoclastic Washington Monthly was quoted wondering just how Felix does it: "What is it about Felix Rohatyn? Is it an elixir that wafts from his pores? He has become the 1980s version of Henry Kissinger, the powerful figure whose mere presence stupefies usually capable journalists." The answer is simply, like Kissinger, Felix worked--and works--hard at carefully managing his persona, working far harder at it than he leads anyone to think he does. And hard and time-consuming work it is, too. He benefited immeasurably, of course, from his understanding with Michel that he alone would be the public face of Lazard. He wooed reporters with pithy quotations and unalloyed access. Among the all-time favorites was his description of what would happen to New York City if the city's officials didn't get serious about the looming fiscal crisis: "Bankruptcy is like stepping into a tepid bath and slashing your wrists. You might not feel you're dying, but that's what would happen." He also socialized with leading reporters, columnists, and editors, inviting them for meals at the Four Seasons, the Regency Hotel, Elaine's, "21," or his Fifth Avenue apartment to discuss the weighty issues of the day.
He also made good copy, since he seemed willing to take contrarian and controversial positions, on the record, whether about public policy or the investment banking profession. But he also kept after reporters, working them relentlessly with a combination of charm and exactitude to convey his views until the moment of publication made his further effort irrelevant. Felix's mastery of the media was a potent and effective cocktail that pushed his profile higher and higher. With tongue firmly planted in cheek, the Institutional Investor editors put together "The Felix Index," which tracked Felix's press notices and assigned them points depending on whether they were mere mentions--1 point--or a major cover story or profile: 20 points. The chart rises from a score below 10 in 1970, when ITT's hostile deal for Hartford started, to something like 150 in 1984, with the rash of cover stories and the publication of his book. Felix took it all in stride. "Certainly over the past ten years I have had an extraordinarily supportive press," he said. "I've gotten beaten up on occasion, but that has been the exception."
Perhaps no banker ever, not even J. P. Morgan in his day, had lavished on him the amount of favorable ink that Felix now garnered. The irony, of course, was that all of this publicity and political positioning came at the outset of Reagan's second presidential term--and there was never even the slightest chance Felix would be part of a Republican administration, let alone one as conservative as Reagan's. And as had been cataloged endlessly, Felix was increasingly bored with doing deals and, apparently, had little ambition to make more money than he already had. The reaction inside the firm to the Felix publicity parade was predictably schizophrenic: on the one hand, having Felix and Lazard featured so prominently was great for business, which meant that all partners would benefit financially; but on the other hand, there was increasing resentment, as the firm grew, over the fact that no one seemed to recognize that Lazard was becoming far more than just Felix. There was also a general sense that perhaps enough was enough. "I have compared him to a great fish," Mayor Ed Koch said at the time. "A great fish that leaps from the ocean into the brilliant sunshine so that everybody can see his beautiful golden scales. And that's all right, that's reasonable. But every day?"
BUT EVEN AS Felix continued to preen, there was no challenging Michel. The creation of Lazard Partners not only solidified his control but also gave him an added patina of authority for having pulled off the unexpected. A few months after the ink was dry on the Lazard Partners deal, Michel maneuvered Ian Fraser out as chairman of Lazard Brothers. He looked Fraser "straight in the eye" and told him, as if he weren't even there, "Ian Fraser is a brilliant deal maker but he is a lousy administrator," and then threw in for good measure that "next time we must have a good manager." John Nott, the defense minister in Margaret Thatcher's government and during the Falklands War, succeeded Fraser. Michel also seemed content, for the moment, to allow Felix to get the public glory while he added to his already enormous wealth.
And there was no arguing with the firm's performance under Michel's leadership. Lazard was making lots of money, and so were its partners. The Wall Street Journal reported Michel made $50 million in 1983, and that his net worth was north of $500 million. This fact, along with section 4.1 of the partnership agreement, made Michel's power absolute. But Lazard was still not functioning, from a management point of view, the way other, more professional, less idiosyncratic Wall Street firms were. Hiring was haphazard. Mentoring and training were nearly nonexistent. Internal financial controls were archaic at best. Every important decision--compensation, partnership percentages, promotions, senior-level hiring--required Michel's sole approval and sign-off. For all practical purposes, Michel had pretty much retained Andre's "sole proprietorship" approach to running the firm, even if there was now a velvet glove on the iron fist.
CHAPTER 10
THE VICAR
But slowly, at least one person inside the firm began to feel the need to fill the organizat
ional vacuum, with the hope of bringing the woefully byzantine firm into the latter half of the twentieth century. While the task had a Sisyphean feel to it, William Loomis--known to everyone at the firm as Bill--decided the time had come to attempt the impossible: modernize Lazard. Not that he had any special qualifications for the job, other than the desire to do it. Tall and handsome, he looked like a slightly less angular version of the late writer George Plimpton, which gave him a somewhat ministerial air. Some of the partners referred to him as the Vicar, while the younger bankers called him Lurch. According to the Financial Times, Loomis "spent part of his youth hanging out with Muslim rebels in the Sulu Sea, off the Philippines, and wandering through Asia on a grant to write fiction in the style of Somerset Maugham." Loomis once elaborated on this phase of his life in a letter he wrote to a young Lazard associate after he resigned. "At the risk of intruding on your personal life, I'd like to offer a couple of observations," he wrote in 1988. "Some of your frustration I may have avoided by flying to Afghanistan on graduation from college, with an Olivetti portable typewriter and a change of Khaki pants, only to emerge by freighter from Borneo a year later. Having spent time previously in India, I already knew that the Peace Corps was the U.S. Army of altruism. I never considered graduate school, architecture or otherwise, as a substitute for dusty Jeep rides, shooting with a Pathan tribesman or small boats in the Sulu Sea. In short, I forgot about my resume and decided I would figure out a career later."
Like the firm he loved, Loomis's often enigmatic and inscrutable behavior masked his ambition. Loomis worked in New York until around 1980, became "the world's best associate," and was outspoken about the need to improve the pay and the training of the younger Lazard bankers, all of whom he thought were underpaid, compared with Lehman, and had no idea what was expected of them to become a partner. In need of a "new experience," though, and frustrated by Michel's decision not to make any new partners for the time being, Loomis asked Michel if he could go to Hong Kong with Steve Oliver to start an advisory business there. "I was concerned that I was ever more expert at analysis and at observing partners but not having the opportunity to develop the client skills which would be needed when I was a partner later," Loomis explained. East Asia Partners, as it was called--Michel wouldn't allow them to use the Lazard name--was 20 percent owned by each of the Lazard houses, with the balance being owned by the C. V. Starr affiliate of AIG, the big insurer, and by Loomis and Oliver themselves. After two years, Lazard bought AIG's stake in the business. All parties did "okay," Loomis said, but the business wasn't "important" or much supported by Lazard.
Meanwhile, in New York, Lazard's M&A business was booming. Loomis wanted back into the action. He returned to New York, and as of January 1, 1984, became a partner. Almost immediately, he began discussing with Michel and Felix ways to improve "organizational discipline." Loomis was partial to writing detailed, often passionate memos to Michel and Felix about his ideas for the firm. In an early missive, he made the heretofore-unheard-of argument that Michel needed to appoint one partner to coordinate the assignments for and evaluations of the junior professionals, including the making of all hiring and firing decisions for these bankers. This task, Loomis supposed, would take about half of the chosen partner's time. He volunteered for the job. As he saw it, his mandate would be to coordinate all staffing of associates on M&A deals, requiring partners to go through him--Felix's recommendation--as new assignments came up, as opposed to going directly to their favorite associates, as had been the custom. He also described the need to quickly "weed out" a handful of poorly performing associates and to hire replacements, of higher quality, "aggressively."
Loomis, correctly, foresaw looming danger for him as he set about breaking the thick glass of inertia at the firm. The memo to Michel was liberally sprinkled with caution flags. "Anyone who does this job will be subject to a lot of pressure and criticism," he wrote, adding parenthetically, "Whenever a partner is unable to have four people in Kansas City on a Tuesday, the person co-ordinating assignments will be the focus of direct and indirect criticism." With regard to assigning associates to deals, he asked for "the authority I need to intercede forcefully in the interest of priorities, balancing work etc. All of this involves consulting partners and senior associates, but at the end of the day, the system won't work if going around me is an easy alternative for people. (This is more of an issue at the outset when people will try it.)" And as for hiring people, Loomis wrote, "As long as I do this job, I don't want anybody hired informally by others without consulting me before a job offer is made. It is counterproductive to have inefficient people leave only to be replaced by other weak people."
In the wake of the numerous breaches of ethics and judgment that Lazard had just suffered as a result of Michel's laissez-faire management style, it was hard for Michel--or anyone else at the firm for that matter--to argue that the disciplines and controls were not necessary. In fact, they were needed, desperately. The firm had grown, but the internal systems had not kept pace. Michel moved Loomis's office to be near his on the thirty-second floor of One Rockefeller Plaza so they could speak regularly. But this being Lazard, the boldness of Loomis's approach caused some to begin to lay traps for him. Felix, for one, didn't want to run the firm, of course, but was none too happy when someone else stepped into the vacuum to try to run it, either. And neither Felix nor Mezzacappa was particularly pleased that Loomis had increasingly unfettered access to Michel.
WHILE LOOMIS TILTED at these internal windmills, Felix kept his focus on his high profile and on his high-profile deals. One of the more notorious deals at the time was Ron Perelman's 1985 bold and successful hostile bid to take over Revlon, the cosmetics company. Felix represented Revlon, thanks to his enduring friendship with its CEO, Michel Bergerac, a Frenchman whom Felix had met when Bergerac was one of Geneen's top lieutenants at ITT. While far from the biggest deal, at a mere $1.83 billion, the Perelman-Revlon fight seemed to have it all: an upstart corporate raider, using money borrowed with the help of Michael Milken, trying to buy one of the world's best-known consumer brands, versus a proud corporate pillar, run by a sophisticated Frenchman, desperately hoping to avoid his clutches. The process dragged on for months, with Bergerac and Felix bringing in Forstmann Little, the buyout firm, to put together a competing bid. At each turn, Perelman and Milken raised their price until finally the Delaware Supreme Court ruled that Revlon had put itself up for sale and had to sell itself to the highest bidder--the precedent forever more known as being in Revlon Mode--which turned out to be Perelman. "This damn thing turned into World War III," commented one of Perelman's lawyers at the time. The fight had cost Perelman $500 million more than he originally offered for the Revlon shares. (He still owns Revlon, but it has been one of his poorer investments.) And of course, the deal was an investment banking fee bonanza. Lazard was paid $11 million for its advice to Revlon, one of its largest fees ever to that point. But this was chump change compared with the $60 million Milken's firm, Drexel Burnham, pulled out for financing Perelman's deal and the $30 million Morgan Stanley received for advising Perelman and selling off some of Revlon's assets. "It's the deal of the century," one banker said at the time.
If that were the case, it was not for long. A little more than a month after Perelman won Revlon, GE announced that it was buying RCA, a longtime Lazard client, for $6.3 billion in cash, plus the assumption of debt. The GE-RCA deal was, to that moment, the largest non-oil deal in corporate history and reunited RCA with the company that started it some fifty-five years earlier. The combination was a corporate bombshell and has turned out to be one of the most successful mergers of all time, as NBC remains one of GE's most important assets. And it was Felix who got the ball rolling on the deal. He was "a regular breakfast companion" of Jack Welch, the GE chairman and CEO, although Lazard was not GE's banker. And of course, since Andre first wooed David Sarnoff with a $100,000 check to the UJA, Lazard had always been close to RCA and had a board seat for many years. Welch asked Felix
at a breakfast in October 1985 to arrange a meeting for him with Thornton Bradshaw, the chairman of RCA. Felix happily complied (for this is an investment banker's dream, no matter how jaded). Cocktails were arranged between Welch and Bradshaw at Felix's apartment for the afternoon of November 6.
The landmark deal was announced a mere thirty-six days later after the usual furtive negotiations over price and legal terms. At one point, on a Saturday late in the negotiations, Felix took the Concorde to Paris to visit his ailing mother. He returned the next day to resume his position. There was lavish front-page coverage of the deal in both the Times and the Wall Street Journal, highlighting Felix's role in bringing the two sides together. A week later, Time weighed in with a rare business cover story, "Merger Tango," about this deal and others. Felix sat down with the magazine's editors and, in typical fashion, again criticized his profession for potentially endangering the country's financial system. "Today things are getting badly out of hand," he said. Although soon enough he would be wooing Perelman, he railed against Perelman-style takeovers, financed by junk bonds and "excessive risk taking." He called on the government to help. "The integrity of our securities markets and the soundness of our financial system are vital national assets that are being eroded today," he testified before the Senate in December 1985. "Actions are required to help them." And he offered any number of solutions to help ward off the impending disaster. "The way we are going will destroy all of us in this business," he told the Time editors. "Someday there is going to be a major recession, major scandals. All of us may be sitting in front of congressional committees trying to explain what we were doing."
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