As an additional move in that direction, in 1996 the three houses agreed to share some of their profits, although many of the bankers in London felt the tax consequences of this arrangement were most painful for them. "Sooner or later," Michel said, "Lazard is going to be the Holy Trinity. It will be three and it will be one." (The Holy Trinity concept, reflective of Michel's Catholic upbringing, became a mantra for him during the next few years.) Michel allowed that he had a plan for how this would work as well. To wit, Eurafrance, a private-equity firm controlled by Michel and some of his French partners, might be willing to swap its accumulated PS360 million stake in Pearson for Pearson's stakes in Lazard Partners and the New York and Paris partnerships should Pearson's new CEO, the American Marjorie Scardino, decide to sell Pearson's Lazard stake as had been rumored. Michel, the longest-serving Pearson board member, would certainly have been in a position to know Scardino's thinking. He had always maintained that his stake in Pearson, accumulated over the years in the face of repeated takeover attempts by Rupert Murdoch, would be an insurance policy against an undesired outcome on the day Pearson decided to sell its Lazard stake. And that day appeared increasingly close at hand.
With the Lazard rumor mill now churning furiously with the speculation that Felix would soon be appointed ambassador to France and with the blowup between Michel and Edouard all but confirmed, the writer Suzanna Andrews struck again. In a lengthy profile, wittily titled "The Scion in Winter," in the March 1997 issue of Vanity Fair, Michel, "as charming as he is feared," sat for "an unprecedented interview" and talked about his growing set of problems. Also dredged up again was Michel's ongoing affair with Margo Walker. Essentially, Andrews blamed Michel for Lazard's many predicaments--among them, the altercation with Edouard, the horrific publicity about Felix and Steve, and Antoine Bernheim's desire to leave the Paris firm. "Michel is in a very tight spot," a "prominent" unnamed banker told Andrews. "He tends to minimize things, but this is very serious if he cares about his birthright." Another man offered a similar assessment: "Michel always tries to put the best face on things, but I think he's very worried that Edouard blew himself up on the launching pad, that Messier left, that Rattner is not committed. Michel made a mistake in allowing this culture to evolve where everyone is at everyone's throat every day, but I think that today he is trying to fix it."
Andrews described two Michels: the one seen most often, who is unfailingly gracious with his time--for instance, taking hours to meet with prospective new partners or clients to gab about art or politics--and the one who delights in pitting partner against partner to ensure his own importance and who relishes thwarting the efforts of onetime clients who dared not use Lazard for their M&A deals. The latter Michel was described as chilling, mean, and manipulative. "His joy is power and exercising power," said an executive who had known Michel for years. "Be careful with him," added another, "he is blindingly ruthless." But the revelation is that--in 1997 no less--this was any kind of revelation at all. The dirty little secret of the uber-Darwinian world of investment banking has always been how charming, patient, and solicitous investment bankers are with their clients, the press, and attractive women and how petty, insecure, backstabbing, and, yes, ruthless they are with one another. The number of eviscerated colleagues an investment banker at the top of his profession has had to trample would make a marine wince. Leave it to the literary polymath Thomas Pynchon and one of his iconoclastic characters, in a cameo, to properly deride this behavior: "Those whose enduring object is power in the world are only too happy to use without remorse the others, whose aim is of course to transcend all questions of power. Each regards the other as a pack of deluded fools."
Michel told Andrews he intended to be running Lazard for a good while, no doubt tweaking those partners who believed his inability to relinquish power had held the firm back. They were together in Michel's sumptuous, art-filled Fifth Avenue apartment--the first time he had invited a member of the press there. "There is a fashion," he said, cigar smoke swirling around him, "that I think comes from the fact that people's minds are used to public-corporation people retiring. I have no intention of retiring. When I became a partner in 1961, Andre Meyer was 63. When I became co-senior partner in 1977, he was 79. OK? So I think that gives me a long time."
Not surprisingly, Michel tried to influence Andrews's article by letting her know from the outset, just as she was about to cross the threshold into the apartment, that he was not pleased with her New York magazine article. "He said it was a disappointment to have read it," she recalled. "He looked at me and his eyebrow went up. He told me he had expected so much better of me. 'It was all so beneath you' is what he said." Some of Michel's partners thought the Vanity Fair article was simply too much--too much exposure, too much confessing, too much Michel. "For some reason, he decided to do this article in Vanity Fair," said one partner. "And it talked all about Lazard, his personal life, his two wives--his wife and his girlfriend--all his homes, his relationship with his kids. All this stuff which we were shocked at. Here's this private guy, and it caused, I mean, you know, I just remember Felix saying this on so many different occasions that Michel had lost it. You could date the day that Michel lost it to that Vanity Fair article. It was the first time, I think, Michel had put himself above any of the other partners in the United States in terms of visibility. And that, I think, was something which really bothered Felix."
Regardless of what his partners thought, Michel was true to his word. Six weeks later, Edouard was gone. On the very same day that President Clinton announced Felix's nomination as ambassador to France, stories emerged in the French press that Stern would leave the firm to start his own investment company, with some of the money coming from Lazard. Official word of Edouard's departure came on May 1, 1997. He had been removed as a general partner and retained only a small, limited partnership stake in Lazard Paris. His new firm, based in Geneva with offices in Paris and New York, was awkwardly named Investments Real Returns, or IRR for short--a play on the basic private-equity concept of internal rate of return. IRR started with $600 million to invest, $300 million from what is now Eurazeo, the large publicly-traded private-equity fund in France controlled by Michel (and formed by the merger of Eurafrance with Azeo), and $300 million from Edouard and his friends. "Edouard has great and real talent as an investor," Michel explained at the time. In effect, though, the $300 million from Eurazeo was the price Lazard paid for having Edouard leave peacefully and not pursue a threatened lawsuit. "He always made money when he left places," Michel said. At this very moment, unbeknownst to all, Edouard and Beatrice had decided to divorce. Indeed, they kept news of the split quiet for "several months"--even from Michel--to avoid having it interfere with Edouard's arrangements to leave the firm. Beatrice remained living on Central Park West, in New York, with their three school-age children, Mathilde, Louis, and Henry. Edouard moved to Geneva, but he also owned an apartment in Paris and a chateau in the French countryside where he kept the taxi-dermic evidence of his big-game-hunting episodes.
As the news of their split slowly leaked out--although the news of their actual divorce remained very well hidden for years--the Lazard conspiracy theorists speculated that Edouard had married Beatrice only to get close to Michel and advance his professional aspirations. This speculation merely intensified after Edouard's unsuccessful Thanksgiving putsch and his split with Beatrice. But in truth, he remained a devoted father to his children, visiting them often in New York. He also spoke with them, as well as Beatrice, nearly every day, and they all took vacations together. After their divorce, he told his sister: "I love and respect Beatrice. She is raising my children. She brings a lot to me."
With regard to Felix's appointment as ambassador to France, Michel issued a statement to the press: "Felix Rohatyn has been my partner for over 35 years and it is with great emotion that I congratulate him on this important news. Felix has been a superb and important part of this firm and this news recognizes his leadership, insights and a great love of hi
s country. We wish him every success."
CHAPTER 16
"ALL THE RESPONSIBILITY BUT NONE OF THE AUTHORITY"
With Edouard gone and Felix soon to be, there was the usual speculation in the press about who would fill Lazard's leadership vacuum. But inside the firm, surprisingly, a certain contentment reigned. Nineteen ninety-six had been the firm's best year ever, financially, with pretax net income worldwide of $379 million, up from $357 million the previous year. Edouard had not been particularly focused on being a banker anyway, and his presence was more disruptive than anything else. He would not be especially missed. Felix's departure, meanwhile, though a big loss for sure, was also no surprise.
Indeed, rather than everyone bemoaning the turn of events, there was a sense that now was the time for the younger generation of partners to shine. Soon after Clinton nominated Felix and it was clear he was going to leave the firm, many of the senior partners, led by Steve, demanded that Michel meet with them to begin to figure out a way to loosen his autocratic grip on Lazard. "We demanded that he attend," one partner told Euromoney, "and in effect dragged him into the room and said we wanted him to know what we thought. We said: 'This is no way to run a railroad--it cannot go on like this!'"
The collected partners had three points to make to Michel: First, he should explain what he intended for Lazard's future, as there had been numerous rumors about his trying to once again recruit Bruce Wasserstein, then CEO of Wasserstein Perella & Co., to Lazard. The opposition to Bruce was particularly intense. "You don't understand who Bruce is," one banker recalled Michel being told. "He's not at all consistent with our firm's culture." Second, the partners wanted to end Michel's secretive machinations, whether cutting separate deals with individual partners or bringing in his son-in-law Edouard Stern and acting as if he were the anointed successor. Third, the partners expressed doubts about Michel being able to continue to run the firm single-handedly, a tack that during the previous decade had led to lax controls and unprofessional behavior. (The firm still had to settle the two pieces of the municipal finance scandal, which promised to be costly.)
Michel had another plan, though, just as some of his partners feared. One day around this time, while having lunch at the "21" Club, he saw Wasserstein sitting across the dining room. Bruce's office at Wasserstein Perella was just a hundred yards west of "21," and the restaurant had become his cafeteria. For rainmakers like Felix, Steve, and Bruce a power lunch at the Four Seasons, "21," or that ilk was a chance to show off their plumage. They tended to pick a place, and then become regulars, to ensure appropriately fawning behavior. At these spots, one wag observed, "the pecking order is measured not by what you eat but rather with whom you eat and what direction you face." Another favorite lunch spot for the nonboldface Lazard partners was the secretive Rockefeller Center Club, founded in 1934 as part of the Rainbow Room complex on the sixty-fifth floor of 30 Rockefeller Center (now three floors above Lazard's offices). This was the ultimate--a scrumptious buffet of gourmet salads, fresh shrimp, and filet mignon, an uninterrupted view south of lower Manhattan, and the private companionship of numerous corporate CEOs and Wall Street bankers and attorneys. There was no bill or menu, just a warm greeting from the maitre d' and the quiet comfort of exclusivity. Maybe the appeal of the Rockefeller Center Club was nothing more complicated than Fitzgerald's observation of the "consoling proximity of millionaires." But Michel rarely ate outside the firm. Not only was such theater not his style, but also he had the best French chef in New York on his premises, so why bother going out? Indeed, one of the best places to dine on the planet may have been the quiet wood-paneled dining room at Lazard's office in Paris, on the Boulevard Haussmann. There, white-jacketed waiters breathlessly served the finest French wines and cuisine to a very fortunate few. And besides, Michel's lunchtime appetite often ran to nothing more sophisticated than a baguette slathered in French butter and salt.
That rare day at "21"--so the story goes--Bruce came up to Michel, and the two men spoke briefly. Bruce had confirmed an idea Michel had been mulling. When Michel came back to Rockefeller Center, he walked into Felix's office and announced: "We're going to try to merge with Wasserstein Perella." Felix was stunned--and appalled. While he thought there may have been some logic to hiring Bruce Wasserstein, Gary Parr (a highly regarded financial institutions banker), and a few other talented Wasserstein Perella bankers, with Lazard still under the cloud of ongoing federal investigations into its municipal finance department, a merger between the two firms--even if it could be negotiated and announced would never close. There was also the concern that the majority of the Wasserstein Perella bankers weren't up to Lazard's standards, and that even Bruce himself was not cut from the traditional mold of a Lazard banker, to say nothing of the fact that a full-blown merger with Bruce's firm would be a total slap in the face to the aspirations of the younger Lazard partners who had been waiting patiently for the very moment, now at hand, when Felix's departure, like the felling of a mighty old-growth Douglas fir, would allow a little sunlight to hit the forest floor. Furthermore, the word was that Wasserstein Perella had not been making any money. Add to that the fact that Lazard had never, ever grown through acquisition, and there were any number of compelling reasons why Michel's brainstorm was stillborn. Felix told Michel, "You can't merge with Wasserstein Perella, you know. There's 120 people or something like that."
But Mr. 4.1 pushed ahead anyway. A small group comprising Mel Heineman, the general counsel; Steve Golub, a partner who had once been the deputy chief accountant at the SEC; and Steve Niemczyk, a young partner who worked for Wilson in the FIG group, were secretly dispatched to review the books and records of Wasserstein Perella & Co. Felix and Ken Wilson were kept abreast of their findings. Steve Rattner was kept in the dark. "Felix was deeply skeptical," Wilson remembered. "When you looked at the business that Wasserstein was doing, I think their average fee was like $250,000. I mean, it was a lot of tiny deals, marginal people and offices. Their capital markets unit was a joke." Wilson said the due diligence revealed that the firm was running out of money and had little in the way of backlog or receivables. "They were a bunch of turkeys," he said. As word of the potential merger started to circulate around the firm, Wilson recommended to Michel that a partners' meeting be held to "get this on the table." On a Friday afternoon, Michel invited only a subset of New York's most important partners to an impromptu meeting in a conference room on the sixty-second floor of 30 Rockefeller Center to discuss the possibility of a merger. "There was good attendance," Wilson remembered, a wry little smile forming on his face. Another partner at the meeting said of Michel, "It took a two-by-four piece of wood to gain his attention, but at some point he woke up. Like all of us, he tried to push things under the rug. But sooner or later he became a realist. He realized he could not avoid the fact that he had a problem."
Michel kicked off the meeting by talking about the potential merger and about the cost savings that could result. But mostly he spoke about Bruce as the next Great Man of Lazard. Michel explained that Bruce had always loved Lazard and had conceived of Wasserstein Perella in Lazard's image. This was a chance to get Bruce, Michel told his partners. Incredibly, Michel had been so utterly indifferent to his partners' hopes and dreams that he dashed them completely by proposing this combination. Ken Wilson recalled that Michel's "views were so far from reality that it was time to go around the table" to get input from the other partners. Jerry Rosenfeld, who had been seated next to Michel, spoke first.
Wilson remembered Rosenfeld's comments as being quite blunt. "So he turns to Jerry," Wilson said. "Jerry says, 'This is the dumbest fucking deal I've ever heard of. There isn't a single one of those people we would ever hire. We would never take them off the street. It makes no fucking sense.' And the comments went downhill all the way around." Steve Rattner recalled that "one by one, everybody just laid into Michel and just let him have it right between the eyes." All parties remembered that after the negative consensus had formed--a rare showing o
f unity of the partners against Michel--the Sun King backed down. "Then I will not go forward," Michel said quietly. And just like that, the Wasserstein deal was dead. But despite this victory, to some partners the Rubicon had been crossed. "In response to these comments that Michel had made at the outset about the fit and everything else, they were just so far from reality that his credibility was shot," Wilson said. "And Bill Kneisel, [a partner] who I recruited [from Morgan Stanley], a good guy--and at the end of the meeting, I walked out with Bill. He turned to me, he said, 'You know, Wils,' he said, 'this emperor has no fucking clothes.' He said, 'I'm gonna watch a lotta football games with my son this fall, and I'm out of here.'" (He left soon afterward and returned to Morgan Stanley.) Wilson recalled that Kneisel's reaction was typical. "The average foot soldier left that meeting saying, 'What the hell is going on?' There was no logic for it. And when Michel tried to articulate it, it just sounded awful."
Steve was furious with Michel about the Wasserstein gambit. Not only had Michel not explicitly told him about what was happening; Michel denied there was anything to the rumors Steve had heard even after he went into Michel's office to ask him. "The next thing I know, he's locked in meetings with him," Steve explained. Felix, who was leaving regardless of the outcome, remembered the meeting as initiating "a real revolution inside the firm." Independently, Steve used the exact same word to describe what happened as a result of the confluence of Felix and Edouard leaving, Bruce being approached secretly, and the mushrooming cost to the firm of the municipal finance scandal (eventually the firm paid a whopping $100 million to settle all aspects of the scandal). "This was a revolution," he said. "This was not Michel's idea. Michel did not want this. He agreed to it grudgingly, but it was a revolution." The news of the Wasserstein discussions and their abandonment was leaked, without color, to the Wall Street Journal, which published the story on May 2, the day after Edouard left the firm.
The last tycoons: the secret history of Lazard Frères & Co Page 60
