Evans then went to the Gare du Nord, rode the train back to London with his partner William Rucker, and had "three hours to chew on this remarkable piece of theatre." They agreed the Loomis plan was a "pretty bizarre scheme" since all it did was lock up 20 percent of the firm and replace one group of capitalists with another one. There was also the problem, which "will cause comment," that thirteen of the twenty-three names on the list were American and only two were French.
The bigger problem, though, was Loomis's new demeanor. "Bill's behaviour is quite against the grain of the executive committee," Evans later wrote. "To date, it has been collegiate, deliberative, conservative (and, admittedly, pretty ineffectual). This new approach is Bill out in front giving instructions. It is quite hard to see how he handles his next move. I suspect that he will regret going quite so far." Verey's view was that to give "until death" equity to working partners would lead quickly and inevitably to either a sale or an IPO because to "monetize or to refresh" that 20 percent will require "outsiders" to come in. Verey was also depressed because, after leading Lazard Brothers successfully for ten years, he now had "no real focus in the new Lazard." He said he would rather resign "at whatever cost to himself" than watch Lazard be sold because of an ill-considered equity plan. Evans recalled: "He simply could not face all the people he had hired, had talked to and to whom he had expressed the Lazard ideal: an independent firm run by independent men." Evans cautioned him to spend some time in "calm reflection" and "leave the ball at Bill's feet." The firm seemed to be unraveling.
A few days later, after the members of the executive committee had had a chance to digest the events in Paris, the consensus was that the meeting was "unacceptable," "divisive," and "potentially destructive of the firm." The executive committee members, without consulting Loomis, decided to schedule a follow-up meeting before the next regularly scheduled one. This was done through Loomis's secretary as Loomis had gone on vacation after the meeting in Paris. With Evans as his editor, Verey sent a letter to Michel and Loomis, observing that the meeting in Paris was "unfortunate," that his loyalty to the firm after thirty years could not be "bought or sold," that the proposed equity plan was the "first step" to selling Lazard, and that therefore the firm should be sold "properly." He also said Loomis's unilateral appointment of the three new executive committee members was "unacceptable." The committee members were still reeling from Loomis's unilateral override of the negative Haigney vote. When Loomis found out about the unscheduled executive committee meeting, he was livid. He spoke with Michel, and together they made calls to the French partners, in a successful effort to divide the Europeans. Whatever they said or promised worked; the special session was canceled.
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.
But even this relatively straightforward move set off a firestorm of protest inside the firm. Much of the frustration boiled over into Internet chat rooms, the new, albeit anonymous and sophomoric, outlet for mounting employee frustrations, regardless of industry. "We see the writing on the wall," one employee commented in March. "Is this the beginning of the end?????????? Lazard N.Y. MAY GO DOWN LIKE THE TITANIC!!!!!" "Lazard is being sold this year!!!" screamed the headline of another anonymous writer. "Due to the fact that MDW is now going to retire and no one in his family is willing to inherit Lazard's financial problems and managerial conflicts...This has been in the works for a long time; just look at the history of former well known MDs that left a while back, they knew and got the fuck out of here. For those of you stuck there like me run, run as fast as you can." Another warned a few days l
ater, "In the next two weeks, all departments at Lazard will get hit: Trading, banking, asset management; specifically, departments like high yield, fixed income, accounts payable etc. Take it from me, no one is safe. Play it safe people and start getting those resumes out there and start loading up on the office supplies."
Morale at the firm, always low, dropped even further. "There are rumors of layoffs but no one has been laid off yet," another banker said. "That creates a level of panic that will not subside until they are made or it is made clear that they will not be made. This is coupled with markedly slower deal flow in M&A from a year ago across the Street. Furthermore, there are rumors that Lazard is being sold.... Right now, there is a level of group panic about something that could be very real and very ugly." Another disgruntled employee confided, "First of all for those support staff who have lost jobs and are supporting families, I am truly sorry. It is a shame that no managing director at Lazard has spine or soul enough to put down their martini and request a pay cut. I think it is about time that Lazard realizes where the true fat of the company lay. All the money in the world apparently can not buy common sense." A current employee, "getting his CV ready," wrote: "Lazard's reputation as an elite company has evaporated. Go in and talk to the employees. Take a look around. All that's left is a bunch of sheep headed for the slaughter. Lazard is like all the rest. No longer exclusive, simply common." Another wrote, "Imagine being in the middle of the ocean with a pair of cement shoes and an anchor around your waist. How would you feel? HOPELESS. That's what it feels like to be at Lazard." Another, fired employee was ecstatic. "I got a call from Bill Loomis last week and had to call friends to arrange a party before going down to his office," he wrote. "If they had been asking for volunteers to show up at Loomis' office I would have camped out all night to be first in line. While the poor people at Lazard go into their offices everyday and sit and pretend that Lazard has business, I will be in Africa for three months (still getting paid) before starting my new job in July." On a scale of one to ten, one banker claimed morale was minus ten. "It is shit," he wrote. "Imagine that every week you have to come into work wondering if the boss likes you or not (not based on any criteria but the closeness of your nose to his ass). On Tuesday everyone sweats, and no one is working. Why should we? Those wimps don't have the balls to do it at once. This has nothing to do with the market. They must have known for a while, but were too chicken to do it at one time. Typical."
The last tycoons: the secret history of Lazard Frères & Co Page 70
