4.
The old-line Wall Street law firms had a very specific idea about what it was that they did. They were corporate lawyers. They represented the country’s largest and most prestigious companies, and “represented” meant they handled the taxes and the legal work behind the issuing of stocks and bonds and made sure their clients did not run afoul of federal regulators. They did not do litigation; that is, very few of them had a division dedicated to defending and filing lawsuits. As Paul Cravath, one of the founders of Cravath, Swaine and Moore, the very whitest of the white-shoe firms, once put it, the lawyer’s job was to settle disputes in the conference room, not in the courtroom. “Among my classmates at Harvard, the thing that bright young guys did was securities work or tax,” another white-shoe partner remembers. “Those were the distinguished fields. Litigation was for hams, not for serious people. Corporations just didn’t sue each other in those days.”
What the old-line firms also did not do was involve themselves in hostile corporate takeovers. It’s hard to imagine today, when corporate raiders and private-equity firms are constantly swallowing up one company after another, but until the 1970s, it was considered scandalous for one company to buy another company without the target agreeing to be bought. Places like Mudge Rose and the other establishment firms on Wall Street would not touch those kinds of deals.
“The problem with hostile takeovers is that they were hostile,” says Steven Brill, who founded the trade magazine American Lawyer. “It wasn’t gentlemanly. If your best buddy from Princeton is the CEO of Company X, and he’s been coasting for a long time, and some corporate raider shows up and says this company sucks, it makes you uncomfortable. You think, If he goes, then maybe I go too. It’s this whole notion of not upsetting the basic calm and stable order of things.”*
The work that “came in the door” to the generation of Jewish lawyers from the Bronx and Brooklyn in the 1950s and 1960s, then, was the work the white-shoe firms disdained: litigation and, more important, “proxy fights,” which were the legal maneuvers at the center of any hostile-takeover bid. An investor would take an interest in a company; he would denounce the management as incompetent and send letters to shareholders, trying to get them to give him their “proxy” so he could vote out the firm’s executives. And to run the proxy fight, the only lawyer the investor could get was someone like Joe Flom.
In Skadden, the legal historian Lincoln Caplan describes that early world of takeovers:
The winner of a proxy contest was determined in the snake pit. (Officially, it was called the counting room.) Lawyers for each side met with inspectors of elections, whose job it was to approve or eliminate questionable proxies. The event was often informal, contentious and unruly. Adversaries were sometimes in T-shirts, eating watermelon or sharing a bottle of scotch. In rare cases, the results of the snake pit could swing the outcome of a contest and turn on a single ballot.
Lawyers occasionally tried to fix an election by engineering the appointment of inspectors who were beholden to them; inspectors commonly smoked cigars provided by each side. Management’s lawyer would contest the proxies of the insurgents (“I challenge this!”) and vice versa....Lawyers who prevailed in the snake pit excelled at winging it. There were lawyers who knew more about the rules of proxy contests, but no one was better in a fight than Joe Flom...
Flom was fat (a hundred pounds overweight then, one lawyer said...), physically unattractive (to a partner, he resembled a frog), and indifferent to social niceties (he would fart in public or jab a cigar close to the face of someone he was talking to, without apology). But in the judgment of colleagues and of some adversaries, his will to win was unsurpassed and he was often masterful.
The white-shoe law firms would call in Flom as well whenever some corporate raider made a run at one of their establishment clients. They wouldn’t touch the case. But they were happy to outsource it to Skadden, Arps. “Flom’s early specialty was proxy fights, and that was not what we did, just like we don’t do matrimonial work,” said Robert Rifkind, a longtime partner at Cravath, Swaine and Moore. “And therefore we purported not to know about it. I remember once we had an issue involving a proxy fight, and one of my senior corporate partners said, Well, let’s get Joe in. And he came to a conference room, and we all sat around and described the problem and he told us what to do and he left. And I said, ‘We can do that too, you know.’ And the partner said, ‘No, no, no, you can’t. We’re not going to do that.’ It was just that we didn’t do it.”
Then came the 1970s. The old aversion to lawsuits fell by the wayside. It became easier to borrow money. Federal regulations were relaxed. Markets became internationalized. Investors became more aggressive, and the result was a boom in the number and size of corporate takeovers. “In nineteen eighty, if you went to the Business Roundtable [the association of major American corporate executives] and took surveys about whether hostile takeovers should be allowed, two-thirds would have said no,” Flom said. “Now, the vote would be almost unanimously yes.” Companies needed to be defended against lawsuits from rivals. Hostile suitors needed to be beaten back. Investors who wanted to devour unwilling targets needed help with their legal strategy, and shareholders needed formal representation. The dollar figures involved were enormous. From the mid-1970s to the end of the 1980s, the amount of money involved in mergers and acquisitions every year on Wall Street increased 2,000 percent, peaking at almost a quarter of a trillion dollars.
All of a sudden the things that the old-line law firms didn’t want to do—hostile takeovers and litigation—were the things that every law firm wanted to do. And who was the expert in these two suddenly critical areas of law? The once marginal, second-tier law firms started by the people who couldn’t get jobs at the downtown firms ten and fifteen years earlier.
“[The white-shoe firms] thought hostile takeovers were beneath contempt until relatively late in the game, and until they decided that, hey, maybe we ought to be in that business, they left me alone,” Flom said. “And once you get the reputation for doing that kind of work, the business comes to you first.”
Think of how similar this is to the stories of Bill Joy and Bill Gates. Both of them toiled away in a relatively obscure field without any great hopes for worldly success. But then—boom!—the personal computer revolution happened, and they had their ten thousand hours in. They were ready. Flom had the same experience. For twenty years he perfected his craft at Skadden, Arps. Then the world changed and he was ready. He didn’t triumph over adversity. Instead, what started out as adversity ended up being an opportunity.
“It’s not that those guys were smarter lawyers than anyone else,” Rifkind says. “It’s that they had a skill that they had been working on for years that was suddenly very valuable.”*
Lesson Number Two: Demographic Luck
5.
Maurice Janklow enrolled in Brooklyn Law School in 1919. He was the eldest son of Jewish immigrants from Romania. He had seven brothers and sisters. One ended up running a small department store in Brooklyn. Two others were in the haberdashery business, one had a graphic design studio, another made feather hats, and another worked in the finance department at Tishman Realty.
Maurice, however, was the family intellectual, the only one to go to college. He got his law degree and set up a practice on Court Street in downtown Brooklyn. He was an elegant man who dressed in a homburg and Brooks Brothers suits. In the summer, he wore a straw boater. He married the very beautiful Lillian Levantin, who was the daughter of a prominent Talmudist. He drove a big car. He moved to Queens. He and a partner then took over a writing-paper business that gave every indication of making a fortune.
Here was a man who looked, for all the world, like the kind of person who should thrive as a lawyer in New York City. He was intelligent and educated. He came from a family well schooled in the rules of the system. He was living in the most economically vibrant city in the world. But here is the strange thing: it never happened. Maurice Janklow’s c
areer did not take off the way that he’d hoped. In his mind, he never really made it beyond Court Street in Brooklyn. He struggled and floundered.
Maurice Janklow had a son named Mort, however, who became a lawyer as well, and the son’s story is very different from that of the father. Mort Janklow built a law firm from scratch in the 1960s, then put together one of the very earliest cable television franchises and sold it for a fortune to Cox Broadcasting. He started a literary agency in the 1970s, and it is today one of the most prestigious in the world.* He has his own plane. Every dream that eluded the father was fulfilled by the son.
Why did Mort Janklow succeed where Maurice Janklow did not? There are, of course, a hundred potential answers to that question. But let’s take a page from the analysis of the business tycoons born in the 1830s and the software programmers born in 1955 and look at the differences between the two Janklows in terms of their generation. Is there a perfect time for a New York Jewish lawyer to be born? It turns out there is, and this same fact that helps explain Mort Janklow’s success is the second key to Joe Flom’s success as well.
6.
Lewis Terman’s genius study, as you will recall from the chapter about Chris Langan, was an investigation into how some children with really high IQs who were born between 1903 and 1917 turned out as adults. And the study found that there was a group of real successes and there was a group of real failures, and that the successes were far more likely to have come from wealthier families. In that sense, the Terman study underscores the argument Annette Lareau makes, that what your parents do for a living, and the assumptions that accompany the class your parents belong to, matter.
There’s another way to break down the Terman results, though, and that’s by when the Termites were born. If you divide the Termites into two groups, with those born between 1903 and 1911 on one side, and those between 1912 and 1917 on the other, it turns out that the Terman failures are far more likely to have been born in the earlier group.
The explanation has to do with two of the great cataclysmic events of the twentieth century: the Great Depression and World War II. If you were born after 1912—say, in 1915—you got out of college after the worst of the Depression was over, and you were drafted at a young enough age that going away to war for three or four years was as much an opportunity as it was a disruption (provided you weren’t killed, of course).
The Termites born before 1911, though, graduated from college at the height of the Depression, when job opportunities were scarce, and they were already in their late thirties when the Second World War hit, meaning that when they were drafted, they had to disrupt careers and families and adult lives that were already well under way. To have been born before 1911 is to have been demographically unlucky. The most devastating events of the twentieth century hit you at exactly the wrong time.
This same demographic logic applies to Jewish lawyers in New York like Maurice Janklow. The doors were closed to them at the big downtown law firms. So they were overwhelmingly solo practitioners, handling wills and divorces and contracts and minor disputes, and in the Depression the work of the solo practitioner all but disappeared. “Nearly half of the members of the metropolitan bar earned less than the minimum subsistence level for American families,” Jerold Auerbach writes of the Depression years in New York. “One year later 1,500 lawyers were prepared to take the pauper’s oath to qualify for work relief. Jewish lawyers (approximately one-half of the metropolitan bar) discovered that their practice had become a ‘dignified road to starvation.’” Regardless of the number of years they had spent in practice, their income was “strikingly less” than that of their Christian colleagues. Maurice Janklow was born in 1902. When the Depression started, he was newly married and had just bought his big car, moved to Queens, and made his great gamble on the writing-paper business. His timing could not have been worse.
“He was going to make a fortune,” Mort Janklow says of his father. “But the Depression killed him economically. He didn’t have any reserves, and he had no family to fall back on. And from then on, he became very much a scrivener-type lawyer. He didn’t have the courage to take risks after that. It was too much for him. My father used to close titles for twenty-five dollars. He had a friend who worked at the Jamaica Savings Bank who would throw him some business. He would kill himself for twenty-five bucks, doing the whole closing, title reports. For twenty-five bucks!
“I can remember my father and mother in the morning,” Janklow continued. “He would say to her, ‘I got a dollar seventy-five. I need ten cents for the bus, ten cents for the subway, a quarter for a sandwich,’ and he would give her the rest. They were that close to the edge.”
7.
Now contrast that experience with the experience of someone who, like Mort Janklow, was born in the 1930s.
Take a look at the following chart, which shows the birthrates in the United States from 1910 to 1950. In 1915, there are almost three million babies. In 1935, that number drops by almost six hundred thousand, and then, within a decade and a half, the number is back over three million again. To put it in more precise terms, for every thousand Americans, there were 29.5 babies born in 1915; 18.7 babies born in 1935; and 24.1 babies born in 1950. The decade of the 1930s is what is called a “demographic trough.” In response to the economic hardship of the Depression, families simply stopped having children, and as a result, the generation born during that decade was markedly smaller than both the generation that preceded it and the generation that immediately followed it.
YearTotal BirthsBirths per 1,000
1910 2,777,000 30.1
1915 2,965,000 29.5
1920 2,950,000 27.7
1925 2,909,000 25.1
1930 2,618,000 21.3
1935 2,377,000 18.7
1940 2,559,000 19.4
1945 2,858,000 20.4
1950 3,632,000 24.1
Here is what the economist H. Scott Gordon once wrote about the particular benefits of being one of those people born in a small generation:
When he opens his eyes for the first time, it is in a spacious hospital, well-appointed to serve the wave that preceded him. The staff is generous with their time, since they have little to do while they ride out the brief period of calm until the next wave hits. When he comes to school age, the magnificent buildings are already there to receive him; the ample staff of teachers welcomes him with open arms. In high school, the basketball team is not as good as it was but there is no problem getting time on the gymnasium floor. The university is a delightful place; lots of room in the classes and residences, no crowding in the cafeteria, and the professors are solicitous. Then he hits the job market. The supply of new entrants is low, and the demand is high, because there is a large wave coming behind him providing a strong demand for the goods and services of his potential employers.
In New York City, the early 1930s cohort was so small that class sizes were at least half of what they had been twenty-five years earlier. The schools were new, built for the big generation that had come before, and the teachers had what in the Depression was considered a high-status job.
“The New York City public schools of the 1940s were considered the best schools in the country,” says Diane Ravitch, a professor at New York University who has written widely on the city’s educational history. “There was this generation of educators in the thirties and forties who would have been in another time and place college professors. They were brilliant, but they couldn’t get the jobs they wanted, and public teaching was what they did because it was security and it had a pension and you didn’t get laid off.”
The same dynamic benefited the members of that generation when they went off to college. Here is Ted Friedman, one of the top litigators in New York in the 1970s and 1980s. Like Flom, he grew up poor, the child of struggling Jewish immigrants.
“My options were City College and the University of Michigan,” Friedman said. City College was free, and Michigan—then, as now, one of the top universities in the U
nited States—was $450 a year. “And the thing was, after the first year, you could get a scholarship if your grades were high,” Friedman said. “So it was only the first year I had to pay that, if I did well.” Friedman’s first inclination was to stay in New York. “Well, I went to City College for one day, I didn’t like it. I thought, This is going to be four more years of Bronx Science [the high school he had attended], and came home, packed my bags, and hitchhiked to Ann Arbor.” He went on:
I had a couple of hundred dollars in my pocket from the summer. I was working the Catskills to make enough money to pay the four-hundred-fifty-dollar tuition, and I had some left over. Then there was this fancy restaurant in Ann Arbor where I got a job waiting tables. I also worked the night shift at River Rouge, the big Ford plant. That was real money. It wasn’t so hard to get that job. The factories were looking for people. I had another job too, which paid me the best pay I ever had before I became a lawyer, which was working in construction. During the summer, in Ann Arbor, we built the Chrysler proving grounds. I worked there a few summers during law school. Those jobs were really high paying, probably because you worked so much overtime.
Think about this story for a moment. The first lesson is that Friedman was willing to work hard, take responsibility for himself, and put himself through school. But the second, perhaps more important lesson is that he happened to come along at a time in America when if you were willing to work hard, you could take responsibility for yourself and put yourself through school. Friedman was, at the time, what we would today call “economically disadvantaged.” He was an inner-city kid from the Bronx, neither of whose parents went to college. But look at how easy it was for him to get a good education. He graduated from his public high school in New York at a time when New York City public schools were the envy of the world. His first option, City College, was free, and his second option, the University of Michigan, cost just $450—and the admissions process was casual enough, apparently, that he could try one school one day and the other the next.
Outliers Page 10
