On January 12, the time had come to implement the palace coup. It was decided that the cerebral Thain, a onetime protégé of Corzine’s, should be the one to deliver the bad news (again) to the former government bond trader. As part of the coup, Thornton and Thain were named co–chief operating officers under Paulson. It was perfectly Shakespearean. But Thain was extremely nervous about confronting Corzine with this decision and supposedly mumbled the words to him that he would have to go and the decision had been made. Corzine got pissed at him, forcing Paulson to double back and deliver the news to Corzine himself: Corzine needed to immediately give up the title of co-CEO but could remain at the firm as co-chairman with Paulson until the completion of the IPO, whenever that would be. After that, he needed to leave. “And that’s how it all worked,” explained the senior Goldman partner, matter-of-factly.
Corzine took the news hard, very hard. “He tends to be very emotional,” one partner remembered being told about Corzine’s reaction. “There were elephant tears and vomiting and things like that. But he got the message. He was very unhappy, but he took it like a man.”
Looking back, Corzine said he was blindsided by the turn of events, which seems somewhat hard to believe for a man with his political gifts. “I couldn’t quite understand why there so much dissidence but there was,” he said. “But most of it at the end of the day was about whether we went public, how we went public, and the timing of that issue. The tension just constantly festered underneath the surface, with the known characters on one side” and Corzine on the other.
Corzine said that perhaps he was too trusting of Thain—the quickly jettisoned former executor of his estate—and failed to conceive of the fact that he could turn on him. “I was devastated,” he said. He said he is still not sure why Thain changed his mind. “Maybe somebody whispered very sweet nothings in his ear,” Corzine said. “I don’t know. Maybe he was just convinced of the alternative strategy. I, frankly, never thought John Thain would ever turn, and by my calculation that gave me enough to protect myself.” One former Goldman partner said the coup came about because of raw, alpha-male Darwinian behavior. “It was just pure ambition between these guys about who was going to run the place,” he said. “And I thought the behavior, particularly of Thain, was just reprehensible. You know, Thain would just be one more guy if Corzine had not lifted him up and made him the important guy he is and he just absolutely stabbed the guy in the back. It was absolutely pathetic and it was just all about who was going to run the place and ambition and all that shit. Thain wanted to take over after Paulson.” For his part, Thain said, “Corzine and Paulson fought constantly and completely inappropriately and couldn’t get along, and they got to the point where they made us choose between the two of them.” His said his decision to support Paulson over Corzine was an exceedingly difficult one and ended his relationship with Corzine. “It was very hard for me because I was much closer to Corzine,” he said. “I had worked for him. I was closer to him personally. I liked him a lot as a person, but I had to pick who I thought would be the better long-term leader of the company, so that was a very hard decision to make.”
There are those who believe that Thain and Thornton were willing to make a deal with Corzine that would have saved Corzine his job: if Corzine had been willing to name Thain and Thornton the heirs apparent, they would have voted with him against Paulson and Hurst. But Corzine couldn’t make that deal. He didn’t feel the two men were ready, plus neither of them understood the trading side of the business as well as he figured they should. Besides, there was Lloyd Blankfein coming up fast in the leadership ranks of the firm. Whatever the reason, Corzine did not make the deal with Thain and Thornton and it cost him his job. “I may not be the smartest guy in the world,” he said. “But I’m certainly not the dumbest but I’m not the smartest. I knew you needed different perspectives in the management. The irony of all of this was I accelerated Thornton onto the management committee among his peers and obviously Thain before that. Their actions caused me great emotional frustration.”
“This Time, Shared Reins Didn’t Work at Goldman” read the headline in the New York Times the next day. The dissolution of the working partnership between Paulson and Corzine came as a “surprise” to many and was laid at the doorstep of the fact that, in the end, the two men didn’t like each other very much. “The biggest single factor here is that the two guys really did not get along with each other,” explained one partner. “Hank and Jon are not friends.” The Times observed that “the failure of Mr. Corzine and Mr. Paulson to bond together and become a close team” became “a liability,” especially with the news earlier in the week that Paulson thought the Goldman IPO would happen in 1999 and “Goldman’s top executives felt that they could not risk management instability while they were trying to sell the firm to the public.”
Observed the Financial News astutely, “The news that Jon Corzine had been abruptly pushed aside came as no surprise to experienced Goldman Sachs watchers. Never the most friendly of firms, the recent in-fighting at Goldman has reached new levels of ferocity. There are two principal reasons for the dissension. First, the failed IPO last summer. You would have to be a Goldman manager to understand the humiliation of having to withdraw the issue. Wall Street folklore says that Goldman Sachs never makes mistakes. Second, Goldman has suddenly realised that it is no longer the best investment bank in the world. This indignity is almost as embarrassing as fluffing the IPO. Goldman was always a cut above the rest, but now the firm is being run ragged by Morgan Stanley Dean Witter. With so much egg on their faces either Corzine or Hank Paulson had to go and it was no secret in London that outspoken investment banking superstar John Thornton was orchestrating a ‘night of the long knives.’ In the end, Corzine was made to walk the plank.”
The Economist observed, “The danger is that the brusque treatment of Mr. Corzine, and a perception that Goldman’s investment banking side has scored a victory over its trading arm, will unleash further conflict. That could make for a bumpy road to the IPO, and, by damaging Goldman’s traditionally cohesive culture, reduce its chances of a successful long-term future.” A few weeks later, with the likelihood of reviving the IPO clearer as markets bounced back from the collapse of LTCM, the magazine made another astute observation that “Goldman cultivates an image of dedicated teamwork, austere workaholism and intellectual prowess—as if to make clear that it is somehow different from the sordid run of other greedy bankers. So the firm understandably bristles at the public perception that partners are salivating for their multi-million dollar pay-offs. Instead, the decision to go public is couched in strategic terms.”
Some would say the brusque treatment of Corzine by his partners continued until the day he left the firm in May 1999. But no matter. The long march to the IPO had finally come to its end with the revival of the markets. With little fanfare or dispute, on March 3, the Management Committee endorsed the plan for another run at an IPO. On March 8, the firm’s 221 partners approved the plan, the same day that Corzine announced his “retirement” from Goldman. “The completion of the public offering will mark a logical and appropriate point for me to move on in my career and life,” he said. “As of the closing of the offering, I will stand down from my remaining duties at the firm.” Goldman filed its new S-1 IPO prospectus with the SEC on March 16. Corzine was mentioned only in passing. He was included as a director and co-chairman of the firm “but will resign both positions immediately prior to the date of the” IPO, the document added, helpfully. He no doubt left with a fine consolation prize of more than 4 million Goldman shares, but it must have stung nonetheless to be so summarily excluded from the transaction he had worked tirelessly to make happen.
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IN THE FIRST few months after the coup, Corzine worked together with John Meriwether to try to buy LTCM back from the consortium of banks that owned it. But that had more or less fallen through—despite their putting together a syndicate willing to invest $2 billion—when Frank Lautenberg,
the U.S. senator from New Jersey, announced in February 2000 that he was not going to seek reelection. Corzine decided he had heard his calling. Using some $62 million of his Goldman fortune (estimated to be more than $500 million), he ran for the Senate as a Democrat and defeated Republican Bob Franks. Corzine won with 50.1 percent of the vote. In 2005, after the resignation of then-governor James “Jim” McGreevey, Corzine decided to run for the governor’s office. This time, he spent more than $40 million and defeated Doug Forester. Corzine won 53.5 percent of the vote. In November 2009, he lost his bid for reelection. Four months later, his friend Chris Flowers selected Corzine to be chairman and CEO of MF Global Holdings Ltd., the world’s largest independent futures broker, of which Flowers was one of the largest shareholders.
CHAPTER 17
IT’S TOO MUCH FUN BEING CEO OF GOLDMAN SACHS
In the aftermath of Paulson’s coup and the revival of the markets, no obstacles to the long-awaited Goldman IPO remained. On April 12, 1999, with investor demand surging, Goldman announced that it had raised the estimated range of its IPO to between $45 and $55 per share, from $40 to $50 per share. Of the 60 million shares being offered for sale in the IPO, both Sumitomo and the Bishop Estate were selling 9 million each, with Goldman selling the balance of 42 million shares. On the evening of May 3, Goldman priced its IPO at $53 per share and increased the offering to 69 million shares to reflect demand of some 10 times more than the supply. During the day on May 4, the stock traded as high as $76 per share and was the day’s highest-volume issue—with more than 20 million shares traded. It finished the day at $70 per share, up an impressive 32 percent on the first day of trading—a huge success by any measure. Goldman’s equity value at the end of the day was $33.3 billion, based on 475 million shares outstanding (and exclusive of another 75 million unvested shares set aside for employee stock and option awards). Goldman sold 51 million shares in the offering, raising $2.7 billion for the firm’s capital account. “We have secured permanent capital to grow,” Paulson crowed in a statement that day. “We have shared ownership broadly among our employees now and through future compensation, and have gained the flexibility to use publicly traded securities to finance strategic acquisitions.” At the start of trading that day on the New York Stock Exchange, Paulson rang the opening bell. At the end of the day, his 4.1 million Goldman shares were worth $287 million.
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LOST IN MUCH of the commotion about Paulson’s palace coup were the roles played in it by the new Two Johns—Thain and Thornton—whom Paulson appointed as the firm’s co–chief operating officers underneath him, a clear signal they were his likely successors. The possibility of this happening must have seemed tantalizingly close to Thain and Thornton at the time, because Paulson had made it clear that he did not intend to stay as Goldman’s CEO for very long. While Thain was the man who had betrayed his mentor by casting the deciding fourth vote to eliminate Corzine from the firm, Thornton had played a more subtle game during the drama, leaving few of his fingerprints on Corzine’s cadaver. But many people at Goldman had the impression he had masterminded the whole operation.
Although sprung from vastly different backgrounds, the two men were similarly brilliant, cerebral, and political. Thain, known around Wall Street as “I Robot” for his chiseled good looks and athletic build that closely resembled the futuristic robot in the 2004 movie of the same name, joined Goldman from Harvard Business School in 1979. The I, Robot comparison of course merely reinforced the idea of Goldman being a bunch of remote-controlled automatons working as part of the Borg. Born in 1955, Thain grew up fifty miles north of Chicago, in Antioch, Illinois, when the surrounding area “was still all cornfields,” he said. Thain’s father, Allan, was a local doctor. John Thain was pretty much the smartest kid in town. He was the valedictorian of the class of 1972 at Antioch Community High School and was also captain of the school’s wrestling team. Thain decided to attend MIT to study electrical engineering instead of Stanford University because he had “heard more about it.” He had never been to either coast of the United States before he got off the plane in Boston to matriculate at MIT.
After graduating from MIT—where he met his wife—he enrolled immediately at Harvard Business School. From Harvard, Thain was off to Goldman Sachs, after triumphing during the lengthy and rigorous interview process. He was one of six hires that year into the firm’s Corporate Finance Department, where his job was to work with corporate clients to help them raise debt or equity capital or to advise them on mergers and acquisitions. “They were smart,” he said of the people he met at Goldman. “They were energetic. I just thought it would be a fun place to work.”
For nearly six years, he executed financing or M&A deals for his clients. Then, after he was promoted to vice president, the firm asked him to move over to the fixed-income department, specifically to the mortgage area, to help build up the firm’s fledgling effort. This was a bit unusual, even by Goldman’s standards, because he had no previous training in the complicated world of issuing and trading mortgage-backed securities. He worked with Mike Mortara, who had just been hired from Salomon Brothers. “I knew nothing about trading,” he said. “I knew nothing about mortgages. Goldman has a tendency to just take smart people and put them in new jobs and challenge them and say, ‘You’ll figure it out.’ ” Thain became a partner in 1988.
After his stint in mortgages, Goldman asked him to be the firm’s treasurer, another unusual request. From there, he was named CFO, a position he held during the firm’s meltdown in 1994. “I started in investment banking, went to fixed-income, and then went to what was called operations technology and finance,” he said.
If Thain was Goldman’s Mr. Inside, Thornton was Goldman’s Mr. Outside—at least in and around London, where he lived for many years, and in the other financial capitals of Europe, where he was well known. He grew up in Bronxville, just north of Manhattan, the son of two successful attorneys. He spent his summers in East Hampton, playing tennis and hanging out at the beach. When he was young, his brother died of leukemia. His godparents died young, too. The deaths “had a profound effect on me,” he told the Sunday Times, in May 1999. “The deaths made me determined to live life intensely and use my talents to the full, preferably for the benefit of other people. I learnt early on that life is not a dress rehearsal.” He left Bronxville to attend the prestigious Hotchkiss School, in Lakeville, Connecticut. He was the quintessential preppy, with a mop of long, floppy hair and horn-rim glasses. He was the editor of the school newspaper, the captain of the tennis and basketball teams, and a fan of Buffalo Springfield. Not surprisingly, he was voted “most likely to succeed.”
After graduation from Hotchkiss in 1972, Thornton was off to Harvard, where he studied American political history. While he was at Harvard, Thornton worked in the Senate office of Ted Kennedy, with whom he played tennis. From there he spent two years studying law at St. John’s College, Oxford, ending up with a bachelor’s and master’s degree in jurisprudence, but then he abandoned his plan to become a lawyer. Instead, he switched course and enrolled at the Yale School of Organization and Management. He joined Goldman in 1979 in its nascent M&A department, working for Friedman and Boisi. In 1985, they asked Thornton to move to London to set up Goldman’s M&A presence in Europe at a time when American firms were beginning their assault on the clubby and dominant world of British merchant banks. That Friedman and Boisi asked Thornton was a sign of his increasing importance at the firm, and also a litmus test for his future suitability at the top ranks of Goldman. (Some said he had also ruffled too many feathers in New York and needed a change of scenery.) He could have said no, of course, and stayed in his cushy Manhattan lair, but in the world of Goldman alpha males, there was now no greater badge of honor than a willingness to pick up and move, as requested, and take one for the team. In 1988, he was rewarded for his service—and his many accomplishments—by being named a Goldman partner.
By the early 1990s, Thornton “had turned the British banki
ng establishment on its head as he imported hard-nosed U.S. investment banking techniques into what had been a staid and very well-behaved M&A environment,” according to one profile of him (of which there were many, often without the appearance of his cooperation). “Camping out in restaurants, relentless calls to potential clients—he would do whatever it took to bring a reluctant city establishment over to his side.” Thornton’s personal ambitions rankled many of his colleagues, who discerned that his penchant for publicity was not particularly in keeping with Goldman’s fourteen principles. Descriptions of Thornton included: “He was constantly turning up at meetings to which he was not invited,” “He tended to monopolise information, to control clients personally,” “It was received wisdom in the firm that the guy was incredibly ambitious, that at some point he would get there,” and “He was always regarded as a bit of a maverick.”
He was also a fierce competitor, both in the rough-and-tumble world of M&A and on the tennis court. Famously, he was said to have compiled a list of the one hundred most important people in Europe and was determined to make them—all—Goldman clients. He was referred to as a “tycoon groupie” and counted among his friends Rupert Murdoch, Richard Branson, Harvey Weinstein, Li Ka-shing, William Ford Jr. (a friend from Hotchkiss; Thornton is a member of the Ford board of directors), Sir John Browne (whom the Thorntons entertained regularly at Saturday night salons), and Ed Victor, the literary agent. The best man at his wedding was John Eastman, the noted attorney and brother of the late Linda McCartney, Paul’s wife. He used to rent a villa in Tuscany with Bill Bradley, the basketball star and former New Jersey senator.
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