Last Man Standing

by Duff McDonald

  On September 12, 1986, Control Data announced that Sandy Weill was being appointed as chairman and CEO of Commercial Credit and that the company hoped to sell a majority of the unit to investors as soon as possible. Weill accepted a $500,000 salary, with the proviso that his management team would own 10 percent of the new company through a combination of outright stock purchases and options grants.

  In some ways, it was a remarkably counterintuitive move on Weill’s part. As McElvery had pointed out, he was aiming for the bottom of the financial ladder, the people with the least money. Bankers tend to prefer the opposite. What’s more, he and Dimon were effectively putting their eggs in the consumer finance basket when their peers were all trying to grab a piece of the increasingly frenetic action in stocks and bonds on Wall Street. But this focus on the unfashionable was also classic Weill. Commercial Credit was a distressed asset in an otherwise healthy industry, with bloated costs and a messy balance sheet—just the kind of company he could sink his teeth into.

  And what of Bob Volland, the man who brought them the opportunity of a lifetime? Weill and Dimon had jokingly referred to him as “Deep Throat” during their initial investigations, but they cut him out the loop soon thereafter. “Bob Volland was a rogue employee regardless of the goodness of his intentions,” Weill wrote in his 2006 autobiography, The Real Deal: My Life in Business and Philanthropy. Weill’s public relations chief, Mary McDermott, thinks the issue for Sandy was a simple one: “Why would you trust someone who brought you stolen goods?”

  Volland was of the opinion that the men were applying a ridiculous double standard. Realizing that Dimon didn’t trust him, he decided to have it out with the younger man. Dimon told him that he thought Vol-land had violated a managerial code by making his original call to Weill. “There wasn’t one bit of private information discussed on that call,” Volland responded. “I could have had the same conversation with you.” Dimon’s response: “You never should have done it anyway.” To which Volland could only reply, “Well, if that’s the case, then you never should have done what you did. But you sure wanted the rewards, didn’t you?”

  • • •

  Weill and Dimon descended on Baltimore to pretty up the company before the initial public offering, which they hoped would be just a few weeks away. Weill also launched into hiring fresh troops. He’d already spoken to his American Express pal Jim Calvano in late summer, cryptically suggesting that Calvano “meet me in Baltimore.” “What’s in Baltimore?” asked Calvano. “I can’t tell you,” Weill responded. “But what are we going to do?” Calvano queried. “We’ll have lunch. I’ve found a place with great crab cakes,” Weill said. Calvano eventually signed on as senior vice president of consumer financial services.

  The former Merrill Lynch chief financial officer Greg Fitz-Gerald also joined the team, as an executive vice president and the senior financial staffer at the company. Dimon was given the titles of senior vice president and chief financial officer, which meant he was technically subordinate to Fitz-Gerald. Regardless, it was a big step up from the title of “assistant” at American Express, and given Fitz-Gerald’s experience, it was an arrangement that made sense. But Dimon began to chafe against it almost immediately.

  While planning the road show in anticipation of the initial public offering in October—a show in which the team visited 18 cities—Dimon sulked when Fitz-Gerald made the presentation to possible investors. Weill, noticing this, gave Dimon a share of the presentations himself. In doing so, however, he may have inadvertently fed Dimon’s growing sense of his own importance. He also set a clear precedent: when it came to his protégé, the normal rules did not apply. “Jamie was in a hurry to run right through Greg, but he ended up having to be a little patient,” Weill recalls. Instead of stopping Dimon, however, Weill stepped back and watched him do just that.

  Weill negotiated a discounted share price of $18 for his executive team to buy stakes in Commercial Credit. Dimon put up $425,000—borrowing some from his parents—and when the shares debuted on October 29 at $20.50 apiece, he was already profiting from a job he had yet to really start. At the time, it ranked as the third-largest initial public offering ever, raising $850 million and valuing the entire company just shy of $1 billion. Dimon also received the second-largest number of stock options in the company, after Weill, a reward for having stuck by Weill through a difficult time.

  The day after the company went public, Weill, Dimon, and FitzGerald held their first meeting with Commercial Credit’s managers in Baltimore. The first announcement was that Chuck Prince, Commercial Credit’s general counsel, would be made a senior vice president. The second was that the company was going to lay off 10 percent of its staff, or 125 people, the next day, a move that would save Commercial Credit $5 million annually. Weill explained that he wanted the list done by the morning, and those laid off were to leave the building upon being informed of their fate.

  Bob Volland realized he’d made a terrible mistake and pleaded with Weill not to institute such harsh measures. Commercial Credit wasn’t some Wall Street firm with trade secrets the fired employees might steal; it was unnecessary to throw anybody out the door. Weill was unmoved. Volland tried another tack. Many employees commuted to Baltimore by bus in the morning, he said, and they’d be stranded with nowhere to go until the rush hour buses went in the other direction. Weill told him to hire cabs.

  The Sandy Weill era at Commercial Credit had begun.

  • • •

  Weill’s next hire shocked the staid banking world of New York. Bob Lipp, one of three presidents of Chemical Bank—he’d worked there since the 1940s—agreed to become the executive vice president in charge of consumer financial services at Commercial Credit. It wasn’t just a major step down in prestige. He took a 50 percent pay cut as well. Weill considered Lipp his proof to the markets that he was serious about transforming Commercial Credit.

  Lipp had realized that his upward rise at Chemical was over—the company’s chairman, Walter V. Shipley, was only two years older than he—and he also knew a potential gravy train when he saw one. After a career in the bureaucratic confines of one of the country’s largest banks, he was seduced by Weill’s salesmanship and decided to throw his lot in with the entrepreneur. It wasn’t their first dalliance, either; Lipp had been ready to join Weill if the BankAmerica deal had gone through. “The thing that actually put me over the edge was Sandy’s attention to the personal stuff,” recalls Lipp. “I really liked the guy.”

  Lipp brought his lieutenants at Chemical, Bob Willumstad and Marge Magner, with him to Commercial Credit. “Sandy had a reputation of being a great entrepreneur, of creating a lot of wealth,” recalls Willumstad. “And he offered the opportunity for people to get really engaged in something. Although I must admit, I wondered for months whether I’d made the right decision.” So, too, did most of the new recruits at one point or another, especially when they found out that the company would be covered by the Philadelphia bureau of the Wall Street Journal instead of out of New York.

  Dimon and Lipp took to each other out of the gate. The intense working experience in Baltimore laid the foundations for a relationship that has endured for more than two decades. “Bob was—and is—the velvet fist,” says Dimon. “He’s also so smart, but he didn’t wear it on his chest. And he taught me one of the most important things in my career, which is not to rest on your laurels. He would emphasize the negatives. But only when it came to the business. He always made it fun. He’d say things like, ‘Hey, let’s go to Kentucky and go to that place where we had those fabulous pies!’ I’ve learned a tremendous amount from him.”

  Another hire who worked closely with Jamie Dimon was John Fowler, a former executive vice president at Warner Amex Cable Communications. Fowler also took a 50 percent pay cut. One of Fowler’s memories is of Dimon pointing him toward the annual report of Warren Buffett’s Berkshire Hathaway and suggesting that he read how Buffett ran a property and casualty insurance company in order to maximize
investable assets at the lowest possible cost of money.

  Fowler remembers one particular lunch meeting with Weill and Dimon at The Four Seasons. Dimon, who smoked at the time, had a cigarette brought to him at the end of lunch in lieu of dessert. A few years later, having quit smoking, Dimon chastised Fowler for keeping up the habit. He said that if Fowler quit for five years, he would donate $5,000 to a charity of Fowler’s choice. Fowler took him up on the offer, and five years later Dimon paid up.

  The majority of Weill’s hires were refugees from big companies, people looking for less formality and more upside. “His mantra was, ‘Down with the bureaucracy!’” remembers Calvano. “It was, ‘This is gonna be just us guys and girls, and we’ll get it done the right way.’ It was very appealing, especially for those who came from American Express, which was almost Byzantine in its political nature. If you were ambitious yourself, and you wanted to do something, why not do it with Sandy?”

  (Early on, Dimon suggested a board candidate to Weill: Andrall Pearson, whom he’d met through Pearson’s daughter, a classmate of Dimon’s at Harvard. Pearson, who was later the founding chairman of Pepsi’s spin-off Yum! Brands—owner of KFC, Pizza Hut, and Taco Bell—would be another mentor to Dimon over the next 20 years. Like Dimon, Pearson was a twin. But he one-upped Dimon on that front—he and his identical twin brother, Richard, actually married another set of identical twins.)

  The New Yorkers flew to Baltimore every Monday on the 7:10 A.M. flight on Piedmont Airlines out of La Guardia—a 35-minute flight—and stayed in Baltimore until Friday, when they returned home. Weill and Dimon took up residence in the luxury Harbor Court hotel, with Dimon occupying the room across the hallway from Weill’s suite. Fowler took a room next door, and the three men walked to work together each day. Dimon’s mornings usually began when he smelled Weill’s cigar smoke seeping underneath his door, and his days ended when he watched Weill smoke a final cigar after dinner.

  Although a number of other executives stayed in an apartment close to Commercial Credit’s 18-story glass-and-aluminum edifice at 300 St. Paul Place, there was an unwritten rule that if you were in town and did not have some other business engagement, you ate dinner at 7:30 P.M. with Weill in a private room in the Harbor Court’s restaurant. “Sandy has that kind of food fetish where he likes to order the appetizers,” recalls Calvano. “He’ll order your meal for you if you’re not careful—so it became good practice to have something to do at night. Otherwise, you’d have to go eat those damn crab cakes every day of the week.” On other nights, the “dirty dozen” as they called themselves, convened at the fancy Italian restaurant Marconi’s. On seeing Weill walk in, the staff would plunk a bottle of Tanqueray gin on the table. Weill liked his Gibson before dinner.

  They worked long hours, sometimes 12 to 14 hours a day. Bob Willumstad, who was helping transform the company’s branch network with Lipp and Calvano, thinks they got done in six months what might have taken a year—and although it was exhausting, it was also exhilarating. “It was great fun,” recalls Bob Lipp. “I often look back at those few years, the likes of which I’ve never experienced again. It was like going to war without getting shot at.”

  They made quick work of Commercial Credit’s balance sheet; Dimon took the lead when it came to making the numbers work. In early 1987, they sold the company’s car leasing business for $77 million plus assumption of $250 million in liabilities. They stopped making loans to kibbutzim in Israel—no one was ever sure why the company had made these loans in the first place—and curtailed all business loans. Slowly but surely, Weill and his team refocused the company on its core business of consumer finance. And the results showed. For the full year, the company earned $100 million and had an impressive 18 percent return on equity. The credit agencies had upgraded the company’s debt rating from BB+ at the time of the takeover to A- a year later, and Commercial Credit was able to tap the debt markets to the tune of $100 million. In 1988, they kept going. They sold American Credit Indemnity, which insured accounts receivable for corporate clients, to Dun & Brad-street for $140 million.

  Weill did away with perks for most of the company’s management ranks. He canceled all newspaper subscriptions, sending out the message that if employees wanted to read the Wall Street Journal, they could pay for it themselves. He ordered all company cars to be returned or bought by those using them. And he canceled a contract with a plant service, telling employees to water their own plants.

  The core lending business, too, needed an overhaul. Once Bob Lipp got proper reporting systems in place, Weill saw that the cost and incentive structures at the company’s lending branches were hampering profit growth. He announced that the poorest-performing 10 percent of the company’s branches would receive no bonus whatsoever, whereas the top-performing 10 percent might receive 100 percent of their salary as a bonus. Believing it the best way to motivate employees, both Weill and Dimon continued to utilize this carrot-or-stick method over the years.

  After a while, the executives realized that with not a single one of them living in Baltimore, they were not connected to the company. Weill started a drumbeat of, “One of us has to move,” which the team properly understood as, “One of you has to move.” After some discussion, all eyes focused on Dimon, who as the youngest member of the team had the fewest roots to pull up.

  Because Judy was then pregnant with the couple’s second child, it actually made sense for Dimon to bring his wife and daughter to Maryland with him—he didn’t like being away from them. So he was the “volunteer,” the only member of the executive team to do time as a Baltimorean. Judy, like many people who have lived in New York, was used to walking pretty much everywhere she needed to go, so the couple moved to Cross Keys, Baltimore’s first “planned” community. “It was really hard for me to picture myself living in a suburban environment,” she recalls. “So we found this ground floor apartment where Jules and I could walk wherever we needed to go. The only issue was that everybody else was twice my age.” Jamie Dimon wasn’t in Baltimore to make friends, though. He was there to whip Commercial Credit into shape. He didn’t much care where he lived.

  • • •

  Working with this group of veteran executives, Dimon soon earned the nickname “the kid.” But he was a notable kid, exceptional in his spongelike capacity to understand the intricacies of financial, accounting, and tax issues, while equally adept at analyzing the trade-offs between risks and returns in the company’s various businesses. Bob Lipp was impressed at Dimon’s ability to apply ethical standards in the gray areas of accounting rules. Dimon also managed to revive the company’s commercial paper funding program, which had faltered under Control Data, bringing costs down in the process.

  He also seemed perennially a step ahead. (Fowler considered him as “quick as a hiccup.”) Dimon knew the company’s books better than anyone else. “Not long after you started talking, he’d interrupt you, saying, ‘I know, I know, I know,’” recalls his longtime colleague Marge Magner. “And he usually did.” His colleagues tolerated such impatience because of his obvious focus.

  It was also at Commercial Credit that Dimon cemented his reputation as hothead, engaging in frequent screaming matches with Weill. The vitriol was not reserved just for his boss. Indeed, he challenged other executives as well. One executive remembers a senior committee meeting in which the 30-year-old Dimon stabbed his ballpoint pen in the air toward Bob Lipp and said, “Bob, you’re wrong on this!” All present were dumbstruck. Here was a kid just a couple of years out of business school lecturing a former president of Chemical Bank. Weill said nothing, and just chewed away on his cigar. “From that point, we could tell how tough he was,” recalls the executive. “And how nobody but nobody stood up to him.” (Lipp doesn’t recall the specific incident, but says he had no problem with a young Jamie Dimon challenging him on anything.)

  Part of what made Dimon’s temper tolerable, however, was that he treated everyone exactly the same way. “He was abrasive and could mak
e you crazy,” recalls Magner. “But there was always something endearing about him.” Dimon, for example, had no compunction about voicing his Democratic political views in a boardroom full of Republicans—which included former President Gerald Ford. Compulsively chewing the ends of ballpoint pens, Dimon was a most unusual hybrid, the accounting nerd who had expansive views on public policy.

  He was also capable of the occasional outright power play. Sandy Weill had sensed during the IPO road show that Dimon considered Greg Fitz-Gerald an obstacle, and it was not long before the obstacle was removed. In the earliest days of forming the company, the team had a white board in a conference room showing the company’s lines of reporting. One day, as a number of executives sat around the table, Dimon walked into the room, wiped out all the names under Fitz-Gerald, rewrote them all underneath his own name, and walked out. “Nobody dared change it, of course,” says one executive. “It was the kind of move I never would have believed if I hadn’t seen it with my own eyes.” Shortly thereafter, Fitz-Gerald left the company.

  Young as he was, Dimon built his own coterie of disciples at Commercial Credit. One was Charlie Scharf, a graduate of Johns Hopkins with a cocky streak akin to Dimon’s. Scharf’s father had been a broker at Shearson under Weill, and sent his son articles about Weill’s continuing adventures in Baltimore. Scharf initially replied that he hated Baltimore, and that his father should get it out of his head that his son might actually work there after graduating; but he later asked if his father could line up an interview.

  The two men hit it off. While still in college, Scharf began working for Dimon part-time, and by the end of the year he was Dimon’s assistant. Life with Dimon was anything but boring. After just a few weeks on the job, Scharf was in Dimon’s office when Sandy Weill walked in. Scharf stopped speaking—Weill made most employees a little nervous—but Weill insisted that Scharf continue. Before long, the young man was stammering, so Dimon took over answering Weill’s questions. Before long, he and Weill were at each other’s throat. Scharf was petrified. “Is Jamie going to get fired?” he thought to himself. “What the hell is going on here?” And then as quickly as it had started, the argument came to a close. Dimon had made one final point, to which Weill merely said, “Oh, OK, I get it,” and turned and left the office.