• Choose a category
• All
• Classic-Fiction

five years while it vested. The amount of stock each employee got was scaled according

to pay, but even the janitors participated in this compensation plan.

While there was much about Pettit's "one firm" culture that Cecil lauded, there was one

aspect that nagged at him--and this issue never went away. He saw a dark side to the

mantra of sticking together--it encouraged people to place a value on loyalty over ability.

Even so, Cecil was optimistic. He reflected years later: "I don't think I would have joined

Lehman if it hadn't gone public and if I hadn't seen that the culture could change. Until

then, it hadn't been run for profitability. It had been run for the bonus pool."

But Cecil was dismayed by the firm's first earnings report in the fall of 1994.

It was $22 million.

When Cecil first heard that, he shook his head and thought, "The world's going to hate

that number. " He was surprised and annoyed that Fuld and Pettit didn't seem disturbed

by that posting. He says Pettit told him, "Twenty-two million dollars is a good number."

Tom Tucker, however, hotly disputes this. "Chris Pettit would never have thought $22

million is a good number. " What Pettit may have meant, his friends believe, was that

there was no point dwelling on it. Certainly everyone must have agreed with Cecil that

the next quarter's results needed to be over double that--especially once the firm was put

on review for a ratings downgrade.

Cecil asked Bob Matza, the new CFO, if Fuld and Pettit understood what would happen

if Moody 's downgraded the firm--Lehman would not be able to issue commercial paper,

which meant, as Matza put it, "We' re toast." Matza told Cecil that neither Fuld nor Pettit

understood this, so Cecil called a meeting with both men to enlighten them. He says,

"They did not take this very well, particularly Chris."

Cecil says both Fuld and Pettit had grown up in a subsidiary of a subsidiary; they had no

experience running a public company and didn't know they had to look out for rating

agencies. They had to learn on the job.

Still, by the fourth quarter, Cecil had almost met his objective. The firm announced a $46

million after-tax profit and Moody 's affirmed them.

A relieved Cecil said to Matza, "I think we should ban the phrase 'We' re toast.' I don' t

want to have to hear it ever again."

Cecil believed that Fuld, not Pettit, was his best ally in the cost-cutting battle. He

remembers patiently explaining to Fuld that by cutting costs and not plowing the savings

back into remuneration, the share price would go up. Cecil says this was Fuld 's

"lightbulb moment."

"Dick is very pragmatic," he says, "and he is, more than almost anybody I know, a

lifelong learner. Most people get to a point in their career, and they kind of are who they

are. Dick, however, at a fairly late stage in his life, went through this transition of being

on a trading desk to running Lehman as a public company. That's a huge change in just

five years. Also, he went from being a trader, heavily influenced by all the bad habits of

the old-fashioned trading floors, to head of the firm, trying to do the right thing, trying to

keep the firm together, recognizing the value of all the different parts of the firm,

recognizing the importance of a good culture.

"He also changed personally, becoming a good public speaker and all those things.

Becoming good with clients. He went through a remarkable transition in a short period of

time."

Fuld began spending more and more time not just with capital market clients, but with

investment banking clients; he already knew men like Henry Kravis (head of KKR) and

Leon Black (now at Apollo), but now he had to treat them not just as acquaintances, but

clients; he had to pitch them. They needed to see him differently, not just as an

introverted trader, but as the visionary head of a major securities firm.

One meeting that did not go so well was with the late Bruce Wasserstein, then the cochief