Too Big to Fail [18]
Fuld eventually decided that Lehman was too conservative, too dependent on trading bonds and other debts; seeing the enormous profits that Goldman Sachs made by investing its own money, he wanted the firm to branch out. It fell on Gregory to execute the boss’s vision. Though he was not by nature a details guy or a risk manager, Gregory played a pivotal role in the firm’s increasingly aggressive bets, pushing Lehman into commercial real estate, mortgages, and leveraged lending. And in a galloping bull market, its profits and share price soared to unprecedented heights; Gregory was rewarded with $5 million in cash and $29 million in stock in 2007. (Fuld made a package worth $40 million that year.)
Gregory also handled Fuld’s less desirable conversations. Whenever a personnel matter called for discipline, the rebuke usually came from Gregory; the person on the receiving end invariably referred to the “new asshole” he had just been provided. Around the office, Gregory was known as “Darth Vader.” Though Fuld was unaware of it, Gregory’s heavy-handed tactics were regular fodder at the water cooler.
In 2005 Gregory made one of his harshest personnel decisions, one that would become legend within the firm. He inexplicably sidelined his protégé and longtime favorite, Robert Shafir, Lehman’s global head of equities, who had helped him build that business, for what seemed like no reason. Gregory, who said he’d find him another role at the firm, then kicked him off the firm’s executive committee. In case Shafir hadn’t gotten the message, Gregory then gave him an office right across from the conference room where the executive committee met, a cruel reminder of his diminished status. In the middle of all this, Shafir’s daughter was diagnosed with cystic fibrosis, and he took some time off, hoping that when he returned to the firm, Gregory might have a job for him.
But when Shafir failed to resign after a few months, Gregory called him into his office. “What do you think about moving to Asia?” he asked him after an awkward silence.
Shafir was dumbstruck. “Asia? You have to be kidding, Joe. You know about my kid, you know I can’t go to Asia.”
Shafir left the firm for Credit Suisse, perhaps the most notorious victim of what people inside Lehman referred to as a “Joeicide.”
Some of Gregory’s hiring decisions, meanwhile, struck people as highly unorthodox. In 2005, he took the firm’s head of fixed income, Bart McDade, who was an expert in the world of debt, and made him the head of equities, a business he knew very little about. In 2007, as the property bubble neared the breaking point, Gregory was asked repeatedly why so many of the executives he placed in the commercial real estate business had no background in that area. “People need broad experience,” Gregory explained. “It’s the power of the machine. It’s not the individual.”
Of all the individuals whom Gregory anointed, none was more controversial than Erin Callan, a striking blonde who favored Sex and the City-style stilettos. When he chose the forty-one-year-old Callan as the firm’s new chief financial officer in September 2007, Lehman insiders were stunned. Callan was obviously bright, but she knew precious little about the firm’s treasury operations and had no background in accounting whatsoever. Another woman at the firm, Ros Stephenson—perhaps the only Lehman banker besides Fuld who could get Kohlberg Kravis Roberts kingpin Henry Kravis on the phone—was furious about the appointment and took her complaint directly to Dick Fuld, who, as always, backed Gregory.
Callan yearned to prove to her colleagues that she was a seasoned street fighter, just like Fuld. If anything, her path to the very top of the financial industry had been even more improbable than his. One of three daughters of a