Too Big to Fail [67]
McGee, a classic, old-school, back-slapping banker, was clearly ambitious. After graduating summa cum laude from Princeton and getting a law degree, he had spent nearly two decades at Lehman, first as a banker for wildcatters in the oil patch of his backyard and then moving up the ranks until he became the head of the entire investment banking division and joined Fuld’s vaunted executive committee.
For some time, McGee and his team had been having deep misgivings about the way the firm was being managed. His unit, which advised corporate clients on mergers and stock offerings, had its best year ever in 2007, bringing in $3.9 billion in revenue, and yet the firm’s stock, which was used to pay a large portion of everyone’s bonuses, was being decimated by anxiety about what was happening on the other side of the house—namely, the firm’s investments in real estate assets. Even worse, the constant rumors and headlines about Lehman’s health were beginning to affect his team’s ability to sign up new clients, who were reasonably worried about hiring them. It had gotten so bad that some clients had asked to include a “key man” provision in their engagement letters that would guarantee that the banker assigned to them would continue working with them if Lehman was sold or went bankrupt.
McGee had expressed his anxiety to Fuld a month earlier when he asked to be given control over the firm’s capital-raising efforts, which up until that point were being overseen primarily by management on the thirty-first floor, who he felt were not professional deal makers. “You have an investment banking division that does this for a living,” McGee told Fuld. “This is crazy. I should leave if you don’t trust the investment bank to do this.” Fuld agreed, and McGee’s “troops”—Shafir and Whitman—had been included in the Korean junket.
But since that conversation, the firm’s situation had only worsened. They all knew that the announcement of the next big quarterly loss was only going to exacerbate the situation. Resentment was boiling up through the ranks, and it was no longer directed exclusively at Erin Callan, who, the bankers had concluded, was merely a symptom of a bigger problem.
The person they had now come to believe was responsible for many of Lehman’s troubles—the risky bets on corporate real estate, the constant reshuffling of executives into jobs they were ill equipped to handle—was Joe Gregory, the firm’s president and Fuld’s closest associate. McGee and Gregory had never gotten along very well to begin with; each was too headstrong for the other. And in recent months, Gregory had been discussing ways to push McGee aside, by assigning him to a new commodity trading business back in Houston, the prospect of which left McGee lukewarm.
The Sunday before preannouncing earnings report, June 8, as everyone worked over the numbers on the thirty-first floor, McGee, in a golf shirt and khakis, slipped into Fuld’s office to review the investment bank’s earnings and projections. But just as McGee had finished his summary and was getting ready to leave, he said, “When we get through this, we need to have a serious conversation.”
“What about?” Fuld asked.
“About a change in senior management,” McGee blurted out.
“What?” Fuld said, distracted now from the numbers before him.
“Well, I guess we’re having that conversation now then,” McGee said, getting up to shut the door. Gregory’s office was just a few feet away.
When he took his seat again, he told Fuld precisely what he had meant: “You need to move on Joe.”
Fuld was dumbstruck. “Joe Gregory is off the table,” he said, raising his voice. “He’s been my partner for twenty-five years. It’s not fair. I couldn’t look at myself in the mirror.”
“Whether it is fair or not, you need to do something about Joe,” McGee replied. “You’ve not been well served by your COO. He’s in over his head. He’s not minding the store. He’s made some horrible personnel decisions, and he