Too Big to Fail [68]
Reminding McGee that, as a member of the executive committee, he was responsible for making key decisions along with everyone else, Fuld said, “The entire executive committee is the risk committee.”
McGee, realizing that he was not getting his point across, stated carefully, “You’re a wonderful leader, but when the books are written, your Achilles’ heel will be that you have a blind spot for weak people who are sycophants.”
Fuld barely heard the last part of McGee’s comment, as he had been thinking about Gregory. “I’m not doing it,” he finally said, ending the discussion.
McGee left the office, fairly certain that Gregory’s job was safer than his own.
After McGee departed, Fuld sat in his office, stunned; he couldn’t conceive of the firm without Gregory. But nothing that was happening was making any sense. The firm he had rebuilt with his own two hands was falling apart everywhere he looked.
Over at Neuberger Berman, Lehman’s asset-management arm, executives were in open revolt, trying to disentangle themselves from the mess at headquarters. Lehman had bought Neuberger in 2003, and as long as times were good, it had been a useful, relatively trouble-free contributor to the firm’s bottom line. But when Lehman stock started its swan dive, Neuberger employees panicked. They had become accustomed to the steady income generated by managing rich people’s money, but that was now in jeopardy, as a good portion of their bonuses were paid in stock.
A week earlier, on June 3, Judith Vale, who ran a $15 billion small-cap fund for Neuberger, fired off an e-mail to the Lehman executive committee (with the exception of Fuld), demanding that top Lehman managers forego bonuses and make preparations to spin off Neuberger.
“Morale at NB is at a dangerously low level, largely because Lehman stock is a significant portion of our compensation, and as such, our comp is not tied to anything within our control,” Vale wrote. “Many believe that a substantial portion of the problems at Lehman are structural rather than merely cyclical in nature. The ‘old’ Neuberger franchise (which resides at 605 Third) is largely intact. However, this is a people business, and the continuing health of the franchise is dependent on retaining key producers and support personnel. Don’t slam bonuses of key producers and support personnel at NB because of management mistakes made elsewhere.”
George H. Walker IV, the head of Lehman’s investment management division and a cousin of President Bush, immediately sought to blunt Vale’s criticism.
“Sorry, team,” Walker wrote in an e-mail to everyone who’d received Vale’s missive. “The compensation issue she raises…is a particular issue for a small handful of people at Neuberger and hardly worth the EC’s [executive committee] time now. I’m embarrassed and I apologize.”
The correspondence was forwarded to Fuld, who wrote in reply, “Don’t worry—they are only people who think about their own pockets.” Did anyone in the firm still have any loyalty?
Although Joe Gregory’s title was still chief operations officer, in the opinion of many Lehman executives, he had spun off into the ether years earlier. Few seemed to flaunt their personal wealth as much as he did. The helicopter commute was just the start of it. He and his wife, Niki, bought a house in Bridgehampton for some $19 million, and even though it was completely decorated, they had it redone top to bottom with their own designer. He drove a Bentley and encouraged his wife to take shopping trips to Los Angeles via a private plane. But despite an extravagant lifestyle that was estimated to cost in excess of $15 million a year, he kept most of his net worth tied up in Lehman stock. To gain access to cash, he had pledged 751,000 Lehman shares in a margin account as of January 2008, which, based on where the shares were trading, would’ve allowed him to borrow roughly $40 million.
It wasn’t Gregory’s spending habits that people inside Lehman found objectionable, though. He had a lot of money, and he obviously wasn’t the only one who