Glucksman, Fuld, Gregory, and the rest of Glucksman’s inner circle would spend the next decade fighting to preserve Lehman’s autonomy and identity. “It was like a ten-year prison sentence,” recalled Gregory. To encourage their solidarity, Glucksman summoned Fuld and his other top traders to a meeting in the firm’s conference room. For reasons no one quite understood, Glucksman was holding a few dozen number 2 pencils in his hand. He handed each trader one and asked him to snap it in half, which everyone did, easily and without laughing or even smirking. He then handed a bunch of them to Fuld and asked him to try to break them all in half. Fuld, “The Gorilla,” could not do it.
“Stay together, and you will continue to do great things,” Glucksman told the group after this Zenlike demonstration.
Lehman’s traders and executives chafed at being part of a financial supermarket—the very name suggested something common. To make things worse, the new management structure bordered on byzantine. Fuld was named co-president and co-chief operating officer of Shearson Lehman Brothers Holdings in 1993, along with J. Tomilson Hill. They reported to a Shearson chief executive, who reported to American Express’ chief, Harvey Golub. A Fuld protégé, T. Christopher Pettit, ran the investment banking and trading division. No one really knew who was in charge, or, for that matter, if anyone was in charge at all.
When a red-faced AmEx finally spun off Lehman in 1994, the firm was undercapitalized and focused almost entirely on trading bonds. Stars like Stephen A. Schwarzman, the future CEO of Blackstone, had left the company. No one expected it to survive for long as an independent firm; it was just takeover bait for a much larger bank.
American Express CEO Harvey Golub anointed Fuld, who was Shearson Lehman’s top trader and had risen to be co-president and chief executive of the newly independent entity. Fuld had his work cut out for him. Lehman was reeling, with net revenue plunging by a third when the Shearson units were sold; investment banking was down by nearly the same amount. They were bailing water.
And the infighting continued. By 1996 Fuld had pushed out Pettit when he made noises about increasing his status. (Pettit died three months later in a snowmobile accident.) For years, Fuld operated the firm alone, until he appointed Gregory and another colleague, Bradley Jack, to the role of co-COO in 2002. But Jack was quickly pushed out by Gregory, who had the confidence of Fuld, in part because of his talent and, perhaps more important, because he appeared nonthreatening.
“You’re the best business fixer I have,” Fuld told him, vowing that with Gregory’s help he would do away with the backbiting that had nearly torn the firm apart in the 1980s. Fuld began by slashing payroll. By the end of 1996, the staff had shrunk by 20 percent, to around 7,500 employees. At the same time that he was downsizing, he was adopting a smoother management style. To his own surprise Fuld proved to be good at massaging egos, wooing new talent, and, perhaps most shocking for a trader, schmoozing clients. As Fuld recast himself as the public face of the firm, Gregory became the chief operating officer: “Inside” to Fuld’s “Mr. Outside.” Yes, Fuld had become one of the “fucking bankers,” intently focused on one goaclass="underline" boosting the newly public company’s stock price. Lehman shares were increasingly doled out to employees; eventually the workforce owned a third of the firm. “I want my employees to act like owners,” Fuld told his managers.
To encourage teamwork, he adopted a point system similar to the one that he used to reward his son, Richie, when he played hockey. Fuld taped his son’s games and would inform him, “You get one point for a goal, but two points for an assist.” He had some other choice paternal advice for his son that he also applied at Lehman: “If one of your teammates gets attacked, fight back like hell!” At Lehman, senior executives were compensated based on the performances of their team.
If you were loyal to Fuld, he was loyal to you. Almost everyone at Lehman had heard the story about his vacation with James Tisch, the chief executive of Loews, and his family. The group went hiking together in Bryce Canyon National Park in Utah. Nearly a mile down from the rim of the canyon, Tisch’s ten-year-old son, Ben, had an asthma attack and began panicking when he realized he had left his inhaler back on top of the canyon.
Fuld and Tisch took charge, helping the boy to make the hike back. “Ben, lead the way,” Fuld instructed, trying to build up the boy’s confidence.
Halfway up they encountered another hiker who looked at Ben and said, “My, aren’t we wheezy today.”
Fuld, without slowing, turned on him and shouted with a memorable ferocity: “Eat shit and die! Eat shit and die!”
Exhilarated by Fuld’s defense of him, Ben nearly ran up the rest of the way.
Perhaps Fuld’s greatest moment as a leader came after the 9/11 attacks. As the world was literally crumbling around him he instilled a spirit of camaraderie that helped keep the firm together. The day after the towers were hit, Fuld attended a meeting at the New York Stock Exchange to discuss when it should reopen. Asked if Lehman would be able to trade, he told the room, almost on the verge of tears, “We don’t even know who’s alive.”
In the final reckoning, Lehman lost only one employee. But the firm’s global headquarters at 3 World Financial Center was so severely damaged it was unusable. Fuld set up makeshift offices for his 6,500 employees at a Sheraton hotel on Seventh Avenue in Midtown; a few weeks later he personally negotiated a deal to buy a building from one of his archrivals, Morgan Stanley, which had never moved into its new headquarters. Within a month Lehman Brothers was up and running in a new location as if nothing at all had happened. But there was one casualty of the move: Fuld’s stuffed gorilla was lost in the shuffle and never replaced. Gregory later pointed out that both Fuld and the firm had outgrown it.
For all his talk about change, however, Fuld did not so much overhaul Lehman’s corporate culture as tweak it. He instituted a subtler version of the paranoid, combative worldview propagated by Glucksman. The martial metaphors remained: “Every day is a battle,” Fuld barked at his executives. “You have to kill the enemy.” But traders and bankers were no longer at each other’s throats, and for a while, at least, Lehman was less riven by internal strife. “I tried to train investment bankers to understand the products they were selling,” Glucksman said long after Fuld had gone on to be CEO. “We were one of the first firms to put investment bankers on the trading floor—and Dick has gone far beyond where I was when I left the firm.”
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.