Coming on the heels of David Einhorn’s campaign against the firm—Lehman’s stock had fallen 22.6 percent since his speech in May—it was yet another public relations disaster. Fuld knew perfectly well that bankers were occasionally prone to being loose-lipped about their clients, but this concerned the firm he had given his entire life to and was about its very survival. The breach of loyalty stung him deeply.
Already that morning rumors were circulating that Lehman was so desperate for liquidity that it had tapped the Federal Reserve’s discount window. That was untrue, but Lehman’s stock was pummeled anyway, falling 15 percent.
For the past two weeks Fuld had been forced to respond to such rumors on an almost daily basis, as Einhorn’s comments had taken on enough credibility to sow seeds of doubt about Lehman’s own. To Fuld’s thinking, that was precisely Einhorn’s objective. Fuld’s co-chief administrative officer, Scott Freidheim, had been in touch with nearly half the public relations flacks in the city, desperately attempting to formulate a counterattack against Einhorn and the shorts. “How does this guy have any credibility coming after us?” Freidheim asked Joele Frank and Steve Frankel, two crisis specialists. “We can’t go tit for tat with everyone who makes a claim,” he’d said to another PR executive, Steven Lipin. In the meantime, the firm had established a clear script for all discussions with the media: There would be no more winging it; they couldn’t afford any mistakes.
Fuld thought Craig’s coverage had crossed the line, even if it was a legitimate scoop. To him, in his fit of rage, it was as if she had knowingly set out to undermine the firm, just like Einhorn. The article made Lehman seem like a collection of petty high school cliques, a gossip mill. He had always considered her one of only a handful of trustworthy reporters. The week before she’d even asked to sit in on one of Lehman’s management meetings, a request he thought was ludicrous, but he’d declined the request politely. “I’d like to be helpful,” he explained. “But I can’t allow that.”
When Craig phoned Fuld that afternoon to follow up on her story, he lit into her mercilessly. “You pose as a responsible journalist but you’re just like the rest of them!” he said. “Your seat at the table has been removed,” he shouted, then slammed down the receiver. There would be a new rule in effect at Lehman, he subsequently decreed: Nobody, not even the PR department, was allowed to speak to the Wall Street Journal ever again.
When he learned of Fuld’s diktat, Andrew Gowers, Lehman’s head of communications, was beside himself. “I don’t understand how on earth this policy is supposed to help us communicate in the middle of all this if we’re going to shut out the biggest financial paper in the country,” he complained to Freidheim.
“I don’t know,” Freidheim replied with a shrug. “It’s between Dick and the paper.”
Scott Freidheim knew who the leaker was, or so he believed.
At forty-two years old, Freidheim was the youngest member of Fuld’s inner circle. The son of the former CEO of Chiquita, he was the ideal Fuld operative: a get-it-done loyalist with a killer instinct. As the firm’s co-chief administrative officer, he wasn’t so much a banker as he was a highly paid strategist. To Fuld’s detractors, he was one of the chairman’s pets, a know-nothing protector of the throne who shielded Fuld from any number of ugly truths. Freidheim was an executive in the Joe Gregory mold: He owned an enormous home in Greenwich and a constantly rotating fleet of cars; he had recently bought the “mobile office” once owned by one of his friends, hedge fund mogul Eddie Lampert—a black GMC Denali outfitted with Internet access that he had chauffeur him to Manhattan each day. “Isn’t this awesome!” he once announced excitedly when he showed off the vehicle to colleagues as it blasted the theme song to Mission: Impossible.
After the tense meeting with Fuld about the Journal story, Freidheim was determined to find the leaker for his boss. He had in fact sensed that something was amiss the night before, after he’d had a flurry of confusing phone calls with Craig and with Lehman’s spokesperson, Kerrie Cohen. He had been frustrated because he couldn’t get a straight answer about the coming story.
Early the next morning, Erin Callan had dropped by his office, which she rarely did, and innocently asked about the story, “Do you think it will make the stock go up?”
With that it became clear to Freidheim that the leak had been her idea. Like a growing group of executives up and down the organization, Freidheim had come to the conclusion that Callan was in the wrong job, and he had grown tired of her perky self-assurance. She performed for the media as though she were on some kind of reality show. She might have pulled off the earnings call back in March, but now he questioned Gregory’s decision to put her in the job, referring to her as a “diversity hire.” He couldn’t believe she had gone off and talked to Einhorn before his speech without first consulting anyone—he’d been trying to put that fire out for a week now. And he had been furious back in April when Craig, in another Journal story, had crowned her “Lehman’s straight shooter,” as if the rest of them were a pack of untrustworthy liars. Callan just didn’t know where the line was drawn. She kept a model of a private jet on her desk and revealed details about her personal shopper to the press, blithely unaware of the resentment it inspired. The worst was when she framed a photograph of herself getting out of a limousine, from a gushy profile in the Condé Nast Portfolio magazine that pronounced her “The Most Powerful Woman on Wall Street,” and hung it on her office wall; Gregory had had to tell her to take it down.
Freidheim, now on the warpath, called security and ordered the company’s phone records searched. He soon discovered what he regarded as all the proof he needed: Callan had indeed spoken to Craig the day before. Whether that meant she had actually informed the reporter about the capital raise plans was yet to be determined. Had she revealed that the Koreans were a potential suitor? Freidheim did not know, but the phone record gave him an excuse to talk to Fuld about her.
When Freidheim arrived at Fuld’s office, he found Gregory there and proceeded to present his findings to both men. He concluded by saying that he wanted to approach Callan about the call himself, and added, “We can’t rule out firing her.”
Gregory, her mentor, was aghast at the accusation. Nobody was getting fired, and as far as he was concerned, nobody was even going to mention the matter to Callan. “She has too much on her plate,” Gregory insisted, and Fuld nodded his agreement. He simply could not afford to lose his CFO, not in the current climate, and not even if she had done the unthinkable and leaked the information.
In his heart, Fuld knew that his Korean gambit was a Hail Mary pass. Lehman’s own banking operation in Seoul was effectively a mirage; it had never produced any business significant enough even to warrant Fuld’s attention. He had also been warned repeatedly by just about everyone in the office that there were some serious doubts about the players involved. The whole success of the effort hinged on two individuals: Kunho, a well-connected banker with impeccable manners who, as far as anybody could tell, was simply unable to close any deal; and Min Euoo Sung, a former Lehman Brothers banker based in South Korea who had left the firm and had managed to snag a prestigious new appointment as the head of the Korea Development Bank. While Fuld had always liked Min—years earlier, when Min was working for Woori Financial Group, he had brought Lehman in on a joint $8.4 billion purchase of a troubled loan portfolio—some of Min’s other colleagues at Lehman were stunned by the appointment, as were a number of KDB’s staff, who, having judged his credentials inadequate, had tried unsuccessfully to stop it.