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 forgo 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 liked to throw it around. What did seem somewhat odd was his portfolio of responsibilities. Even in his prime Gregory had never brought in big deals or made many hugely successful trades himself. His job was to be Fuld ’s unquestioning confidant, and as long as he was that, everything else was up to him. He loved being the in-house philosopher-king, an evangelist on the subject of workplace diversity and a devotee of the theories described in Malcolm Gladwell’s bestseller Blink. He gave out copies of the book and had even hired the author to lecture employees on trusting their instincts when making difficult decisions. In an industry based on analyzing raw data, Gregory was defiantly a gut man.
He was also an advocate of the Myers-Briggs Type Indicator, which used Jungian psychological principles to identify people as having one of sixteen distinct personality types. (A typical question was, “Do you prefer to focus on the outer world or on your own inner world?”) Gregory used Myers-Briggs results to help make personnel decisions. It was his conviction that individual expertise was overrated; if you had smart, talented people, you could plug them into any role, as sheer native talent and brains trumped experience. Gregory seemed to revel in moving people around, playing chess with their careers.
His greatest experiment to date had been naming Erin Callan to be the chief financial officer. He and Callan eventually became so inseparable in the office that many were convinced, though it was never substantiated, that the two were linked romantically. Around the time she was promoted to CFO, Callan separated from her husband, Michael Thompson, a former Lehman vice president who’d left the firm.
Gregory loved being a mentor to younger executives like Callan, and he was fully cognizant of his role in Fuld’s hierarchy: If there was a difficult conversation to have, he considered it his responsibility to handle it. In this regard, Gregory and Fuld were total opposites. While Fuld had a gruff, tough-guy exterior, he had soft spots; he could be quite sentimental and tended to struggle when faced with difficult decisions, especially those concerning personnel. Gregory, in contrast, was much more gregarious, a leader given to championing underlings and setting lofty goals for the firm. He gave generously to charities, especially those involving breast cancer, which Niki had survived, and he had spent a full year working to establish a mentoring program between Lehman and historically black Spelman College of Atlanta, a rare effort on Wall Street.
But when it came to judging the loyalty of Lehman employees, Gregory could be ruthless, given to angry, impetuous decisions. In the summer of 2006, Fuld had hosted a retreat for senior Lehman executives at his vacation home in Sun Valley, Idaho. Alex Kirk, who ran the global credit products group and had previously struck Gregory as a disloyal troublemaker, was due to make a presentation but was unable to make the trip because of an illness. Feeling better, Kirk decided to make the presentation via video feed, and when Gregory saw how well Kirk looked on the video, he was incensed. Kirk was clearly not sick, Gregory was convinced, and his failure to show up in person was nothing less than a personal insult to Fuld. “I want him fired,” he yelled. Kirk’s allies at the firm had to appeal to Bart McDade, Lehman’s head of equities, to intervene with Gregory and calm him down. Cooler heads eventually prevailed.
The Lehman deal maker who had prospered most under Fuld and Gregory was Mark Walsh, a socially timid workaholic who ran Lehman’s real estate operations. An Irish American native of Yonkers, New York, Walsh made his mark in the early 1990s when he bought commercial mortgages from Resolution Trust Corporation, the outfit established by the federal government to clean up the savings and loan debacle, and packaged them into securities. A lawyer by training, Walsh seemed immune to risk, which impressed Fuld and Gregory to no end. They gave Walsh free rein, and he used it to ram through deals much more quickly than the competition. After the developer Aby Rosen closed the $375 million acquisition of the Seagram Building in only four weeks, Walsh bragged to friends about how swiftly he had been able to execute the deal.