10. Troubles

I didn’t always do the right thing.

This post will be an effort on my part to capture in fewer than 1,500 words an experience that took me 150 pages of self-reflection to sort out back in 1991, after I had left the bank. I needed to understand how I had screwed up a career I loved.


In the mid-1980s, the big commercial banks were beginning to work their ways back into the investment banking world; Glass-Steagall, the Depression-era law that had split commercial and investment banking, was going away. My employer was one of the banks trying to learn new dance moves. I was one of the bright young things sent out onto the dance floor.

I was five or six years into a management-track job that senior management still thought of as a presumptively permanent, almost familial relationship. I had never been too obviously foolish and had even come up with a couple of clever ideas, so I guess they figured that I was as well-qualified as any. I was asked to be co-head of a new group providing purely advisory and capital-raising services to clients, i.e., acting as an agent on clients’ behalf, rather than being a lender, acting on behalf of the bank. The one drawback being that we didn’t have any clients who were ready to employ us as agents at the time.

One fine day, my new boss approached me with the news that a private equity group that the bank had invested in was trying to buy a company and would want a lot of our money and advice. They didn’t really want our advice, but they were quite happy to name us as their advisors on the deal – thus giving us credibility when pitching other potential clients for such roles – as long as we loaned them the money they needed. I was to be the “advisor”. Needless to write, that’s not how my boss explained the situation, but those were the facts.

Lest I come across as having been cynical, allow me to interject that I loved my job and the institution. I had fallen into banking by mistake – I had gotten my job because I went to Princeton and one of my older brothers knew the guy doing the hiring – but once in place, I had found that banking is a fascinating business and that the institution in which I found myself was run by smart, hard-working, trustworthy people. Well, other than my new boss, who was an import from one of the lesser investment banks; him I didn’t trust at all.

In pursuing this particular opportunity, while we figured out what organization would actually sign the contract employing the bank as an advisor, I threw myself into the work of helping the private equity firm that had brought us the deal. My real role, from their perspective, was figuring out how much money I could talk the team of lenders assigned by the bank to look at the deal to come up with. Nominally, of course, that was the job of the lenders – but since the lenders all knew me, I had an inside view of their work and credibility with their credit officers that embodied the inherent conflicts of my role; was I representing the prospective borrower, or the bank?

The good news – initially – was that I took an instant and powerful liking to the CEO of the company that was trying to do the acquiring, who, in the end, signed the advisory engagement letter and paid our fees. But wait, … was I representing him and his company or the private equity firm that (the bank had invested in and) might – or might not – emerge as the company’s controlling shareholder if the deal took place? The company didn’t yet have a deal with the private equity group that the bank had invested in; it was also talking to other prospective investors.

According to my boss, my job was to get the deal done in the way desired by “our” private equity group. In his view, we worked for that private equity group – period. The fact that the company was paying our fees was beside the point.

We did get the deal done – the acquisition happened, and it was funded by “our” private equity group and the bank. It was an ugly, ugly process in which I felt the twin conflicts interest – bank versus borrower, company versus private equity group – in the sharpest ways.

Even so, for a while, the deal made me a hero within the bank. It was our first significant M&A transaction! We were investment banking big boys now, whoo boy! For the second time in my career I was touted internally by senior management as the brightest of bright young things.

I don’t blame myself for how I had navigated the conflicted waters of that deal – I had been launched into choppy seas in a very small boat. It’s what I did after that that was more problematic.

The CEO of the now much larger, private equity and bank -funded company that had emerged from the acquisition thought highly of me, as I did of him. He and I had spent a great deal of time together through the deal process and he figured I was his kind of guy – and that I knew people and things that he didn’t.

He had big plans. The deal we had worked on together was just the first step – he wanted to do many more. And he figured I was just the man to help him. He offered me the number two position at his company, with equity upside.

I listened more than eagerly. This could be my big break – and a way to get away from a boss I didn’t like one bit. I would miss the bank, and wasn’t too eager to move out west where the company was located, but those seemed like fair tradeoffs. I would make a lot more money.

Problem was, the company already seemed to be heading into difficulties with both the bank and the private equity group. Such troubles, if they proved serious, would bring out all the conflicts of my recent roles.

Was I representing myself or the bank in those discussions in which both my possible employment and the over-all situation were discussed? Was I still supposed to be advising the company? (According to what I was being told by my boss, I was supposed to be advising the company – to do whatever the private equity group and the lenders wanted; he didn’t know or care whether the CEO was correct in whatever the latter was arguing).

Also, I wondered: did the CEO want me on his team to better arm himself for negotiations against the bank? I couldn’t dream of harming the institution that had been so good to me. Even so, I was very interested in taking the job. I still thought the company’s CEO was a great guy, being unjustly pushed around by the private equity group.

One night, the company’s CEO and I had dinner with the Beloved Spouse to discuss the implications of the possible move. To make a long story short, she couldn’t stand him. After the dinner, she put her foot down, telling me that he smelled dirty to her, and insisting that I not take the job.

I was shocked. I had worked closely with the man for many months and my relationship with him had made a star of me within the bank. I had sensed nothing wrong with his behavior, how could she see it otherwise?

Well, she did. I didn’t take the job.

The company’s troubles gradually got worse, much worse. Even more worrying than that, from my perspective, the company’s CEO came to be seen within the bank as the problem. He was acting deviously with the private equity firm and dismissively with the lenders. How could I have touted him so resolutely?

Eventually, it would come to litigation. Worse, I eventually concluded that everybody else, especiallly the Beloved Spouse, was right. I had made a terrible character misjudgment, and the bank’s loans were in deep waters. I felt like an idiot.

As the legal teams for the various participants prepared for a drawn-out, ugly battle, the head of a workout team, named Don, and a team of bank lawyers grilled me on every aspect of the relationship. I had known Don for years and viewed him as a wise and kindly, slightly elderly man.

After answering all of their questions, I volunteered the news that while these troubles had been brewing I had been talking to the company’s CEO about leaving the bank to work for him. I could see the disappointment in Don’s eyes as he thought about my behavior. How had I permitted all these conflicts of interest to fester? What had I told the company’s CEO that they would later be hearing in court?

A few days later, he told me that he thought that the damage to my reputation could probably be repaired. He meant what he said, but I didn’t think he was right.


M.H. Johnston


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