Scenes From A Life In Business

Dear Readers:

This extended post is a compilation of stories about business the great majority of which were originally written as separate posts between November 25, 2018 and January 2, 2019. I have reordered those posts chronologically to make the meta story easier to follow. These stories focus almost exclusively on my business life, with few references to my other interests; even so, they tell the story of a very personal journey.

The big picture: I was employed by what was then one of the largest US banks from 1980-1990, then by a British merchant bank until mid-1993, at which time I left to co-found a tiny investment banking firm. In 1998 I sold my interest in that business and became the junior partner to a man to whom I had been the financial adviser since the mid-eighties. Together, we built a substantial company, more or less from scratch. In 2014 we sold by far the largest of our business units with net proceeds that reflected a roughly 24X return on all invested capital. I then exited that partnership with the idea of finding other outlets for my energies.

Now that I’ve resorted the business posts I wrote early last winter, I see big gaps in the story and references in the old posts that no longer work as a result of the new order in which they’re presented; consequently I plan to both edit the old posts and add new sections over time to make this now quite lengthy narrative work better as a unified story.

I will not sent out notices of additions or edits to this post – I’m just going to treat the task of turning it into a proper long-form story as a kind of oddball hobby – but I’ll leave it up alongside To See America as the two “permanent” CH posts, so you will be able to check in on it as you like.

In the meantime, please forgive the gaps and typos; it’s very much a work in process.

– MHJ 12/10/19

My Introduction to the World of Banking – 1980

(The following couple of sections were written in 1991 as part of a memoir of my ten year career at the bank; I wrote that memoir as a way to wrap my head around how I had screwed up that portion of my career; as you’ll note, its tone is different from my more recent reminiscences):

I got my first job the old-fashioned way – connections:

One striking feature of this nation’s great universities is that they teach their students that they are destined to lead.  You, they seem to say, are the cream of the crop.  You are young, you are talented and we have anointed you with the holiest credentials.  The world awaits your coming in glory.

So strong was the effect of this subliminal message on me that in the spring of 1980, with graduation from Princeton fast approaching, I felt no urgent need for firm plans.  I had taken the Law School Admissions Test and sent off some hastily written applications to Harvard, Yale and a couple of other chosen schools.  In due course I would learn which program Fate had in store for me: and in the unlikely event that Fate frowned on this course of action, it would doubtless prove to be because it had something better in mind.

One of my older brothers had proven the certainty of victory for the elect.  He had graduated from Princeton some years earlier with no disclosed plans.  After spending a year or two traveling and contemplating the meaning of life (to the considerable consternation of our parents, who would have much preferred that he support himself), he had found his métier in a spectacular venture capital job in Hong Kong.  He’d landed the job entirely offhandedly through the father of a Princeton friend. 

When I got an unexpected call from that brother in April, I was quite excited.

“I’ll be coming into New York for a day or two,“  he said to me.  “Come meet me for drinks on Thursday night at the Sherry Netherland.  I’ll also be inviting some old friends from school.”

So I dug out a jacket and tie, and, on the appointed day, off I went.

My brother is a big man, six three to my five eleven, and he and his friends towered over me at the bar.  I did my best to act the part of the adult that all of them were, but felt a bit out of place as the conversation dwelled on careers, marriages and children.  Apart from contributing some small talk about Princeton I found myself spending the time smilingly listening to the background music of the presumed prosperous years to come.

Several hours into the evening, a particularly imposing friend of my brother’s, whose name I had missed, turned to me with a friendly grin and said:

“So, Mark, what are you going to do next year?”

“I don’t know,” I responded, “maybe go to law school.”

“Have you ever thought about going into banking?”


“Well, listen, I’m in charge of recruiting for one of the big New York banks; let me give you my card.  I’d like you to come in for a visit; if you don’t like it, fine, but I think you’d enjoy it.” 

He handed me his business card.

“Sure” I said, doing the polite thing.  “That would be great.  I’ll call you next week.”  I stuffed his card into my pocket and determinedly steered my attention back to the main conversation.

As the night wore on, I made sure I got a closer look at the man I had so suddenly agreed to call.  Tom, he was named, was a big – as big as my brother.  He was also even more Nordic-looking than the rest of the crowd; with his easy smile, blonde hair, blue eyes and perfectly fitted Brooks Brothers suit he looked like the male model that I later learned his brother was.

I pulled out his card prior to calling him on the following Tuesday.  It read:

Thomas …

Assistant Vice President

I thought the AVP title less imposing than the man.  (Wasn’t one supposed to be a partner six or seven years out of Princeton?  Or, if they didn’t have partners at a bank, what was the equivalent title?  Surely not AVP).  Nevertheless, I had said I’d call so call I did.

“Tom”, I said “Mark Johnston.”

“Hi, Mark, when are you coming in?”

“Well, I was thinking about next Friday.” I had decided to combine the visit with a date, a figured that Friday night would be the start to a great weekend.

“Sounds fine,” Tom said, “why don’t you come by around 10:30 a.m.  I’ll show you around and tell you about the bank, and get you out in an hour or so.”

“Okay, look forward to seeing you.”

“Same here.”

I suppose that the reasons that I had accepted Tom’s offer to introduce me to the world of banking involved more than just politeness.  I was slightly curious, and thought it might be a good idea to learn a bit about the business world just in case law school didn’t pan out.

The following Friday was a cold spring day.  I wore my sole business suit, gray flannel, and an old oversized winter overcoat of my father’s.  I arrived at the Wall Street subway stop at least an hour early; I’d had a train schedule from Princeton to Penn Station, but had no idea how long it would take to get down town.

I spent the hour walking around Wall Street.  At that time there was almost nothing going on in the area that was unrelated to finance, and during business hours the streets were deserted.  Huddled in my father’s overcoat, ungloved hands in my pockets, I soaked in the aura of undiluted majesty and wealth.  The Stock Exchange, Trinity Church.  Images of ticker tapes and Depression era suicides.  Business, I thought to myself, had a certain grandeur.

The bank’s headquarters building had a feel of understated gentility that contrasted well with its more modern neighbors. It had a pleasantly old fashioned feel. The halls were wood paneled, and covered with pictures of old bankers and 19th century sailing ships.  Tom ushered me from the waiting room into his office at the appointed time.

“Have a seat, Mark” Tom said, closing the door.  “I’m going to take the next forty-five minutes to tell you the questions your interviewers are going to ask you if you decide to come back for a full day of interviews.  I am also going to tell you the answers you are going to give them, so take notes,” he paused to pass me a note pad. 

“When we’re through you can think about how comfortable you are with the answers.  If you like them call me back and I’ll set up the follow-on interviews. You’ll get the job.”

I was a bit taken aback by Tom’s directness.  Gone was the bonhomie of the Sherry Netherland; gone, too, was any bluster I may have planned to summon if, as expected, our discussion turned into an interview.  I had never before had a formal job interview, and this was not what I had anticipated.

“I will assume,” Tom began, “that you know nothing about banking.”

Well, I thought to myself, you got that right.  Half embarrassed and half grateful, I sat quietly taking notes while Tom talked about why I wanted to be a lender.  He spoke stirringly of the intellect and judgment required of an arbiter of credit and the drive and style of a successful marketer, and of how few people could fill both roles.

When Tom finished his discourse on corporate banking, I thanked him.  Still slightly dazed, I accepted his offer to arrange a day of in-bank interviews.

“Read this,“ Tom said as he passed me an annual report for the bank.  “You’ll be expected to know a bit about the bank.”

When the day of interviews came, it went almost entirely according to Tom’s script.  The sole moment of panic I experienced (think of the embarrassment if, having gone this far, I didn’t get the offer!) was at the start of the day’s final interview.  This meeting was clearly the day’s most important, as Tom had noted: Mr. Big, Senior Vice President.

After his secretary had established that Mr. Big was free, I was brought to his corner office.

“Hi, Mark,” Mr. Big said in a deep baritone “I’m Mike”  Again, a big man, but unexpectedly bald.

“Hi, Mr. Big,” I responded “pleased to meet you.”

“Call me Mike,” he commanded, gesturing for me to sit on the couch.  He sat in a facing armchair, and scanned my resume.

“Nice resume,” he said.  “Exeter, Princeton, varsity crew, English major.”  He shook his head approvingly. “I don’t see anything that indicates an interest in banking though.”

All I could think was that he was right: I never had shown any interest in banking, and indeed I had never thought banking was much more important or interesting than cashing checks until I’d met Tom James in a bar.  Somehow, though, I didn’t think that I should mention this, so I froze.

After an awful moment of silence, Mike added “Of course, I might add that your resume looks remarkably like mine did twenty years ago.”

A relieved shudder, and I was as loquacious as ever; I knew I was in.

A week or two later I received a job offer in the mail.  The letter was from Tom; it formally offered me a place in the bank’s management training program at a salary of $16,500 per annum.  I was taken with the seriousness and moment of my first real job offer.  The letter stipulated a period of two or three weeks to accept or decline.

Over the defined period, I was disconcerted to receive rejections from three of the four law schools to which I had applied, and no reply from the fourth.  The rejections came as a surprise to me, as I had never previously been rejected by an academic institution I had wanted to attend.  But there I was; I had to accept the job offer or gamble that the fourth school would differ on my fitness for legal training. 

It is a measure of how much I have since changed that I now remark at the feeling I had then that, if I accepted the job, as a matter of honor I would have to go to work for the bank even if I were subsequently accepted by the laggard law school.

I called Tom to accept the job.

“Write me a letter,” he said.  “The offer expires any day now.”

A footnote: months later, while in the midst of the training program, I got an unscheduled lesson in negotiation.  Several of the trainees were standing around one of the study cubicles discussing salaries.  As I joined the group, Jeremy noted that this pay was $17,000, and Peter bragged of having gotten his pay upped to $18,000 by playing off three simultaneous offers.

I was shocked.   Tom had only offered me $16,500, which I had accepted.  And I had thought he was my friend!

In the Beginning – 1981

After the training program was finished, we new graduates were sent for three rotations, month-long trial assignments in various areas of their designated divisions.  These were designed to expose us to various line teams and provide us with the opportunity to show our stuff.  Those who had done well in the program were given their choice of the groups to which they could rotate, while those who had done less well were given rotations considered less desirable.

Having done well, I was allowed to set my own schedule.  For my first rotation, I chose Workout, the team that handled non-performing loans, which I assumed would be fascinating.  Then I would head out to the San Francisco representative office for the fun of it; and, for my final rotation, I would work with the group I wanted to join permanently, the Multinational Group.  It was presumed that after the rotations one or more of the line groups would seek to bring you on board permanently, and you could choose among the offers.  If you didn’t get any offers, you were assigned to the least popular area.

The Multinational Group had just been formed to take care of the relationships with the bank’s largest customers.  It was from the tending of these relationships that all of the bank’s senior management had sprung.  This was the most prestigious area in the bank, the state of the art, and only the best could get in.  Nobody asked how profitable this group was, or where the business was going; Multinationals was the land of giants.

Bright and early on the first day after the training program’s end, I showed up at the desk of Mr. Benjamin …, the Workout officer who’d requested a rotating trainee.  I say desk because in spite of the fact that he was a vice president and a very important man, it was just that, a desk, not an office.  While I had trained, the bank had started moving its headquarters personnel from downtown to much larger and more functional, but less elegant, quarters in midtown.  Consequently, most vice presidents no longer had offices.

Ben was sitting behind his desk, feet propped on top.  Looking rather disheveled, he was drinking coffee from a Styrofoam cup.  He looked up from his paper and greeted me.

“So, you’re here to help for a few weeks.”

“Sure am,” I said.  “Got any credits you’d like me to look at?”

Ben laughed, “Where’d you go to school?”


He smiled.  “Me too.”  There was a moment’s pleasant silence.

In those days the bank had many Princeton connections.  In addition to Tom and Ben, the bank had Princetonians at every level. The bank’s chairman was a tiger, and so were three executive vice presidents, including the head of the Corporate Division. I didn’t expect special treatment because of my alma mater, but I hoped for it.

“Let me tell you what I do,” Ben said.   “One company: Chrysler.

“Did you know that the credit analysis forms you’ve learned are crap?”  He watched for my response.

“Not really,” I replied with a smile and a palms and shoulders up nobody-here-but-us-idiots motion.

“Let me show you the last write-up on Chrysler: the one we gave to the board.”  He pulled a slip of paper with one brief paragraph on it out of his desk. 

“All that crap they teach you on the training floor is a waste of time.  Most people who do dumb deals have no idea what hit them.  Most of the crap people write in analyses has nothing to do with whether or not we’re going to get paid back.”

He paused for effect, looked for a handkerchief and, not finding one, blew his nose onto a small piece of notepaper. Then he grinned at me again.

“I’m going to ask you to do a little research for me,” he said.  “Also, to carry my bags to some meetings.  But I’ll let you come and listen in,” he added, “so it should be fun.”

And it was.

Ben was by far the smartest guy I’d met at the bank, maybe the smartest I would meet.  Doing research for him was like amateur sleuth work, only we were searching for clues on breakeven levels and floors of product demand instead of common infidelities.

The highlight of my association with Ben occurred some time after the rotation had formally ended, when he took me to an International Harvester creditors’ committee meeting.  At the time, I was employed by the Multinational Group, but allowed to occasionally do some work for him.  The meeting was attended by the top workout people from all the major banks, and the topic was whether or not to liquidate the company.

The workout community is a fraternity.  The same men (and women, though fewer in number) face each other across the negotiating tables in almost every big deal that goes bust.  Sometimes they’ll be on the same side, sometimes not, depending on where each institution is among creditors of the broken company.  The same people may be allies on one deal while they’re fighting each other on another.

The Harvester creditors’ committee meeting was big: representatives of twenty or thirty institutions sat around a huge oval table in Citicorp Center.  It was immediately apparent from the jocular small talk around the table that the Harvester meeting was something of a reunion for the workout people who’d lived through the Chrysler negotiations together. When the conversation turned to Harvester, it got deadly serious.  The discussion wound around and around the subject of the company’s viability, rising and falling in intensity.

These men, I thought to myself, have the power to decide the fate of a great old company with 60,000 employees, and the responsibility to make the right call, fair or foul. 

Our bank’s share in the outstanding loans was far less than some of the other major banks, and Ben listened quietly to the arguments.  Several times, though, when there was an impasse, all heads turned to him.  In a self deprecating fashion, he would then comment, and his views were accepted as dispositive by the crowd.  It was the most impressive display of authority resting solely on personal credibility that I had ever witnessed.

I fell in love with banking in that meeting. It was a career that was Important; it had Human Interest.  I was hooked.

A Banking Story – 1982

(The following is chronologically the first of the many posts I wrote in late 2018 and early 2019 – so, more than 35 years after the events described; many of the banking posts are, in effect, digests of events described at greater length in the 1991 memoir):

My first real job within the bank was as a credit analyst in the part of the bank that dealt with its most prestigious customers. It was my job to write a four-to-ten-page analysis of each company with which the officers of my group wanted to establish, renew or increase a lending relationship.

When I had first been given the role, fresh out of the credit training program, I assumed that my analyses would be used as part of the decision-making process, and that I was, in effect, being asked for my opinion on the credit worthiness of the companies that I was asked to analyze. It quickly became apparent, though, that the analyst’s job was more to justify business that had already been agreed to in principle than to truly opine on the risks.

It wasn’t that the officers saw the credit analyses as a charade. They simply assumed, naturally enough, that the analyses were meant to document their thinking for the bank examiners. The analyses were a training and documentation exercise. 

The tension between our nominal roles as analysts and our effective roles scriveners became explicit for me in a conflict with several senior officers over an analysis of Manville Corporation. The same conflict would point the way toward changes that were underway in corporate mores.

The Manville account officer, named Harry, had asked me to write an annual review of the line of credit provided to the company by our bank.  Manville had historically been rated a four on a scale of one to nine, with IBM, then the world’s most valuable corporation, a one and a nine being a write-off. Most companies that we did business with were rated three or four, so Manville was considered of normal credit worthiness in the peer group of major US companies. 

Our position in the Manville credit was a minor one; the bank group was led by the august Morgan Guaranty Trust, and filled out by all the other big American banks. Bankers took considerable comfort if a borrower had a strong bank group, and one couldn’t do better in that regard than by having Morgan as the leader. Morgan, the first among equals of American banks, had its pick of American corporations with which to do business, and they chose only the best.

As I reviewed the company’s financial statements and the internally-created credit file of company information and meeting notes, I became concerned about the increasing number of asbestos lawsuits being filed against the borrower. The lawsuits had caused the company only minor costs to date, and while they were being settled by the hundreds, they were being filed by the thousands. Research into the total potential amount of legal exposure faced by Manville proved fruitless.

Much of the content of the credit analyses was descriptive rather than critical.  Earnings rose or fell for whatever reason; the balance sheet was better or worse. The last section of each credit analysis, though, the Risk Analysis, Summary and Recommendation, was the analyst’s chance to state his position.  In this section, which had to be signed by the analysts, the risks and strengths were to be fully discussed and evaluated, and the analyst was to rate the credit.

I had a hard time writing the Manville Risk Analysis section because I didn’t believe that I could quantify the asbestos litigation risk.  True, this litigation had caused few financial problems to date, but at the rate that new suits were being filed; I really couldn’t say what the ultimate costs might be. In the end, I decided to write just that, that the risk wasn’t quantifiable. Consequently, I added, the company’s risk rating should be lowered to a six (but I did recommend that we continue to lend; I didn’t have either the perspective or the courage to opine that we should head for the hills).

Harry was annoyed and disturbed by my analysis, but he let it stand. He signed the credit approval form with a four risk rating below my signature with a rating of six. The same went for his boss, a senior vice president. The file then went for final approval to Stu, one of the top officers in the credit department.

Stu called Harry down to his office to discuss the deal. As a mere analyst, and non-officer, I did not merit inclusion in the sensitive discussion to come. Stu berated Harry for allowing me to write up Manville as a six. He pointed out the strength of the company’s earnings, its long history with the bank and its fine bank group. Then he ordered Harry to either get me to re-write the offending Risk Analysis or get somebody else to write it, since he didn’t want the bank’s permanent records to reflect the thought that Manville might be a six.

Harry asked me to rewrite it as a four.  I declined.

Not wishing to get me into too much trouble, he then either re-wrote it himself, or got somebody else to do it; but the deal was signed off on for the record as a straight four rated credit.

Not long thereafter, Manville did what no major American company had ever done. Not lacking in reported earnings or access to capital, it borrowed to the max under all its credit facilities, and declared bankruptcy. Its novel legal theory was that if it valued all the outstanding litigation claims, the company had a negative net worth. In essence, Manville got its creditors, us, to share in its legal liabilities to its former employees by quite intentionally picking our pockets. The Manville bankruptcy was in court for years, and resulted in its illustrious bank group taking large write-offs.

I later heard that the Manville bankruptcy was a shocking and seminal event for our bank’s senior management. They had never believed that a blue chip company could act in a way that they considered so unethical. Previously, big companies had always bent over backwards to take care of the banking community, presumably on the theory that if you mistreated a member of the banking club, you would never get credit again. Often times, to protect its reputation, a blue chip company would bail out the lenders to an errant subsidiary that had borrowed without a parent guarantee. In the case of Manville, a company with a board full of the leaders of corporate America had done precisely the opposite. They’d made sure the banks took as many of the losses resulting from the pain they had caused as possible. Times were changing.

In the years since Manville filed for bankruptcy, accepted business customs and ethics have changed. Where once a man’s or company’s word was its bond, bonds themselves are now seen as negotiable by their issuers. Not five years after it was bruised by Manville, our bank hired specialists in the hot investment banking field of advising troubled companies on how to use the threat of bankruptcy to renegotiate downwards the amount that they owed. Bankruptcy itself – at least in the corporate world – lost much of its taint of immorality and broken promises, and became a socially accepted business tactic. The world of American finance had become a sharper-elbowed place, where a company could stiff one set of creditors, and expect others to finance them nonetheless.

For me, the Manville bankruptcy was almost a nonevent. Since the credit file didn’t reflect any dissent form the official line, nobody could point fingers at my superiors and ask why they hadn’t hesitated to lend. The only practical effect of the whole affair was that until the day he retired, Stu disliked me.

A Banking Story – 1985

By 1985, I was getting a lot more deal experience, some good, some not.  Most of my time at the bank still was spent working on very mundane paperwork, but I was getting out more and more often.

One day, I traveled to another city with the newly-hired head of our interest rate swaps and options sales team.  Swaps were a hot product in those days, and the banks, which were starved for new products to offer their customers, now sometimes called clients, were extremely eager to establish their credibility.

The basic idea of an interest rate swap is that a company with, for example, a floating rate loan, is able to “swap” its requirement to pay floating rate interest ofr a requirement to pay interest at a fixed rate.  The party with which the company makes this swap, usually a bank, is different from the one that had made the loan (the original lender had apparently wanted floating rate income).  The swap bank agrees to pay the company a floating rate group of payments (which the company will use to cover its original floating rate obligation to the lender) while receiving fixed rate payments in return from the company.  The bank that did the swap with the company can then leave its new fixed income and floating payment stream alone, or it can enter into another swap with a different party to reverse its position.  In general, companies enter into these transactions to decrease their own interest rate risks, while banks enter into them in the hope of making a trading profit.

Interest rate swaps were well and widely understood by the time of our trip, but the new twist, interest rate caps, were not.  Caps allow a company, again through an agreement with a bank, to, in return for a cash payment, receive a promise from the bank tha the bank will pay the company’s floating rate interest if interest rates rise abouve a certain level.  For example, if a company is borrowing one hundred million dollars on a floating rate basis at 10%, maybe it could buy a one year cap at 13%.  If it did so and interst rates rose to 17%, then the bank would pay the company 4%, the difference between 17% and 13%  In the early eighties, the prime rate had recently risen over an unprecedented twenty percent, and companies were still terrified of interest rate increases.

We were going to discuss this new way of protecting companies against sharp rises in interest rates with several companies, and the fellow I was traveling with was considered one of the leaders in the field.  Since it was my role to introduce our new man to the customers’ financial people and then keep my mouth shut, my boss, Paul, was uninterested in coming along.

While we were sitting in the office of one of the financial officers we had come to see, we were told that our visit was timely.  The company had just that day announced an agreement to purchase a mid’sized company, and would probably be borrowing to finance the acquisition.

“Great,” said our swaps man, “you should hedge your borrowing rates by buying a cap from us.”

“Well,” said the assistant treasurer, “we don’t want a cap.  We’re not sure we’re going to borrow.  What we want is an option.”

“What kind of an option?” queried the trader?

“We want an option to borrow the money at a pre-set price.”

“Can’t do it.”

“We’ve only found two banks that can,” said the assistant treasurer, “We’re going to do it on Monday.”  It was Friday morning.

“I don’t know,” I said, “but I think we might be able to do it.”

Our swaps man gave me a shocked look.

“Suit yourself,” said the assistant treasurer.  “Let me know if you can because we’d like to have another bidder.”

After we left the office, the swaps man expressed his annoyance with me.

“What were you talking about back there?”

“Maybe we can,” I answered. 

He then went on to a luncheon and other calls in the area.

I flew back to the bank, and sat down with an older friend named Jacques .  Jacques had spent years with our banks London-based merchant banking subsidiary, and was considered a guru of all things complicated.

“Of course we can do it,” Jacques said.  “And we will.”

And we did.  We figured out how to price the deal that afternoon and got the credit approvals verbally.  On Monday, we quoted on and won the business.

For the second time in two years, I was a new deal hero.  I was asked to give another talk to the lending officers, now the World Banking Group and I got a second spot bonus.  The real reason for so much fanfare wasn’t the profitability of the transaction; it was that I had thought creatively when somebody far senior, and theoretically far more knowledgeable, had said something couldn’t be done.

Another Banking Story – 1985

I may have unwittingly committed a federal crime. Nobody got hurt; nobody even asserted that I had done anything wrong. For a while, my quite possibly illegal act even made me look like a hero within the bank. Only later did I learn of the relevant statute.


In the 1980s the commercial paper markets were disintermediating commercial banks out of their traditional business of making low-risk, short-term loans to high quality borrowers. The major banks responded by reaching for new ways to make money. They began to morph into investment banks or, more accurately, universal banks.

These new roles would mean that they were involved both in acting as principals by providing customers with loans and as agents by providing investment banking services to clients. There are potentially dangerous, inherent conflicts of interest in simultaneously playing these very different roles for one customer/client; I’m not asserting that such conflicts have to be show stoppers per se, but they are a seriously complicating factor in multilayered relationships.

At the time of the story I’m about to relate, I was still a relationship officer on the lending side of the bank, dealing with a handful of our country’s most prestigious consumer products companies. The shift by the bank toward providing investment banking –type products was just getting underway. My employer had recently hired a team of exiles from one of the traditional investment banks to form the nucleus of an in-bank private placements team. Their job was to find and execute assignments to raise money for clients from non-bank institutional lenders, presumably on more favorable terms than the clients could get from commercial banks.


One of the companies for which I was the relationship officer was financially less powerful, and accordingly more reliant on its banks, than the others.  I had to spend an inordinate part of my time each year making sure that the credit analysis for that company was perfect, because our credit officer, Stu, didn’t like the company and always looked for ways to take out his concerns on the presenting officer.  Stu was celebrated for re-doing all the math on such credit applications, and Lord help the officer that had let sloppy work get through.

One day I received a call from Frank, the assistant treasurer of the company.  He and I had developed a good rapport over the two years that we’d been meeting.  We’d even played golf together a couple of times.

“Hi, Mark,” he said.  “We’ve got a new deal for you.  But you’ll have to move fast.”

“Terrific,” I answered.  “What’s up?”

“We’re doing a new venture in Texas.  It’s related to one of our operating areas, but we’re doing it on a joint venture basis with the local entrepreneur who brought us the idea.  Joe” he referred to the company’s chairman, “loves this guy.”

“The financing will be sixty million dollars.  Texas is letting us finance it through IDBs”,(Industrial Development Bonds) ” but, given our credit ratings, we’ll need to have bank letters of credit (guarantees) to get the bonds placed. We’ve been talking about the structure with Bankers” (their lead bank was Bankers Trust) “and they’ll do twenty and want us to get other banks for the other forty. Given the startup nature of the venture, the LCs will be fully guaranteed by the parent company.

“We’re giving you the opportunity to do twenty, on a par with BT.  We see this as a major chance for you to step up in our relationship.”

“Great,” I said.  “We’re honored to be given a look. What have you got on the new venture?”

“Tons of stuff. I’ll FedEx you a package.  But you’re going to have to work real fast on this one.  We’ll need an answer subject to due diligence in a week.  If we don’t place the bonds in the next month, we’ll lose the legal authority to do so.”

“Okay,” I said, knowing how hard it would be to sell Stu on the idea of the company borrowing sixty million dollars to finance a new venture. 

“The approvals aren’t going to be easy on this one, Frank.  This deal better be good.”

“Don’t worry.  We’ll make it good.”

When I got the package, I saw that the deal looked really difficult.  The new venture was only peripherally related to the company’s business, and quite speculative.  Admittedly, the LCs would be guaranteed, but this company couldn’t exactly afford to lose sixty million plus the equity that they were putting into the venture, and bankers know that having to rely on guarantees is bad business.  (Lawyers, as I was learning in law school, could find a million and one reasons to claim that the most straightforward guarantees and contracts could be voided).

For the next week, I worked nearly around the clock.

To my surprise, the preliminary credit approvals came more easily than I had expected.  True, Stu didn’t like the venture, but he seemed tentatively willing to go along if the due diligence panned out.  Accordingly, we made arrangements to go along on the BT-organized due diligence. And started to encourage Frank that we were likely to do the deal.

Just before the due diligence trip was to begin, I had an idea.  I called Frank.

“Frank,” I said, “who’s placing the bonds?”


I was shocked.  Why hadn’t I thought of this before?  We were going to provide LC support for an IDB issue that BT was placing.  How embarrassing!  They were acting like investment bankers and we were just the dumb credit suppliers.

I had been under a lot of pressure to get this deal done quickly.  Suddenly, I saw a way to make it all worthwhile.

“No, they’re not,” I said.  “We both are.  We are not going to back bonds sold by BT.”

“No way, Mark, They’ve been running this deal all along.  You can’t horn in on it.”

“Okay,” I said.  “Then we’re out.”

I was way, way out on a limb here.  We’d invested a lot of time and money in this relationship, and I was risking it all on the bet that they couldn’t get the deal done in time without us.

“You don’t have the credibility in placements that BT does.” Frank said bluntly.

“They had to sell Joe on their capability; he wanted to give it to our traditional investment bankers.”

“Then do it without us.”

“I’ve got to talk to Joe about this.” 

Frank was in pain.  It was clear that he, too, didn’t think they could get it done without us.  He didn’t want the deal to blow up over a bank ego issue.

“Are you sure you can do it, Mark?  It’ll be my word to Joe.  If you guys can’t sell the paper, I’m screwed.”

“We can sell the paper.”

Under the pressure of time, the company’s chairman agreed to the change.  They probably had to pay BT the full placement fees, and more, for giving up the privilege of solely placing the bonds.

I was briefly a hero once more.  I say “briefly” because the story had an unexpected ending.*We couldn’t place the bonds. Not one.*Not only that, but BT could.  They sold all their bonds.  And ours.  Once theirs were sold and they heard that ours weren’t, they bailed us out by finding buyers for our paper.

The deal suddenly entered the Orwellian world of unhistory within the bank.  It Hadn’t Happened.

Fortunately, Frank survived our failure because BT had gotten all the bonds placed.  But I had never been so humiliated in my life.

There were three hard lessons for me in this situation.  First, this wasn’t like the business I was used to where if we liked a deal we did it: investment banking depended on things beyond the banker’s control. Second, I had to be a lot more careful about whose word I believed when it came to what new products we could deliver.  The third, and this was the hardest of all, was that my institution was falling behind its peer banks in the move into investment banking.


Not long thereafter, in my final year of attending law school at night, I learned that it can be a criminal offense to “tie” the sale of one product to another. As I recall, the basic principal is that you can’t operate a store at which you sell apples for a dollar, then tell a particular customer that he can’t have an apple unless he also buys some milk for two dollars – that’s a criminal violation of antitrust law (or at least it was described as such when I was in law school) because it’s assumed that you’re trying to use your market power in apples to coerce somebody into buying milk.

Could such a law have been applied to my behavior, when the products we were selling – loans, on the one hand and agency services on the other – were only ever made available on a discretionary basis?

Beats me. But I’m pretty sure that it was routinely, if more subtly (and more successfully as to the end result!) done as the big banks muscled their ways into the provision of investment banking services.

Worlds I left Behind – 1986

I was on top of the world.

The Beloved Spouse and I were vacationing in San Francisco with our first child – a beautiful baby girl. I had just finished a four-year program of getting a law degree at night while working at the bank full time. My job had been going exceptionally well – so much so that I had just been promoted in title and given a grand new opportunity – I was to be one of the leaders of our institution’s move into investment banking. A huge honor for a guy who was only twenty-eight.

We were staying in a fabulous apartment (today it would probably go for ten or fifteen million) owned by a friend of the older of my two brothers. My six-years-older brother lived in San Francisco; he was stupendously successful (but not as stupendously successful as he would eventually become) in a field few normal people knew about at the time, venture capital. He was one of four venture partners in a groundbreaking firm.

I was planning to play squash with my brother this morning. Wearing street clothes and carrying a gym bag, I headed to his office downtown. It was a work day.


I had already done a couple of noteworthy things at the bank. For one, I had saved a major consumer products company – I would bet hard cash that you have at least one of its products in your home today – from liquidation.

That boast sounds like an exaggeration, but it really isn’t one. Our bank was one of the lesser participants in the company’s bank group; the lead was Chase Manhattan. The company had done some dumb things and was deeply in default of its borrowings. Along with my boss, a smart, brawling Irish-American, I attended an emergency bank meeting in which the lead banker from Chase, a woman, declared that her institution had given up on the company. She would be turning the relationship over to workout, which would be pushing for a liquidation. She was doubtful that we – the bank group – would recover much on our loans.

We all went back to our respective institutions to consider our options.

After diving deeply into everything we knew, or thought we knew, about the company, I decided that I thought it could be saved, return to profitability and eventually repay our loans in full. The catch was that giving it a chance to do so would mean extending yet more credit, an act that in such circumstances is generally derided as “throwing good money after bad”. To say that our credit officers would be opposed to such a move – especially since the company’s lead bank was throwing in the towel – would be a gross understatement.

Nevertheless, we got it done. My brawling Irishman boss agreed with my ideas, and he and I bullied the deal through our approval process, simply refusing to take no for an answer. (That was an amazing process; it was when I learned that even the most senior officers have a very hard time saying no to subordinates who have good arguments and ferocious determination). We replaced Chase as lead bank and got the other banks to go along with a restructuring with some new money. The company recovered and thrives today. I emerged from the experience convinced that being a banker was one of the most important jobs in the world – my efforts had been instrumental in saving many thousands of jobs at the company and a great deal of the bank’s money.

Ironically, I don’t think that it was my role in saving that company that got me my highfalutin new role at the bank. Very few people knew about the company’s near-brush with corporate death. What got me my new position, I think, was a simple-but-clever solution I had come up with to a problem that one of our big customers had. I figured out that two and two equal four, even looked at from an unusual angle. For that, I was praised to the skies by senior management, and was about to be launched into a role in investment banking.

In any event, at the time of the San Francisco trip, I was convinced that it was my destiny to run the bank someday – and that I would truly love that role.


When I got to my brother’s office, planning on an 11:00 AM game, he told me that something had come up and suggested that I hang out with one of his partners while he sorted it out. I did so; the partner and I were together for quite a while; we talked about lots of things.

A couple of hours later, my brother poked his head into the office where we were, told us he was still in a bind, and said he would take me off his partner’s hands. He then delivered me into the hands of another of his partners; we had lunch.

You guessed it; I never got to play squash with my brother that day. In midafternoon we had a repeat of the scene with the first of my brother’s partners and I was sent to hang out with the most senior guy in the firm; with him, I mostly listened to whatever he was doing, or talking to me about. I was wryly amused by the whole process, but resigned to having had a restful day.

At the end of the day, the four partners got together in my brother’s office. We were in an old 1920s-type building in downtown San Francisco, so I sat on a radiator cover next to an openable window while they talked. I was a little embarrassed to be present in such a private meeting, so I pretended to read a copy of Business Week.

At length, the conversation turned to personnel. They were all too busy, the top man said, serving on too many boards each, not having enough time to really look at opportunities. They would need to plan to add a partner or two in the foreseeable future. What did the others think?*They talked about various junior employees at the firm (now I was really embarrassed); the consensus was that none of them would be ready to step up any time soon. Then the senior partner asked each of the others for ideas. Several were mentioned, and left for general consideration.

My brother was asked for his ideas last. He said nothing, but merely pointed at me. I couldn’t very well pretend not to have seen it, or followed the conversation.

The head guy turned to me and asked: 

“Well, Mark, do you want the job?”

I thought for a moment, but only a moment.

“No, thank you,” I responded.

Troubles 1987-1989

I didn’t always do the right thing. This post will be an effort on my part to capture 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 head 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 actual client was correct in whatever the latter was arguing).

Also, I wondered: did the client 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 client was a great guy, being unjustly pushed around by the private equity group.

One night, the client 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 borrower-now-former-client 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, especially 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 client 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 client 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 believe him.

Never is Almost Forever – 1988

In the first flush of my apparent triumph in the deal described in Troubles I embarked on another deal opportunity. This one would also change my life profoundly in ways that would only become clear over the course of many years. The deal described in Troubles would ruin my career at the bank; this new one – a seeming failure at the time – would ultimately set me on a far better path.

In this new opportunity, I got to know the man with whom I would probably spend as much daylight time over the following thirty years as I would with the Beloved Spouse. Maybe more.

Henceforth, I will generally refer to him simply as the CEO.

I had already met him briefly at an industry gathering – a big, brash Jewish entrepreneur who spoke in outer-borough cadences. He was roughly ten years older than I was, so in his late thirties at the time. He was already highly accomplished – the co-owner and CEO of a very successful small business. I would later learn that he had gotten his start with a $25,000 loan from his father in 1971; in 1997 I would help him sell his first business for $174 million. In 2014 we would sell a business that he and I had built together for four times that.

He was quite a guy – I had known it right away back at the industry gathering.

So when, in 1988 as a former lender and recently anointed investment banker I stumbled across an opportunity for somebody to purchase a company that I knew would fit beautifully with the CEO’s company, I went to him immediately.

I had been right that the CEO would want the company that was for sale – he wanted it very badly and quickly engaged me, through the bank, to advise him on the possible deal.*We spent months chasing the company being sold. It was being auctioned by Goldman Sachs. We came up with all kinds of theories – which we fervently believed – why the CEO and his team would do a better job with its assets than anyone else could. We were probably right about those theories, but we would never get the chance to put them into effect.

We stretched as far as we possibly could in the bidding. The CEO’s company was worth maybe $25 million at the time; as I recall we bid $117 million, all debt financed. Those were the days when LBOs – leveraged buyouts – were all the rage and banks were eager lenders. Even so, our offer fell short by a couple of million.

The auction’s winner was a buyout fund controlled by Merrill Lynch. In the month or so that followed the final bids, though, it emerged that the Merrill fund couldn’t finance their deal. The Goldman guys called us back to ask us to rebid. They told us that our bid had been very, very close – we had been the runner up. All we needed to do was raise our offer by a couple of million and we would surely take the prize. To keep us honest, they were also going to the third-place bidder; they would give us and the other firm a week to rebid.

There was one catch: in the month or six weeks since the auction, interest rates had spiked dramatically. And so badly had the CEO wanted the prize that we had bid our last nickel in what we had thought was our one and only shot at buying the company.

As I thought about the re-bid, I concluded that we had to lower our offer by a few million, reflecting the prospective debt’s higher expected carrying costs. Even bidding the same number would, in effect, be a much higher – and therefore riskier – bid. If we even bid the old price, my new client would have much more downside than upside: did he really want to take the risk of bidding that much or more instead of owning, as he already did, a debt-free, highly profitable company?

I met with the CEO and his elderly partner to argue that they should lower their offer. The elderly partner – who had previously had no role in our pursuing the deal – was angry at this advice. He thought I should figure out a way to raise the bid.

The CEO took my advice. We lowered our bid and the other firm got the company.

The CEO told me that he had learned two things about me in pursuing this possible deal: that I knew things that he didn’t, and that he could trust my integrity. He knew that the bank had stood to earn big fees – and me a big bonus – if we had won. He said that he would never do another deal without me by his side. This promise of an unbreakable business relationship wouldn’t, in fact, last forever – but it would last for thirty years, which is almost forever in human terms.

At the time, though, inside the bank, the deal that hadn’t happened looked like a big defeat for me. I had worked for many months on a transaction that had yielded us basically nothing.

It looked like a disaster outside the bank, too.

I was friends with a woman in the bank whose husband was a high flyer on Wall Street – a partner and the head of M&A at one of the most prominent firms. One evening shortly after the events I’ve just described, the Beloved Spouse and I had my friend and her husband over to dinner at our distinctly modest, rented apartment. After I told them the story of the deal that got away, my friend’s husband said:

“It’s a good thing you don’t really work on Wall Street, Mark. You were supposed to tell them to raise their bid.”

Over the years, I’ve thought back on that conversation many times. My friend’s husband would probably have been surprised to learn that in the long run, doing the right thing in that deal proved to be the best business decision I ever made.

P.S. It later emerged that the winning bidder had overpaid; they ultimately went into a no-doubt painful debt restructuring.

A Nice Story – 1988

When our first child was born, the Beloved Spouse was still working so we hired a full-time nanny.

With the exception of a two-year period at the beginning of my Six Dark Years, when we couldn’t afford to have a nanny work for us, we would employ the same lady continuously for about thirty years, during which time she became an integral part of our family. In her last years with us, there was no nannying to be done, but she knew that she was welcome to stay as long as she liked and do pretty much whatever she wanted. She found ways to be helpful.

When we hired her we knew that she was far more experienced at the art of parenting than we were – she was about fifteen years older, had raised multiple children of her own and had worked for others who gave her glowing recommendations. Like many New York -area nannies, she had grown up in Jamaica, then moved here for work and citizenship. She was a devout Christian, and knew the Bible as well as my late mother did, which is saying something.

A few years after she started working for us, and just at the start of my dark years, though I didn’t know that, one day she asked us to borrow $10,000. She explained that there was a government program to fix up and sell abandoned brownstones to homesteader-equivalents in her neighborhood in Brooklyn. The catch was that each buyer had to come up with $10,000.

After discussing the matter with the Beloved Spouse – this was big money for us – I told her that we wouldn’t lend her the money – how could she pay us back? – but we would give it to her.

She said that she could never take such a gift.

After thinking for a minute – I wanted her to get the house and had already written off the money in my mind – I told that, ok, we wouldn’t give it to her, but we would trade it for the right to ask her to come and take care of our kids any time we wanted to take a weekend away to just be a couple again. Who could be better to provide the occasional weekend coverage, when our children already knew and loved her?

She was delighted with this offer, and took it. For the next twenty-five years she, her children and her grandchildren would live on separate floors of the brownstone she bought in Brooklyn.

For the first ten or fifteen of those years, we used our weekend options a couple of times a year. Each time, we would find some new place to explore within three hours’ drive from home. We could just relax and be adults together in ways that were usually impossible for us as harried parents of young children. We also learned that there are a lot of nice places just outside of New York’s commuting range.

In retrospect, the upfront cost of our nanny’s weekend labors proved to be a huge bargain for us. And, as for her, I am quite sure that she positively enjoyed her labors.

Eventually, two of our nanny’s children took serious jobs in Atlanta, and she had gotten well past retirement age if there were such a thing, so she decided that their whole clan should move south. And if you know anything about Brooklyn’s transformation over those 25 years, you will have guessed that she was able to sell her once-forlorn brownstone for a small fortune and use some of the proceeds to set her family up in a beautiful new home.

She likes the climate better down there, but she misses us, and we her.

8. A Failed Deal – 1989

Though I didn’t know it, I was in the twilight of my career at the bank. Mistakes that I had made in the deal that had seemed to cement my position as an up-and-comer were beginning to come into sight. Meanwhile, I was focused on an exciting new deal advising the CEO (yes, the same CEO who nine years later I would join as a junior partner) on a possible acquisition.

Such assignments were what my job was all about; I was a deal maker. I could focus on – maybe – two or three all-consuming assignments a year. If those deals happened, the bank earned big fees and I got big bonuses. If they didn’t, well, that wasn’t good.

This new opportunity was my second chance to work with the CEO. In the first, which had taken place during the previous year, we had become extraordinarily close. We had learned that we enjoyed fighting battles side by side, and he had learned that he could trust me. These stories – of the deal that dashed my career at the bank and of the first deal I did with the CEO – are for other days; today I will focus on the CEO’s first opportunity to go bi-coastal.

The business he owned with an elderly partner was thriving, but had no reach beyond New York City. He had built it from almost nothing, brick by brick, to the point where he felt it was a big enough platform to go to the next logical location – Los Angeles. A chance to buy assets in both great cities was in plain sight.

After the CEO’s company had formally engaged the bank to provide advisory services regarding these possible acquisitions and to raise whatever funding was needed to close the deals, the CEO asked me to attend an unusual meeting. There was somebody he wanted me to meet, a man of whom he said: 

“This is an impressive guy, somebody who could be my partner someday. I have known him a long time and he has a track record like no other. He’s interested in these deals too.”

So I sat in on the meeting with them. The Other Guy was making a pitch that the CEO should buy the businesses in New York and Los Angeles and let him run the latter market as a full one third partner in the parent company with the CEO and his already-existing partner. The Other Guy said he would fly back and forth weekly on the MGM Grand first-class-only flights that were then making the NY/LA trip daily (at the company’s expense, naturally). He also had all kinds of other ideas about how the CEO could make his new job worth doing.

The CEO thanked him for his thoughts and said that he would think about them. I had said nothing, nothing at all, during the meeting.Afterward, the CEO told me that he had been shocked that the Other Guy had presumed that he would immediately be made a full partner in the enterprise as a whole. How could that be justified? He, the CEO, had built the company, and he and his already-existing partner would be paying for the acquisition. It was kind of impressive that the Other Guy was so ballsy, but also a little bit nuts. I made it clear that I thought the request was entirely nuts.The CEO would think the Other Guy’s request over for a few days, then let him know he wasn’t interested. We proceeded to work on the possible deals without him.

We liked what we saw. The New York assets could be fitted right into the CEO’s business; the LA assets were a little different, but we devised a plan on how to make of them something better than what they were. We got more and more excited.The selling company, which had businesses in multiple markets, had asked for separate bids for each market. We submitted what we thought were aggressive offers for the two that we wanted. Our offers were accepted, which meant that we signed letters of intent and began simultaneously both doing due diligence on the two businesses and negotiating final contract terms.

For reasons that will become obvious later, I need to explain the odd ownership structure of the businesses that we were trying to buy. They were owned by a company that was owned by a private equity group. The private equity group, in turn, was majority owned, and presumably controlled, by one of the WASPiest old line investment banks; bankers from that investment bank had written the investment memoranda on the various markets on the basis of which we and others had bid; they were conducting the auctions. In other words, the investment bankers, who ordinarily act as agents for companies, were in this case ultimately in control of the company for which they were theoretically acting as agents – or rather, their employer was.

In the course of our due diligence, we smelled a rat. The closer we looked at the New York numbers, the clearer it seemed that lots of business was being done off the books. We didn’t find any such shenanigans in Los Angeles, but our work there was proceeding more slowly given the complexity of our plans to change the way the seller’s products were being used in that market.

We very much wanted to proceed with the Los Angeles deal, but didn’t know quite what to do about New York. How could we pay a given figure when the one thing we knew was that we didn’t know the real numbers?The CEO and I decided that the right thing to do was for me to go talk to the investment bankers on the other side – tell them that they had an enormous potential embarrassment on their hands. They should pull their investment memorandum about the New York business, assess and fix the internal problems at the company, and sell New York to us later off the real numbers.

It was an awkward meeting, but the investment bankers seemed grateful for what I was telling them. They asked if we still intended to proceed with the LA deal – we did – and thanked me profusely for the information, promising to get back to us about New York in due course.

The CEO and I then flew to LA for extended due diligence and final negotiations. Weeks passed in these processes, maybe a month or more. All talk regarding New York went silent. Eventually, we found ourselves sitting in Los Angeles on a Sunday afternoon, settling final contract points on the phone with the selling company’s investment bankers and lawyers. When that discussion ended, the lead investment banker for the other side told us we had a deal. We agreed to show up the following morning in New York so the CEO could sign the final contract. So, the redeye it was.The next morning, the CEO – my client – got a call putting off the agreed time for signing. He began stewing immediately. When he got another, we knew something was going on, though the other side wouldn’t tell us what.That afternoon the Other Guy called out of the blue. We had heard that he had bid on the Los Angeles business with another fellow, but had presumed that he had gone away when they agreed to sell it to us.

The Other Guy coolly told my client that he had just been appointed CEO of the selling company, and that he was not going to sell the Los Angeles business to us. “I’m pulling the trigger on you” were his exact words. He would later sell the Los Angeles business, instead, to the man with whom he had bid on it before being asked to replace the selling company’s previous CEO, who had been fired. He would keep New York, where he would compete with us directly.Had the selling company’s CEO been fired because of the information about New York that we had provided to the investment bankers? That would be a bitter irony given that his replacement so clearly enjoyed “pulling the trigger” on our deal.

My client was furious. We had spent months – and considerable sums – chasing these deals and now had nothing. Just the previous day, with a fifth-draft contract in hand, he had been told that we had a deal. He threatened to sue everybody on the other side.

They offered to settle by writing a check for all the out-of-pocket expenses he had incurred. He wasn’t happy, but he took the deal.I wasn’t happy, either. My client and friend had been deprived of an opportunity that we had worked hard for and, of more immediate concern, the bank got nothing. Our prospective fees had been success based, and this was no success.

These events took place more than thirty years ago, but their echoes reverberated for decades. If I keep disinterring old stories, you will meet the Other Guy again and again. I thought of nicknaming him Nemesis, but he wasn’t big enough for that. Perhaps Not Friend would have been most appropriate, but it would’ve been a little obvious.

Six Dark Years – 1988-1993

I had six dark years. Six years during which my professional prospects and my earning power were diminishing relative to my personal responsibilities. That’s a long time.

(This will be an overview post – the only one in this series; I think it’s more interesting for you and more challenging for me to try to put you into individual scenes in which tough decisions were made, but this post seems necessary as a connect-the-dots bridge between some of the older vignettes and the more recent ones).

Beginning in late 1987, facts began to emerge about the deal described in Troubles that cast a long shadow over my career at the bank. A deal that had briefly enhanced my reputation as a leader instead came to make me look stupid or worse. Adding to those shifts in perception, the assignments that didn’t result in closed deals described in  Never is Almost Forever and A Failed Deal, which took place in 1988 and 1989 respectively, made me look even worse.

In those years I closed some smaller deals for clients not central to the thread of these posts, but the fees that I generated thereby were not enough to restore the shine to my reputation within the bank. Nor were they enough, in the aggregate, to justify the kind of compensation that I had earned in my peak year (which, admittedly, was more than was the norm among my contemporaries at the bank).

A man in his late twenties with a growing family doesn’t expect to earn less each year than he had made the year before, but that was my new reality. In the late 80s, I even began to worry that I might be fired. The Beloved Spouse had recently stopped working – with my encouragement – when pregnant with our third child, so the possibility of me being unemployed was scary. The Beloved Spouse didn’t worry about it; she was sure I would be able to handle whatever came along.

I always figured that I could find another job – but what? The big investment banks would never hire someone they would see as just another corporate lender; going to another commercial bank to be a lender again would seem like I was going backward from my challenging new role as a paid advisor. I was too young and inexperienced for non-financial companies to look at giving me the kind of job that would be a step up in responsibilities and/or money.

Two or three years earlier, the thought of leaving the bank – of my own volition or otherwise – would never have crossed my mind. I had loved the institution, and it had loved me back. I had loved being  a lender – which I had found, to my surprise, to be a noble and interesting role. Now I was in a very different place relative to both the institution that employed me, and the kind of role I wanted.

In 1990, convinced that the damage to my career at the bank was irreparable, I took another job, walking away from many close relationships and ten years at an institution that had taught me everything I knew about business. It was a loss.

I went to work for the US subsidiary of a British merchant bank. A fine old name, if faded. I figured that prospective US middle-market clients – the kinds of companies I knew – would see the firm’s centuries-old name as prestigious; it would lend an air of credibility to my efforts. I also hoped and expected to meet – and do serious business with – US subsidiaries of European clients of the firm. Changing employers would give me a fresh start in the investment banking business. That was the theory, anyway.

My first discovery was that whereas with my former employer I had been seen as family (other than by my boss in the investment banking group, that is, with whom, as you know, I didn’t get along; it turns out that his career at the bank wouldn’t long outlast mine). I knew all the top people at the bank, and they knew me. The big boys at the new institution – the partners in England – saw me not as a recently wayward and underperforming son, but as a second class citizen. Maybe even third class, since I obviously wouldn’t have taken the job if I had been doing terribly well at my American bank.

They didn’t want me to get anywhere near their clients, that’s for sure. They just wanted me and a couple of other locals do as we were told. We were allowed to have clients, you understand, but only clients that we had independently cultivated. I kept working with my friend the entrepreneurial CEO and a couple of other US companies that I had grown close to in my time at the bank, but other than with such clients, we Americans were strictly staff.

It took me all of a month or two to realize that I had made a big mistake in moving – at least to that particular institution, and maybe at all. I was good and stuck with it for the time being, though; there’s no going home again. At least I had a job and a title that might’ve looked like progress from the outside. And I was being paid a bit better than I had been in my last couple of years at the bank. I felt no risk at all about losing my job – they needed a few locals who were at least presentable.

I still believed in myself; so did the Beloved Spouse – and my friend the CEO. I just needed to figure out a way to get my career back on track.*While at the British firm from 1990-1993, I did do some deals – nothing enormously profitable, but then, my employers’ expectations of us locals were as low as our expectations regarding possible compensation increases. The most exciting of these deals from my perspective was that I helped the CEO finally buy a company in Los Angeles. It was a magnificent transaction from my client’s perspective, and would prove enormously profitable over time, but the fees I earned from it weren’t big enough to change my circumstances in any way. I’m not at all sure my circumstances would have been much changed if the fees had been enormous.

Even so, I was thrilled to have helped my friend, and to see that his business was continuing to grow in size and value. I began to urge him to buy out his elderly partner, who not only wasn’t working much, but sometimes actively getting in the way of the CEO’s efforts. 

“You work incredibly hard, and every year the company’s value grows,” I told him, “and every year you make it more expensive to buy him out.” 

The CEO listened, and thought about my words. He wasn’t ready to make that decision yet, but he didn’t mind my pointing out the obvious.

There was one person at my new firm that I did like: my boss. He was a native Brit – and accepted as one of their own by the English partners of the firm – but also a naturalized American, fully comfortable in both cultures; more so in ours, actually. He and I worked on a few deals together, and got on well. He was always candid with me about how we were seen by our English colleagues, and how we should play our cards to do as well as we could.

He seemed like my only real colleague. Once in a while we would muse about setting up our own shop; it seemed to us that given the absence of any real support from England, our clients were hiring us, more so than the name on the door.

In 1993, our employer’s parent company was acquired by a larger overseas firm. The buyers decided to merge our little business with their pre-existing US trading operations. My boss and I decided, instead, that we would quit and start our own company, a NASD-registered broker-dealer, on a 50/50 basis. He had some long-standing English clients; I had a handful of US middle-market companies that I thought would give us work. We figured it was now or never. With that streak of entrepreneurialism, he really was an American.

When my boss went to quit, his new bosses tried to talk him out of it. When that failed, they offered me his job, i.e., to be head of US advisory services. I can’t say that it wasn’t an attractive offer – much more money and prestige, no risk, at least in the short run; also, the new bosses were more straightforward executives, as compared with the airs-of-empire toffs who had preceded them.

I was never tempted to take their offer. My soon-to-be-former boss and I had a deal, and that was that. We were going to pursue our own dream. It was time to be entrepreneurs.

Thus ended my period of darkness. Oh, as previously recounted my former boss (and now partner) and I would proceed to lose money for the next fifteen months, during which time I nearly went broke; but if you were to ask the Beloved Spouse today, she would tell you that even when we were losing our shirts at our little company, I was happier than I had ever been. I was finally in charge of my own destiny – all we needed now was clients.

A Fuller Picture – 1989-2014

I can’t continue to write these little stories from my career in complete isolation from what was happening in other parts of my life when the events I’m describing took place. We are not uni-dimensional; pictures that present us as such are false.

For example, over the course of our married life, the Beloved Spouse has often commented that during those periods during which I wasn’t exercising on a regular basis, I was much more difficult to live with. She has even put the matter more strongly than that, hard though that may be to believe.

Two things figure into the facts behind her assessment. The first is that regular exercise improves the function of our internal systems; the second, as or more important than the first in my case, is that it can provide us with friendships that aren’t complicated by work or family overlays – and thereby with emotional outlets for the stresses of business and family life.

I felt remiss, therefore, in describing the period from 1987-1993 as my six dark years. After all, 1989 was the year in which an older friend and I started to bicycle together for an hour at dawn on weekdays in the warmer/sunlit months. In the following year, another friend joined us, then others after that.

Soon I found myself seeing five or six friends almost every day during the warm months, and excitedly thinking about racing or going for long rides on weekends with them through much of the year. By 1993, we had planned and were just beginning what would be annual 426-mile, three-day summertime bicycle rides from New York to the coast of Maine. Those extended rides would last for ten years, providing an emotional highpoint to each of them. The weekday morning rides would continue to this day, though the faces would change over the decades and my participation in them would rise and fall. Others found, and still find, the same pleasures in those routines as I did and sometimes still do.

In short, in those dark years when while my career was suffering, my social life – and, no doubt, my physical health – were getting better. I have no doubt whatsoever that without the morning rides or some near-equivalents I wouldn’t have had the physical and emotional resilience that I needed to get through the harder bits of my career.

The Beloved Spouse might not have liked me as much, either.

Some Wisdom and a Friendship – 1993-1994

When I was thirty-five, I started an investment banking business with a partner. I had been working for globe-spanning banks for 13 years, so opening an office with just the two of us was quite a change. My partner and I had worked together for three years before planting our own flag; we had different and, we hoped, complementary client relationships.

I must have looked crazy to my friends. The Beloved Spouse and I had a house, a mortgage and four beautiful children; she cared for them – and me – on a full-time basis. Sure we had a modest amount of savings from the early stages of what might have been a successful, standard-issue career in finance, and some money that the Beloved Spouse had inherited, but we were by no means wealthy and most of these savings would go right into the new business. What would we do if it didn’t work?

I wasn’t being quite as reckless at it might have seemed. I had an enormously successful older brother, and figured that if the new business failed I could always ask him to lend me some money while I looked for a new job. I had already decided that if it came to that I would give up on my dreams for the new company – it wouldn’t feel right holding out for successes that I had failed to achieve on my own while living on my brother’s cash

For the first fifteen months, our new business lost money. Lots of money. We seemed to have the very worst kind of chicken-and-egg problem: the great majority of the executives we had worked with when we were at globally recognized institutions couldn’t work with us again until we had established an independent track record. They had bosses or boards and were afraid of being second guessed if a deal they gave to us – an untested firm – went awry. I had one client that paid us advisory fees – the predecessor to the company I would join five years later – but those fees were a long, long way from covering our operating costs. And neither of us was taking a salary.

The Beloved Spouse has always managed our household expenses. As our savings dwindled to the point of approaching zero, her hands would tremble and she would cry silent tears when she paid the monthly bills. Her closest friends were begging her to tell me to just give up and get a job, but she didn’t. My business partner was much older and he had deeper pockets, so he didn’t share the immediacy of our distress.

By October of 1994, The Beloved Spouse and I could see that if our little company didn’t get a sudden gusher of new business, we would run out of cash in roughly six weeks. I mentally prepared myself to ask my brother for a loan – but still hoped that it wouldn’t be necessary.

I have a friend named Tom who was a partner in a firm that made mezzanine loans and occasionally came into ownership of defaulted borrowers. He had been telling me since the previous springtime that he thought that my partner and I would be perfect to handle that sale of one such company – and was sure that he could convince his partners of that. This was just the sort of assignment that, if it happened, would give us the cash flow we so desperately needed and, as important, the credibility to get work from others who were inclined to give it to us.

The one catch was that my friend had no idea of exactly when the time would be deemed right to commence the sale process. It might be any day, or it might still be six months off. I had been hanging my hopes on the prospect of Tom’s deal for months.

One day in mid-October I found myself in Boston where, in addition to doing whatever brought me to the city, I decided to visit one of my sisters – a very successful lawyer. When I sat down in her office, she asked how the new venture was going.

I gave her the whole story – the difficulties we were having finding new business, the likelihood that I would have to call it quits soon if things didn’t turn on a dime, my plan to lean on our brother if it came to that and the still-hoped-for possibility of a Perils of Pauline save in the form of a deal from my friend Tom. I still believed we could make it.

She took it all in, then said:

“The important thing, Mark, if you don’t make it is always to remember that you almost did. And if you do make it, that you almost didn’t.”

I thought then, and nearly a quarter century later, I still think, that those two sentences together constitute the wisest extemporaneous comment I have ever heard.

As a final note: in the weeks after that conversation with my sister, miraculously, we got not only Tom’s deal, but several others too. All of a sudden our drought was over. In retrospect, Tom’s greatest gift to me was hope – and that gift was damn-near priceless, because without it I would have been living the first of my sister’s two sentences, rather than the second.

2. Another Story – 1995

We already had signed a contract to buy the company – or maybe it was a letter of intent, I can’t remember. No great difference – it’s almost always possible to get out of a deal until the money changes hands.

A young salesman who worked for the company we intended to buy had asked to meet with the CEO with whom I, then a banker, was working; he said that he had important information for us – really bad news. (Note: in these posts, the simple designation “the CEO” refers to the individual who was a client from 1986-1998, then my business partner from 1998 until the end of 2014).

The CEO told the young man to meet with me. I was in the role of Sancho Panza – not so much the CEO’s principal confidant as his only one. Well, for some things the general counsel was another, but the CEO wouldn’t rely on his judgment in this matter – he would have had little context.

Since this was to be an off the record meeting, I asked the young man to meet me at the formerly grand, dilapidated old house that the Beloved Spouse and I had just bought. A home that we would spend years and years fixing. When he arrived, I ushered him into our barely furnished living room and closed its doors so there would be no interruptions.

A sharp-looking young man, direct and friendly in manner. I don’t think I had previously met him in the many discussions we had had with the company – he was three or four layers down the pecking order. I wondered what his agenda was, beyond coming to tell us bad news.

He came to the point quickly: we were making a big mistake. The company had all kinds of problems. He went through them, one by one. His CEO wasn’t a straight shooter, there were problems with the products and the company’s relationships with its most important constituencies were terrible. Operating results could be expected to get worse, much worse.

No specific, factual surprises there; the CEO and I had already figured out most of what he was telling me, and believed in the opportunity anyway. The company, like the house the young man and I were sitting in, was a fixer-upper. The only surprises were in his vehemence and how dire he described the situation as being. How should we weigh his insider’s view that the ship was sinking fast?

It crossed my mind that maybe his visit had been choreographed by his CEO, who had already tried to wrestle the deal over to a more congenial buyer in an underhanded manner. Maybe they were trying to scare us away.

And what kind of salesman would say those kinds of things about the company he worked for? It seemed preposterous that this young man would behave as if his loyalties were to us rather than to his employer. And yet, … there was a special quality to his apparent sincerity. I wanted to believe that he was telling me these things out of the best of motives, even if we were to discount the problems he was describing.

I asked why he was telling us all this. His response was that he was so disillusioned that whether or not the company was sold, he would be looking for a new job. We had a reputation for being good guys, and who knew? We shouldn’t get taken.

I thanked him for having come to us.

Later, I met with the CEO to give him details of the meeting. I had no doubt that we would proceed with the deal – when I mulled over our conversation, I could see no genuinely new information in what the young man had told me, and I knew that unless I panicked, there was no chance the CEO would. I wasn’t going to panic.

The other big question, then, was how we should think about the young salesman. I decided that I thought that he was being straight up, and that we should trust – and keep – him.

The CEO agreed on all points.

Very Personal Relationships – 1996-2014

It would be hard to overstate how close the CEO and I were in those years. For a couple of guys who seemed to have little in common, the CEO and I had established an extraordinary level of personal trust.

When, in early 1996, the head of one of the larger companies that was gobbling up smaller competitors in the CEO’s industry offered him $120 million for his business, numbers unseen, I talked him out of taking the offer seriously. I told him that his company was worth at least $150 million and was still growing fast. Why would he want to sell it and pay huge taxes? What would he do then that would be more fun than what he was doing now? A strange line for a success-fee-earning banker to take, to be sure, but I believed every word I said. By then, I knew the CEO well enough to know that if he sold out and had no company to build, he would be utterly miserable. Dead, maybe, within a few years.

A year later, the same competitor met with him again; this time he offered $140 million. This time, the CEO asked me to dine with him and his wife; he wanted her to convince me that they should take the deal. Over dinner, she explained that they had never had any real security – everything was in the business. This was an opportunity for them to change their lives permanently and for the better.

Who was I to disagree? I made a point about the CEO having to still work, with which I’m certain his wife agreed, and moved on.

The CEO hired our little firm to help him negotiate the deal; he needed about as much help negotiating big deals as a bull needs a haircut, but he wanted me by his side, helping him think through the angles.

We wrote up a little book on his company and showed it to the four companies that we thought might be able to really stretch to buy it. In the end, the persistent suitor’s company got it for $174 million, with a very weak non-compete and – just as amazingly – leaving the CEO still owning the name of the company he was selling and the office space from which he had built it.

When the sale was just about to close, the CEO asked me to stop by his office. He asked me rhetorically how much I had told him to expect; I mentioned that I had said at least $ 150 million. 

“That’s right” he responded. “Now I’m going to give away $20 million of the proceeds to my employees” (of whom he had about 35 at the time) “and I want your thoughts on who should get what.”

In 1997, those payouts were life-changing money for a lot of his employees. And he fully intended to re-employ the better ones in the new company that he was planning to start under the same name. “Same salaries,” he said to them “same perks same office. One difference: we don’t have any assets. Go get ‘em.”  

The CEO went on a six-month vacation after the deal closed to celebrate his new circumstances and let ideas about his new business germinate.We were in less close touch during that period than we had been in years.

After he returned, he asked me to become his junior partner.

“You’re a smart guy, Mark,” he said. “You work hard, and when everything breaks right you make a million dollar fee. You put $300,000 of it into the business, then split the rest with your partner – so you bring home a check for $350,000, which is great. Next day, you’re unemployed again until you find a new client.

“Every time I build a new asset it produces a dollar this year, a dollar ten the next and keeps on growing for decades. And every year I build new assets. Which is the better business?”

Man had a point.

Fresh off my brief, unsuccessful effort to get my then-partner to renegotiate and open up the ownership of our little firm, and mindful of both the CEO’s business’s superior economics and our personal closeness, there was only one obvious answer.

The CEO asked what I would need to make the move. I told him and he agreed.

There was no negotiation, but there was paperwork, which was extensive, expensive (in terms of lawyers’ fees on both sides) and took ages.We restructured his new business as a partnership in which I would have a minority “A” share interest, like his majority one, and there would be plenty of room for the “B” (non-voting) share interests he was giving to certain current employees as well as for future grants to new partner-level employees. (Note: I have elided two different equity discussions – regarding the “A” and “B” shares – to get to a simple description of where we ended up).

While the lawyers were hammering out the paperwork, the CEO and I had a fateful discussion.

He was telling me that I would be his business partner for life and that we would keep our children out of the business to keep things simple. I disagreed.

I told him that, actually, I was a fan of nepotism. Look at Rothschild or Ford Motor Company, I said – companies that had thrived for generation after generation because the founding families stayed in control, providing rock–like stability and long term visions. I told him that I thought we should encourage our children to come into the business and hope to build it for the ages.

I wasn’t a complete fool. I knew that his older child – who was much older than any of my children – would likely come into the business and want to edge me out some time down the road. I thought that might happen ten years out. Even so, I thought I was right about nepotism and, apart from anything else, that having the CEO work with his children would forestall any temptation he might otherwise have to sell the business (again) sooner than I might like. I even anticipated and tried to lighten the burden of guilt he might have some day way down the road about edging me out: 

“Blood is thicker than water” I said.

“No it isn’t,” he responded “I will be as loyal to you and to your children if they come into the business” – he was clearly accepting the course I was recommending – “as I am to myself and my children.”

I’ve already told you about my best-ever business decision; the position I took in the conversation I’ve just described might well have been my worst. But I’m not going to relate the gory details of how I learned that lesson. Some bodies need to stay buried.

What I will tell you is this: both of us eventually employed children of ours in the business. We did it out of the best of motives – parental love. Even so, I don’t think that in the end our having done so was good for any of them, for us, for our relationship with each other or for the business.

In conceptual terms, what I learned is that the child of a king or a prince is not welcomed in the retinues of other lords. Those lords know that the young prince (or duke)’s loyalties run to his or her parent, not to the intermediate lord. The child is seen as a spy, disturbing the lord’s ability to manage his or her own relationship with the king or prince. Who has more power – the lord or his nominal, but royal, underling? The lord fears the latter, and cannot abide that challenge to his authority. The result is strife.

That’s just the way it is. I learned it the hard way. 

A Memorable Scene – 1998

Imagine hosting a fancy party at which you’re surrounded by sixty of your nearest and dearest. Almost all of your guests assume that the reason for your having such a grand gathering is simple – a joint decadal birthday celebration for you and your wife – but that supposition is wrong. Only four know that for many who are present, the economic facts of their lives are about to change in unpredictable ways; the party marks the end of one era and the beginning of another.

If the unwitting guests knew of the changes that are in motion, which they won’t learn about for a few more days, they would be speaking of little else, trying to sort out what it all meant for them or making sure that they talk with people who would suddenly be more – or less – important to their lives. Instead, the chatter is the more usual complement to cocktails and passed hors d’oeuvres among a diverse group of people who work together or are family or close friends of the hosts.

That happened. It all felt surreal.

I so desperately wanted to make connections between those who would later wish that they had made them, but couldn’t do that for fear of leaving them wondering why I had, and maybe revealing too much. In business matters, I can keep a secret.

I have often thought back on those people at that point in time – who knew what, how their lives would change as a result of what they did or didn’t know, connections made or missed. In retrospect, I didn’t know everything I should have known, either. Far from it.

Those people, and that moment, were central to my life and my career, so what follows is a more detailed description of the scene and its backdrop from a much later, more knowing perspective.

The Beloved Spouse and I have nearly identical birthdays, so we were using the occasion of our turning forty as an excuse to give the party. We had never given joint birthday parties before and haven’t since.

We gave the party at the by-then-slightly-less-dilapidated, grand Victorian home that we had bought not too long before. High ceilings, fireplaces in every room, pocket doors, art – some inherited from her side and valuable, the rest neither. The house had once been really something, a gentleman farmer’s showcase on a big piece of land that had later been cut into suburban plots. We hoped to restore the house, though of course not the land. 

The party was catered; smartly dressed attendants would circulate from beginning to end, adding a festive air to the proceedings.*Our four children were there, still young. They sang a song in honor of our birthdays. Everybody loved it.

Many friends were there – neighbors, fellow members of the morning ride, people we had met because their children were friends with ours. Some of them would later become rich or powerful, but that wasn’t our stage of life. These friends were the only ones present to whom knowledge of the changes underway wouldn’t have meant much – a matter of curiosity, sure, but not life-changing.    

The CEO and his wife were there, in a sense fish out of water. They were not the only Jews in a largely Christian crowd, but they were city folk rather than suburbanites – and he was known to my friends as a tycoon, to my family as a close friend and important client, and to my colleagues as by far our little firm’s most important client.  Our firm had closed three deals for his company in the two preceding years – the buyout of his elderly former partner, the purchase of a previously foreign-owned company in a whole new industry segment and the sale of his primary business (he kept the recently purchased company) for an enormous sum. 

The CEO and his wife were the only people beside the Beloved Spouse and me who knew about the changes that were in motion: I had decided to sell my interest in the small investment banking firm that I had co-founded in order to join the CEO as his junior partner in a new business. The papers were in the process of being drawn up.

My decision to leave the familiar world of investment banking to join the CEO had enormous implications for my family, my then-colleagues and my future partner. It would also represent an abrupt change in my life; my name wouldn’t be on the door anymore and I wouldn’t be the de facto  boss – I would be the very-much-junior partner, the other guy. I would also be perceived differently at work every day: whereas I had been putting bread on the table for others at our little investment bank, lots of people at the new company – long-time colleagues of the CEO – would surely resent me being catapulted over their heads. Who the hell was I to them? 

Further, the new business was in a completely different industry. We would be competing against companies with multi-billion dollar market capitalizations in a field in which new product development was widely considered to be impossible. I have often thought since then that if the CEO and I had gone to pitch venture capitalists or private equity people, looking for investments in our new firm, they would have laughed us out of their offices. We didn’t have to do that because the CEO had money from his recent sale – and I had confidence that we would succeed because I had watched the CEO run rings around his competitors for a decade.

My leaving the firm that I had co-founded, and owned half of, would (at least initially) be seen as a disaster by those I would be leaving behind. In the firm’s five-year existence, clients of mine – including the CEO’s company – had generated something like 70% of the firm’s revenues; they would all know that that business was going away.

My soon-to-be-former partner and his wife were at the party. I had approached him a few months before, asking that he consider completely re-cutting the firm’s equity. It wasn’t right that he still owned half, given that I had generated most of the revenue and that the two other senior bankers who had joined the firm were generating as much as he was. He told me to get lost: a deal was a deal, forever. His having said no made my saying yes to the CEO immensely easier.

My soon-to-be-former partner and I were quite friendly at the party – in spite of our differences, I was still very fond of him. Of his wife, not so much, but as it happens she would leave him not long thereafter – a gain for him, in my book.

Three other colleagues from our firm were there with their wives. The best of them was, as I would later tell the CEO while convincing him that we should hire him away from my former firm, the best banker and the worst salesman I had ever met – a true prince of a guy. I would miss his company for the four or five years until we recruited him to be our company’s CFO – to do, as the CEO frequently reminded me – parts of what he had always assumed was my job. That’s alright, as we both knew, he could do those parts far better than I ever could. 

My parents were there. My father was already ailing, my mother in good shape. They spoke briefly with the CEO – they knew that he and I were very close – but they didn’t know how important he would soon be to my life. I wanted to tell them, so that they could really get to know him, rather than spending time with my then-partner, but held back. There would be another time, I hoped – but it never really came. 

And then there was the Beloved Spouse. Needless to write, she knew about the impending changes.

But what I didn’t know is that she was angry. Very, very angry – so much so, she later told me, that she couldn’t even speak of her anger to me for a full year. (Shows how tuned-in I was, eh?) 

Much later, she would explain that I had come home shortly before the party and simply told her that I intended to sell my interest in our little investment bank – for next to nothing, because the buy/sell agreement specified that any sale would be at book value, and we had distributed virtually all profits – in order to join the CEO as his junior partner. 

How could I have thought it was my right to make that decision without weighing it with her, she would ask. She had owned our little firm just as much as I had – she had put her money into it too, and cried silent tears when we had been nearly broke. We had made it through the tough times and now we were thriving, I was living my dream and I was throwing it all away to work for somebody she barely knew? How could I have treated her with so little respect?

At least by the time she told me all that she knew that my decision hadn’t been stupid – just stupidly handled.

Two Men, A Difference and a Strategy – 1998-2006

“My faith! For more than forty years I have been speaking prose while knowing nothing of it, and I am the most obliged person in the world to you for telling me so”.

–Molière, Le Bourgeois Gentilhomme

For many years, it was my job to tell the CEO that he was speaking prose.


Some people are born to be entrepreneurs. Put them in any environment and, operating mostly on instinct, they will find ways to make money. The CEO was such a man.

His first job was evidence for this proposition – he got himself hired to park cars for a minimal salary and – more important – big tips at a beach club in Long Island. Nothing so special about that, you may think, but wait: he was 15 at the time. No license, not even a learner’s permit. He had a great summer, and made a lot more money than his friends. And here’s the kicker: he even drove to and from the club, doubtless in high style, every day. 

Decades later, he asked his mother what she had been thinking, letting him do that. She had no answer. Most likely, she didn’t want to admit that she had known that she couldn’t have stopped him.

From the day when I first met the CEO, when he was in his late thirties and I in my late twenties, I knew that he was the embodiment of energy in action. He was, first and last, a doer. Not a guy to sit in his office, reading memos – he always wanted to be out in the world with people, making things happen.

He also had an animal shrewdness unlike any I had seen before or have seen since. A colleague of ours once joked that I looked at numbers the way some people look at pornography – but the CEO could read people as I read books (or the books, as per our colleague’s joke). The CEO’s was by far the rarer skill.    


To a considerable extent, I gave shape to his force. I was always in the background, helping to decide what he should be focusing his energy on; it was not my job to be out front. The CEO used to tell people that together we made one pretty good CEO, but he meant it solely as a tip of the hat to me; for most things, he didn’t want me to be the face of our decision-making.

I was perfectly content knowing that every significant strategic, financial or personnel decision that was made in the business, we made together – and that at least half the time my view prevailed when our first inclinations differed. I didn’t need others to know that. 


It strikes me that the great majority of the posts in this thread have focused on mistakes we made. Fair enough – mistakes generally make more interesting reading than successes both because they usually stem from deep-seated human instincts and because it is from them that we tend to learn the sharpest lessons. Besides, who wants to read somebody else’s boasts? 

Even so, it would be absurd for me to write only about our mistakes. After all, the business we built was a smashing success – in round numbers, over the course of seventeen years for each dollar of equity invested we ended up with about twenty-three dollars in net equity value. Clearly, we were doing some things right.

So before I dive back into the mode of telling distinctive vignettes, I thought I would describe a couple of the threads from which we wove our successes:  

We made our decisions in the context of knowing that, on the one hand, our own capital was at risk every day and, on the other, that we cared infinitely more about the long-term implications of our actions than about shorter-term or accounting-driven considerations. That ownership perspective proved to be a big advantage against the enormous public companies that we competed with. We simply cared more than the employees of those companies did, and we weren’t distracted by the conflicts of interest that all too often misalign incentives at public companies. 

We focused relentlessly on differentiating our products and on the image of our company as compared with our competitors. If we looked just like them, the world would choose their products every time – who would get fired for buying IBM? – but we could beat them if we looked better and had better products.

We were Tiffany, they were Walmart. We shined our products, put them into little blue boxes and sold them for premium prices; they stacked ‘em high and sold ‘em cheap. Walmart is an enormously successful business, but Tiffany can make a lot of money selling diamonds, thank you very much.

And finally, we were aggressive. Really, really aggressive. As you already know, that hurt us sometimes, but far more often, it was why we won.


Imagine once again that we were in the business of selling oranges. The world in which we found ourselves had some distinctive characteristics as compared with the real one. Demand for fruit was very predictable – it had been growing slowly but steadily for decades. Oranges were the most desirable fruit and their supply was basically fixed because land-use regulations sharply limited the amount and types of land available for groves; fruit importation was impossible in Pretendland. While it wasn’t impossible to open new orange groves, the aggregate number of groves had been slowly shrinking for ages because some land was always being switched to higher-value uses. Consequently, orange prices had been rising smartly. 

We sold only the best oranges; our competitors sold some oranges like ours, but focused more on lower-value tangerines and on other fruits entirely. Once in a while some competitor would try to switch a grove from tangerines to oranges but, there again, land use regulations generally made that impossible. Neither we nor our competitors actually owned groves – we all sourced our fruit by having very long term agreements with the groves’ owners


When we went back into business after the sale of the CEO’s first company, with me on the inside this time, we didn’t have any deals with grove owners, so we didn’t have any produce to sell. Nevertheless, we were setting out to dominate the orange business, and eventually we would do just that. How?

First of all, we were convinced that in certain hard-to-find places that our competitors, in their enormousness, were ignoring, new groves could still be started. Those groves would be great, but they wouldn’t be nearly enough to make for a business as big as we wanted.

Second, we decided to systematically approach the owners of our competitors’ orange groves – but only those who owned the best ones. We would find out when their deals were up and offer the landowners big increases to do long term deals with us at such times as they were free to switch. This practice – going after competitors’ groves – was one that had generally been avoided among the industry’s settled participants – presumably, for fear of setting off bidding wars that would benefit only the groves’ owners.

We had no such compunctions, though: we had no existing deals that might be adversely affected by the new, more competitive environment, and we had everything to gain: so what if the previous company had been making a 75% margin? 50% would be fine for us and twice as good for the landowner. Besides, our competitors were so busy with all their different kinds of fruit that they would scarcely notice that we were going after “their” orange groves until after we had secured the best ones.            

And finally, we knew something important that almost nobody else knew. We knew that a huge percentage of the existing orange groves were not in compliance with land use regulations. If those groves couldn’t produce oranges any more, the price of oranges would soar – and since we would make sure that as we pursued the first two parts of the grove-acquisition strategy outlined above that we would only come into control of fully compliant properties, we would benefit enormously. 

Amazingly, while the government had a general idea that many orange groves might not comply with their rules, they didn’t know which ones didn’t, or how to effectively enforce their own laws. Our competitors had blithely ignored the relevant land-use regulations without any problems for decades, so even they barely remembered – and couldn’t bring themselves to believe – that their noncompliance might pose a problem.

It would take us six or seven years of intensive work to get the regulators to understand their own rules, then enforce them. But it happened. 

Business is sometimes a sharp-elbowed thing. 

An Abuse of Process – 1999

I have been deposed.

The plaintiffs needed to know what I would say on the witness stand, if it came to that. In a sense, I was the only third party witness who had seen and heard it all. I had been one of three people in the room when the deal was first struck – the other two being the CEO, my client, as seller, and the buying company’s boss. I had also been a party to all the subsequent, more formal negotiations. I knew the deal history as well as anybody.

The deal had taken place in 1997, when I was still a banker in the firm I had co-founded. Immediately after the deal, the seller had founded a new company with me on the inside – for which role I had to leave the investment banking business – so now, two years later, the plaintiff’s lawyers knew that I would be a very hostile witness

The plaintiff’s allegations were wholly false, as I knew, but it’s not like I could just give the battery of very smart, very highly paid lawyers that I was facing the facts and they would go away. That would’ve been a five-minute process; I think the deposition took five or six hours. They were looking to trip me up any way they could. They grilled me on matters large and small, circling round and round the matter at issue. When I walked out, I felt like I had been in a fifteen round boxing match – old style.

If I may say so without seeming too immodest, I think I surprised them. I don’t think that they had expected me to have the clarity of mind that I displayed. I remembered everything, and was very, very careful with words.

So I would be a formidable witness, granted. That certainly didn’t stop the fight. It was more like a war’s opening battle.

The deal in dispute was the sale of the CEO’s first business for a vast sum to a much larger company. The buyers had not insisted on a strong noncompete; I’m pretty sure that they figured that with that kind of money the CEO would go sit on a beach with a martini and maybe a pretty young lady or two. Indeed, just before the closing, the buyer’s Chairman had said to my client – in my presence – that he knew that the deal would allow him to go back into the business. “Go ahead and do a few deals” the Chairman said “and we’ll buy them from you too.” That quote is a paraphrase, but as it happens I remember the actual words the Chairman used, decades later.

My ex-client, now partner, had gone back into the business, clearly, but he was doing it on a much grander scale – and to much more damaging effect, from the buyer’s perspective – than they had ever dreamed that he would. The very fellow who had told him to go ahead and do a few deals was the one who had initiated the lawsuit claiming that he was behaving improperly in how he had gone back into business. Our theory was that the plaintiff – who surely knew as well as we that the basis of the lawsuit was false – was suing because he was embarrassed by how things were turning out. His subordinates were presumably asking what on earth he had been thinking, giving such a vast sum to the seller without also getting a promise that he would go away.

For a while – months and months – the discovery process ground on, with armies of their lawyers poring over every document they could get their hands on, trying to find something, anything to back up the plaintiff’s claims. The contractual documents relating to the deal all looked as clear to me as the deal-related conversations I remembered; both sides had employed excellent lawyers. But there is no contract in which ambiguities cannot be found. And once those ambiguities are identified, the search for corroborating information can be endless.

We were spending a fortune defending what should have been a simple (non-) dispute; they were spending a bigger fortune trying to make it look as if we were in the wrong. But here’s the thing: they could afford these expenses far more easily than we, and they knew it. After the deal, the buyer had also been sold – to a company with a market capitalization in the multiple billions. For the plaintiff, who still ran the buyer as a subsidiary of the corporate behemoth he had sold it to, the costs of employing armies of litigators were as nothing when compared with the benefits of saving face and possibly strangling our baby in its crib.

At length, the CEO decided to beg the plaintiff to back off. In a mano-a-mano meeting in which I was not present, they talked. In business, many big decisions come down to hand to hand combat among competitors, but rarely as overtly as in that meeting.

When the CEO returned to our office, he told me that he had agreed to give the buyer/plaintiff a few million dollars worth of our assets, in return for which the suit would be dropped. The buyer/plaintiff would spin this concession as an admission of fault to his company’s employees – but from our perspective it was the price of peace. The other team could’ve used the lawsuit to hobble us for years, and the value of what the CEO had given away paled when compared to what our costs of continuing to fight the battle would have been.

At the cost of distinct pain, the CEO had made the only practical choice.

We got our revenge later – much later. But that’s another story.

Istanbul – 2000

A few years after I left the world of banking to become the CEO’s alter-ego, I spent most of one summer working on an opportunity in Istanbul, where East and West have met, sometimes happily, sometimes calamitously, since the beginning. The CEO was back in New York, building the business; I was running back and forth between the two cities trying to buy a company that we thought had enormous potential.

I found Istanbul to be astonishingly beautiful – and mysterious in ways that more Western cities aren’t. On the weekends when I didn’t return to New York, I would wander through the city, visit mosques and museums, and think about Romans, Byzantines and Sultans. There are ruins everywhere.

During the weekdays, I was spending most of my time with the would-be seller, negotiating and doing due diligence on his company. He was a Turk and a devout Muslim. He also had the rare combination of being both entirely self-made and highly cultured. He loved practicing his English – which was quite good – with me. On the occasions when the CEO – who is Jewish – came over to join our talks, I mused happily to myself about the mutually satisfying partnership among a Jew, a Muslim and a Christian that we seemed to be forming. The seller was planning to stay with the company for at least a period of time after we bought it.

At length, we arrived at an understanding on price – $15 million – and the seller and I worked our ways through multiple drafts of a formal contract over the course of several weeks. While these negotiations were underway, I brought over two of our finance people to dig deeper on the diligence work that I had been doing; they found nothing that was inconsistent with what we thought we knew.

Everything looked like a go – indeed, from my perspective it all looked really exciting. We were planning to sign and close the deal as quickly as we could responsibly do; after that, I would get to return to New York – and my family – while the role of running the new arm of our company would fall to a man perhaps ten years my junior – so, in his early thirties at the time – who had worked for the CEO since right after he had graduated from college.

The CEO and the younger man flew over a day before the contract was to be signed, the former to do the signing, the latter to be introduced to the market. The five of us, including the seller and his wife, had a lovely dinner that night on the Asian side of the city, at a restaurant overlooking the Bosporus. At dinner, the seller told us that he was planning to use some of the proceeds to buy a home for his aged father.

I awakened excited the next morning. We were staying in the Ciragan Palace – as beautiful a hotel as I have ever seen. It overlooks the Bosporus from the European side and has entertaining rooms that really are fit for a Sultan. We were to have breakfast in one. The CEO, the younger man and I were to meet at a set time.

But the younger man didn’t show. The CEO immediately hit the panic button. He knew that our colleague had a problem with alcohol – he had gone on binges before, but sworn that he was done with that. The CEO assumed the worst, and went looking for him.

The hotel’s manager informed the CEO that there had been some sort of a fracas involving the younger man in the middle of the night. He wasn’t in his room now and nobody knew where he was.

The CEO called the seller to tell him that we had an emergency involving the younger man, and that we couldn’t meet to sign the deal as planned. We would get back to him shortly. The seller demanded more information, and got it. He was angry and scared. Was this a ruse on our parts to get out of the deal?

When the younger man showed up he was in terrible shape. Stories were told worse than just drunkenness. I couldn’t help but think that he was lucky not to have turned up in a Turkish jail. He had been out of control in a Muslim city.

The CEO decided to abandon the deal. His priority was to bring the younger man home and get him help. He loved the younger man like an adopted son, and always said about him that although he wasn’t Jewish, he had a yidisshe kop – high praise, from him, a variant on the old advice to “dress British, think Yiddish”.

I tried to convince the CEO that we should do the deal anyway, and choose somebody else from our team to manage it from day to day. He wouldn’t budge: he said that he couldn’t think of anything just then but getting the younger man out of there and to help.

My level of upset about our walking away was nothing, though, as compared with that of the would-be seller. He was furious. We had made fools of him – and he couldn’t believe that we were walking away because some idiot underling had proven unworthy of his chosen task. We must have other, less high-minded motives. He begged us to reconsider.

The CEO was resolute, but not uncaring as regards the seller. After giving the matter some thought, he wrote a $250,000 check to the seller for his troubles – even though there had been no even remotely binding legal commitment. He wanted the seller to be able to do something for his dad, and reasoned that $250,000 would go a long way in Turkey.

Three or four months later, we learned that the seller had found another buyer – one of our principal competitors. The price was $35 million.

We made the younger man go to rehab. He was with us for a couple more years, and almost always importantly productive. But he couldn’t control his demons. We had to fire him after he blew another (though much smaller) deal by having been absent on a bender.

Not long ago I met with the successor to the successor to the successor of the CEO of the company that bought the business in Istanbul. I see him pretty regularly – we are very friendly, on the edge of being friends. He told me that the deal in Istanbul was by far the best overseas investment his company had ever made.

You Can’t Lose ‘Em All – 2000-2001

Almost two decades ago, we had another experience of doing business directly with the government; this one was very different from the experience described in Accused, but no less revealing in its own ways.

A part of the government that controls tens, or maybe hundreds, of billions of dollars worth of assets throughout the country decided to try to impress Congress by using some of those assets to earn a little money in a manner with which our company was broadly familiar. They put out a request for proposals that was breathtaking in its scope; it wasn’t clear whether what they had in mind was a $100,000 program or something a thousand times bigger. 

The CEO was skeptical from the start but I was intrigued. His view was that there were lots of reasons that this wouldn’t turn into a nationwide moneymaking opportunity; mine was that it might. With some reluctance, he allowed me to bid.

My basic pitch – assuming that we were competing against much larger companies – was that while our company was small its approach, and that of our predecessor company, had always been to focus on the highest-quality products within our industry. Our competitors focused on much lower-end products; which would be the better partner for the government?

We won the contract to find and manage the potentially profitable assets within the department’s purview. The only other bidder had been one of our vastly larger competitors, and we were told that their pitch that they could do anything and everything was considered off-putting. 

After winning the beauty contest, we negotiated a telephone-book-sized contract with the department. The vast majority of the verbiage came from the government, naturally; it gave them the right to turn down the deals we were to bring them for any reason or for no reason, while giving us the exclusive right to find and market such opportunities.

Notwithstanding the CEO’s continuing concerns, I was really excited about our new contract. At the time of the signing, we issued a big press release about it, and the government did the same. There was a signing ceremony in Washington involving the head of the department. I figured that this opportunity might put our still-very-young company on the map.

We saw two very different kinds of potential opportunities among the department’s assets. First, it might be possible to launch a uniform nationwide business with their assets, with relatively low price points but enormous volumes, and second, we thought we could find some diamonds among the assets – uniquely valuable jewels that could be marketed at very high prices. This latter market niche was in closer alignment with the rest of our business than the nation-wide business, but if the nationwide program could really work it would be a bonanza.

We then launched an effort to look more closely at each possibility. We sent people all over the country looking for diamonds and gathered voluminous data that would allow us to market the nationwide program. Once we had the data about the big potential program, we spent more money creating marketing materials that would allow us to talk to potential buyers about it.

And, yes, we found some diamonds – maybe ten or fifteen of them. So far, so good.

We began marketing the big program first – the diamonds would require some polishing. Besides, the world had already seen lots of diamonds; the big program was something new. A potential blockbuster.

Soon enough, we had interest from one of the nation’s most prominent companies. We engaged in preliminary negotiations with them so that we could go back to the government with a clear picture of what was on offer. 

The government turned the offered deal down flat. It turned out that another arm of the government was negotiating a completely different kind of deal with the same company, and the higher-ups felt that it wouldn’t look right for us to do our deal with them now. Maybe some other time.

We had a bit of egg on our faces with the company that had been turned down, but kept moving forward with other potential buyers. At length, we found another company that wanted a deal. A smaller deal with a smaller, much less prominent company. This time, Washington said ok.

But their men (sorry, ladies, it was uniformly men) in the field said no. They didn’t give a damn what kind of contract the head of the department had signed with us, they weren’t going to let us touch “their” assets. Clearly, the folks we were talking to – who had control of local access to the relevant assets – had civil service protections, and no fear of their nominal superiors in Washington.

That happened. We didn’t have a clue what we should do about it. There we were, with an enormous contract and a press release from the department saying we could do what we were doing, but in fact we couldn’t. What were we supposed to do?

To his credit, the CEO didn’t gloat. It was our problem now.

As we made excuses with the company that wanted the deal, and tried to think of next steps, terrorists attacked the twin towers and the world’s attention turned to much more important matters than our little business. 

Not long thereafter, a senior person in the department called to tell us that they were canceling our contract, which was the one thing that, according to the contract’s terms, they didn’t have the right to do. They just didn’t feel that the federal government’s assets should be treated commercially at a time of national crisis.

Fair enough, but we had embarrassed ourselves with some big companies and spent a non-negligible amount of money preparing to implement the agreed program. We felt – I felt – that at a minimum they should make us whole.

Consequently, bearing the implicit threat that we would sue for damages, I traveled down to Washington to meet with senior members of the department. I documented for them the approximately $1.5 million that we had gone out of pocket, ignoring the value of our time and reputation, and asked for them to cover our costs at least.

Their response was to tell me that they knew that they didn’t have the right to cancel the contract, and that we had been done wrong, but they couldn’t give us more than $999,999.99 without the approval of Congress, and they would absolutely not take a bigger request to Congress, so I should just take the million and go lick my wounds.

I thought for a minute, then made a counter-proposal: the million I would take, but in fairness they should also give us the small number of assets that we considered diamonds free and clear for ten years. Those assets were worth nothing to them, I said, but maybe we could use them to make up some of the extra half million in hard costs.

They wanted to accept my counter; I left with them promising to run it up the flagpole. A few days later, one of them called back to mostly accept the deal – we could have the diamonds free and clear for the next five years, for the second five years we would continue to manage them but split any profits with the department, 50/50.

It turned out that once again we had trouble with local managers saying no to a deal their seniors had approved. We only ultimately got control of about 2/3rds of the designated diamonds. On the other hand, in each of the following five years we made several million dollars in the aggregate from the diamonds that we did get control of.

Five years later, I got the distinct impression that the department was more irritated than otherwise to learn how valuable the diamonds were.

Hey, they had never asked.

A Diamond 1995-2014

The CEO and I often had disagreements about business decisions, but few were as clear, fiercely argued or lasted as long as one that took place in 2001. It was a titanic, months-long argument about whether we should radically change our strategy in our second most important business. And neither of us was even the star of the show – that role belonged to the person who we had first met as the young salesman trying to talk us out of buying the company he worked for in Another Story. At best, my role was as Best Supporting Actor.

The company we had purchased back in 1996 in spite of the young salesman’s warnings was, as we had known, a fixer-upper. It had fabulous products and a dominant market share – but at the time of the purchase it had never made an operating profit. Its deals with its suppliers were catastrophic and, as we knew, would take years to fix.

For those reasons, other buyers had been scared off, and we had been able to pay almost nothing for the company. What we knew at the time was that the real price would end up including whatever losses that we would have to bear in the years during which we expected to fix the supplier contracts. We prided ourselves on being able to take the long view – if we could fix the supplier contracts, the purchase price, even with the subsequent losses, should turn out to be absurdly low relative to what we could earn based on the quality of the products and market share. 

Things went more or less as we had expected during the first few years after the acquisition. The CEO’s – I was still a banker at the time, so it wasn’t yet “our” – general counsel was parachuted into the acquired company to renegotiate the supplier contracts – which he did as best he could as the old ones expired. These changes stanched the losses, but didn’t bring the business to anything like an acceptable level of profitability. 

Eventually, the general counsel returned to full-time lawyering with the new company that the CEO – and I, by then – were establishing. To run the turnaround subsidiary, we hired somebody I knew who had a golden resume (and no, this is not the same story as the one I told in Harsh Lessons).

Over the course of several years, the subsidiary’s new manager tried and tried to improve on the supplier contract improvements that the general counsel had made, but progress was agonizingly slow and relationships with the suppliers were awful. We encouraged him to also find ways to expand the business, and he tried, but to no avail. 

Eventually, the CEO and I decided to try again with new leadership. This time, we turned to an inside candidate – the young salesman who we had met in 1995 during the run up to the acquisition; yup, That Guy. We had gotten to know him much better since those first meetings – he was the best salesman our new subsidiary had, and had been promoted to run its sales group within a year or two of the acquisition.

He deserves another introduction beside the one he got in Another Story: from the day I met That Guy in 1995 until today, he has been exactly the same person: smart, honest, laser-focused-on-profits and defined by the ferocity of his personal loyalty to the CEO. A diamond – bright, sharp-edged and made of the toughest stuff around. In nearly twenty years of working together, the number of business decisions on which he and I disagreed totaled exactly one.

My favorite origin story about That Guy has nothing to do with me, though: as I later learned, he had paid for all of his own expenses and much of his tuition in his college years by being the campus bookie at his large state school. Who does that? Somebody who can figure out how to get things done, then gets them done. 

My one business disagreement with That Guy, which came many years later and wasn’t on an issue of decisive importance to us or to the company – though we fenced about it on a friendly basis for months (it was kinda fun to have something to argue about after having agreed with each other so often over the years) – had nothing to do with the subject of our joint 2001 disagreement with the CEO. That disagreement with the CEO was on a topic that was about as important as any long-term business decision can be.

After taking over as manager of the turnaround subsidiary, That Guy strained to understand, and re-think, every number in the business that he had just been given the opportunity to run. In the process, he concluded that the whole business model had to change: it wasn’t good enough to continue to battle with our suppliers over how much we would pay them – we should change the terms of the unfriendly negotiations we had been having with those companies by rejiggering the roles that each side would play going forward.

We would let the suppliers make money in ways that they hadn’t before, in a sense at our expense, by more narrowly (and we hoped, more profitably) re-shaping our own role. The deals would become less antagonistic and more co-operative. There would still be conflicting interests, of course, but maybe those interests could be managed in a broader context of mutuality.

We had major supply contracts with something like 125 different companies, and the whole new program that That Guy was proposing would only really work if most of the suppliers went along with the proposed changes. That Guy thought he could convince the suppliers that in the long run the new setup would be better for both sides. He was proposing a massive and risky change in course.   

I became convinced that That Guy was right, and that the CEO and I should give him the go-ahead to try his new strategy. The CEO was another matter. He was adamantly opposed, convinced that trying to restructure our supplier relationships in the manner that That Guy was suggesting would ruin the business, and that the way forward was to keep making small improvements in the existing deals while finding add-on opportunities on better terms with new suppliers. 

The three of us argued about That Guy’s proposal for months, with me taking That Guy’s side, often one-on-one with the CEO. In the end, still protesting that he thought we were both dead wrong, the CEO agreed to let us have our way by trying to change the business dramatically.

That Guy pulled it off exactly as he had thought he could. The relationships with suppliers improved immeasurably and the business became dramatically more profitable, and has remained so ever since (including during the Great Recession, when it was our only stable business). 

Ok, so maybe I don’t get Best Supporting Actor. While it’s true that at that stage of his career, That Guy couldn’t have gotten the CEO’s go-ahead without the weight that my support provided, the real Best Supporting Actor was probably the CEO. It’s not easy to let subordinates try something that you think is a big mistake, but he did it, kicking and screaming the whole way. 

As for That Guy, his career went from strength to strength. He would play huge roles in our lives for decades – indeed, he still does play a huge role in the CEO’s life: he is my successor as the CEO’s principal partner.

The Board, the CEO and Me 2002-2014 

From late, 2002, only five years after the company had been started, we had a board of directors. Nominally, this board had no power – it was actually an advisory board, effectively a group of paid consultants – but that distinction would fade with time. Power, as the CEO once told me, is more often taken than conferred.    

We organized the board because we did an acquisition that was too big to fund entirely with bank debt. In order to pay for the deal, we added $22 million of high-interest mezzanine debt to the bank debt we already had. This mezzanine debt, provided by a private equity (P/E) firm, was very expensive money – in addition to its high rate of interest, the investor received nominal-price warrants to purchase 12% of our equity.

The P/E firm also required that we set up a board. Two partners of their firm would sit on it; the CEO and I got to choose the other outside board members.


When choosing the outside board members, the CEO and I spent a fair bit of time thinking about people we knew who were both qualified and personally worthy of our deepest trust. We knew that board members would learn the most intimate secrets of our business lives and become the only people who, because they would know all the relevant context, might be in a position to give us advice worth hearing on whether we should turn left or right at a given crossroads. 

The CEO chose a handful of board members; I chose two.  In all cases, these were people that one or the other of us had been close to for a long time. 

Throughout the board’s roughly twelve-year existence, our lives would overlap with those of our board-member-friends in many ways: for example, I recruited one of the board members to also join the board of a not-for-profit of which I was chairman; later, he followed me in that role. Our outside board members had been friends or family before they joined the board, and would remain so after the board was eventually dissolved; while they were on it, they also had real voices in our business lives.

They were all also extremely successful people in their own rights, each deeply knowledgeable in his or her field. We knew why we wanted them for our board, but why did they want to serve? The board fees, though more than nominal, were of mostly symbolic importance to such a successful crowd.

Uniformly, the board members wanted to serve because they thought that doing so would be fun and interesting, which I’m quite sure I can write, it proved to be. More important, they were interested in our personal well-beings, and in helping with our business decisions if they could.  

We treated them with the utmost respect. We took the board seriously from the very beginning. Every quarter, we provided board members with packages of information about the business before our meeting, then spent the meeting time providing overviews, answering questions, discussing important developments and thinking out loud about the opportunities and dilemmas we faced. 

In the early board meetings the CEO and I did most of the talking. The outsiders didn’t know enough about our business to give us meaningful feedback until after the board had been meeting for a year or two. Gradually, though, they became comfortable enough with their own knowledge of the business contexts of our decisions to begin speaking up. 

By the time we bought out the P/E firm in 2006, thus obviating the requirement that we continue with such meetings, we had no desire to let go of the board. Its outside members were becoming ever more helpful and, besides, we had figured out that the P/E firm had been right that just having the routine of presenting the facts of our business and current plans to the same group of respected peers quarterly would instill more discipline into our decision-making processes. It’s very hard to tell people that you respect that you’re going to do something, or even just make a decision, then not do it and ignore that fact the next time you get together. And if you’re consistently right or consistently wrong about what you expect in some aspect of the business, that will come out, and be pointed out, over time too.

In short, the board earned the kind of authority that comes from respect. Eventually, it got to the point where if the outside board members were united on a viewpoint that conflicted with ours, sometimes we did as we were told rather than as we had wanted to do. If we hadn’t listened, what would the point have been?  

Also, because of what they learned from serving on the board, later on some board members would be in a position to jump in and help us more actively, outside of the board’s narrow nominal context. 


The creative tensions in the relationship between the CEO and me were based on our very different temperaments and backgrounds. Our instincts often differed; generally when that happened we would disagree with each other forthrightly, but not angrily, behind closed doors until one or the other of us accepted the other’s point of view. To the world we would show a united front, usually by having the CEO do the talking.

The same general approach of showing a united front to the world applied in most of our discussions with the board. Even so, I’m sure that it was clear to our board friends when I was less enthusiastic about a proposed course of action than they might have expected. It was certainly clear to me that in most such situations, the outsiders’ instincts were more in line with mine than with the CEO’s; I often hoped that they would add weight to arguments that I had been making in private. Usually, they did.

As I have been thinking back over the situations in which the CEO’s instincts differed from mine, some of which the board weighed in on with or without knowing my position, it’s fair to write that the board’s instincts were always conservative – not in any political sense, but meaning that they viewed their roles as being to protect us from various possible follies.  

That said, the ways in which the CEO’s instincts and mine differed cannot be correctly characterized as protective on my part, aggressive on his. Insofar as there were patterns, I would say that in matters of strategy I was often the more aggressive of the two of us – let’s buy this or sell that, let’s go into this new market, let’s hire or fire this person, let’s do it now – but on matters relating to our colleagues, I was the more rules-oriented and protective of the company. The CEO had a heart-felt – and very un-corporate – tendency to want to overlook others’ weaknesses while building on their strengths. He was never one to cast the first stone.

Consequently our corporate family included numerous members who had fantastic capabilities but could never have fit into a normal corporation. They were like wayward children – he loved them, and I tolerated them, in spite of their faults. For that difference, I honor the CEO, even though sometimes it cost us.

3. Harsh Lessons – 2003-2006

We had hired Captain America to run a remote piece of our business. My nickname for him was based on his resume, which boasted the most prestigious schools, the most impressive extra-curricular achievements and a job history of consulting at and for the biggest-name firms in the land. We thought it was amazing that we had managed to lure a guy like that to our little company.

Maybe he was attracted by the prospect of running a business with very little bureaucratic oversight – and the knowledge that if that business did well, he would become rich, as any number of other people in our company seemed to be doing. That’s not a terrible package, after-all, even for a Harvard man.

If that was his thinking, he was right to take the job. Our company was both open-handed with winners and anything but bureaucratic. Where the companies we competed against were enormous, slow-moving, public behemoths, ours was hyper-aggressive and management-owned, just out of startup mode. Our original core team had consisted of people the CEO had worked with for ages; as the business grew we added people all over the map. Our theory was: hire smart, hungry, trustworthy people, explain our product niche and let them have at it. They could make decisions on the spot, and we were proud of that.

Our aggressiveness had paid off handsomely. The company had grown astonishingly quickly, winning battle after battle against competitors that were orders of magnitude bigger than we were. Speed and specialization were our calling cards.


To all appearances, the subsidiary that Captain America oversaw thrived under his watch. Over the course of several years, it established itself as the premium player in an important and lucrative market. With us applauding from afar, the Captain ran “his” business as we ran the parent company – focused, fast and loose. The results were spectacular – quarter after quarter, revenue and profits rose snappily. Every so often, the CEO would go to the Captain’s market to take a look at how our products stacked up against those of our competitors, and return pronouncing himself very satisfied.

At length, the Captain asked to move to New York to have the chance to run another part of our business. He had personal reasons for wanting to move here and, besides, doing so would give him a chance to work more closely with the core team. We welcomed the move.

To replace him at the subsidiary, we installed two people of different skill sets, both of whom we had known forever and trusted implicitly. Shortly thereafter, we started getting frightened phone calls from both of them. Something was very wrong.

What they had just begun to figure out was that one of the employees who had long worked under the Captain had been perpetrating a fraud against us for years. The Captain – and, indirectly, we – had richly rewarded the phony successes, attributing much of the growth in the subsidiary’s business to the fraudster. Once the Captain’s replacements arrived, they had asked simple questions of the wrongdoer – questions that immediately put him in a panic. Questions that the Captain had not known – or deigned, depending on your perspective – to ask.

Our initial reaction was disbelief: how could the employee have perpetrated such a brazen fraud – and gotten away with it for years? Didn’t we have management, procedures, accounting people, lawyers and outside auditors? (Well, no, actually we didn’t have a lawyer on the subsidiary’s staff until one of the Captain’s replacements – who was one – showed up; but we did have all the rest, or at least thought we did). Where on earth had the Captain been while all this was going on?

I won’t dwell on the personal side of our reactions. Knowledge that the employee – who we had known and trusted – had been playing us and all our colleagues for fools was very, very painful. Almost equally painful was the realization that the Captain had been all wrong for the job of providing oversight of a business he didn’t ever really come to understand; before hiring him we had been dazzled by his resume, not his relevant knowledge or observed performance – and after hiring him, we hadn’t watched closely enough.

Do I think the Captain was involved in the fraud? No – not unless you see negligence as morally equivalent to direct involvement. I think he found himself surfing a very nice wave, and didn’t particularly want to ask how the water had come to swirl so. Maybe he didn’t want to know.

The damage to our subsidiary was severe. The poison ran right through many of what had been our best products in the market. We immediately set about cleaning up. We hired private investigators to comb through every deal the wrongdoer had ever touched to determine what needed to be done – and he had touched them all, so a lot of fixing was needed.

Once the private investigators had completed a voluminous catalog of misdeeds, we also went to the police. To our astonishment, they showed little interest in pursuing what they saw as a complex, but not glamorous, inside job – a bitter disappointment. I guess arresting street-level muggers was more their thing.

Once we accepted that there would be no criminal case, we employed armies of lawyers in unsuccessful efforts to recover some of what we had lost. In the end, in spite of our having won in civil court, the bad guy slipped out of our hands. It turns out that sometimes a resourceful crook really can stay one step ahead of the system.

Not long after the cleanup, we sold the subsidiary that the Captain, now long gone, had run – at a profit, to be sure, but for vastly less than what it might have been.

These experiences taught us the harshest of lessons. Among them, that we couldn’t run a business with hundreds of employees, many in remote locations, with the same entrepreneurial verve – and lack of controls – that had characterized our corporate culture, and been a big part of our competitive advantage, when we were a startup consisting of a handful of people who knew each other very well and looked over each other’s shoulders constantly.

We had grown, and now we would have to grow up, which wouldn’t be nearly as much fun.

Accused – 2004

On one otherwise placid morning in the middle of the good years – the ones in which the company that we were building was growing like wildfire – a prominent official went on television to accuse us of having defrauded the government. The CEO and I sat watching the official’s performance; we were seated in one of our conference rooms with a couple of dead silent colleagues, all of us in shock.

Unless you’re new to adulthood, you know something about the man who was accusing us. You have read about him in the newspapers; you probably followed his campaigns with at least mild interest. He was a somebody. He was running for higher office at that time and, as the CEO remarked, wearing his best suit for this particular television interview.

This morning, he was explaining that our company – he might as well have named the two of us individually, since anything that the company was guilty of, as owner/managers, we would have had to be behind – had shortchanged the government of millions. His people had been investigating us for a year, he said; he intended to seek restitution and enormous penalties.

We didn’t enjoy the show.

The accusers’ people had been inside our offices going over our books for a full year. A year before, one of our principal – and much larger – competitors had admitted to having underpaid the government in a partnership with the government that looked a lot like one that we had. They had paid an eight figure amount in settlement, and the official had sent his staffers into our office in search of similar skullduggery immediately thereafter.

We knew that they had found none, because there wasn’t any. So why – and of having done what, exactly – were we being so publicly accused? What were we supposed to do now?

The business that we operated in which the government and a prominent company were our partners constituted a small part of our over-all affairs. It was a line of work that we had gotten into two or three years previously – we had bought a contract to manage the business from the (very prestigious, fwiw) company that later admitted to having shortchanged the government on a similar partnership that it hadn’t sold to us.

Consequently, we hadn’t been surprised when government employees had shown up at our office, demanding to go over our books. They were right to worry, we figured at the time; probably they thought that every company that did business with the government by way of somewhat similar contracts was inclined to cheat. They would learn that we didn’t soon enough.

We had thought it was a little odd that the two government employees had stayed with our accounting people for a full year. What on earth could they be looking for – or think they were finding?

Even so, we had slept well while the investigation was underway. We knew that we hadn’t done what the other company had done – functionally, we couldn’t have, even if we had been so inclined. They had been selling partially-government-owned oranges, if you will, alongside apples that they owned outright, and allocating almost all the profits to the apples.

We didn’t have any apples – meaning, products that we sold bundled with the ones we were in partnership with the government on. Our other products were completely different in terms of how the customers used them, so bundled sales would have made no sense to them or to us. We sold oranges as one-offs, testing out a different business model from our norm. Different buyers, different contracts, different accounting records, different everything. No bundling.

Not only that, we were doing a fantastic job – for ourselves, for the government and for the prominent company that was the third partner in the partnership we managed. In the few years since we had bought our way into that business niche, we had roughly doubled the business’s revenue – resulting in much larger payouts for all partners. We thought the government should be congratulating us, not preparing to charge us with a crime that had demonstrably not taken place.

If, as we knew, the government employees had found no evidence of what they were looking for, what kind of fraud were we being accused of? For the answer to that question we would have to wait until we received an accusatory letter from the official’s department.

And the answer is: he was accusing us of having done something that was – and is – perfectly legal and, in fact, a widely recommended business practice. The thing was, he was describing that practice as if it were necessarily fraudulent and had enriched us at the government’s expense.

Allow me to clarify: let’s say that oranges are a seasonal business. You sell them for a dollar apiece, but ordinarily can find no takers when melons are in season; oranges are grown year-round though, and if not sold, the off-season ones rot. Historically, all orange sales had been in season.

One of the ways that we had made the partnered business much more profitable was that we had initiated the practice of selling oranges, effectively at fifty cents apiece, in the off season by marketing them on a buy one, get one free basis. That way, we didn’t nominally lower the price in the off season, and when the orange season came back around, customers weren’t shocked by the $1 per orange price.

I realize that this marketing innovation of ours seems absurdly simple, but the company from which we bought the contract hadn’t done it. They had never paid much attention to this particular deal, it being a three-way partnership.

The official’s angle was to assert that we weren’t really selling the oranges for fifty cents in the off season – somehow, we were selling them for their normal price of a dollar, and keeping the extra money for ourselves. The fact that he had no evidence for this proposition – none, whatsoever – bothered him not one whit.

We didn’t know whether to laugh or cry when we received the accusatory letter. The charge was absurd on its face, true, but the government has enormous, sometimes arbitrarily exercised power.  Also, we had been publicly – and baselessly – accused of defrauding our fellow citizens.

We sat with our advisors – lawyers and lobbyists. The lawyers confirmed our view that the prospective charges were ludicrous and would be laughed out of court if a case ever got there. The leading lobbyist – himself a prominent political actor – took it all in, then advised us to settle the claim by giving the government a few million dollars without admitting or denying guilt.

What was he even talking about? We were angry; this S.O.B. had gone on television to accuse us of fraud; we were supposed to take that lying down?

Yes, the lobbyist said. Government officials have long memories, and if you make this man look like a fool, he will find a way to hurt you. Settling is worth the price.

We ignored the lobbyist’s advice. Our reputations were too important to us for us to do otherwise.

The official’s public claims did not constitute an enforcement action. He was pushing for one, but to get that he needed to get litigators or prosecutors involved. We demanded and got a hearing before any such action would be commenced; the government presumably figured that such a hearing – which would also be public – might be conducive to a settlement.

We were determined that we wouldn’t dignify the accusation by giving one cent in settlement. Instead, we would prove to the world that the accusation was unjust and, by implication, that the accuser was an idiot.

We showed up at the hearing with materials from a professor at Harvard explaining that what we had done was the textbook approach to maximizing value. And testimony from our (top drawer) auditors that, no, they had seen nothing indicating that we had benefited from hidden payments. The third partner in the partnership – a major corporation – testified that they were sure that there was no fraud, and that we were doing an excellent job. We pointed out that in order for a fraud of the type alleged to have taken place, a nearly innumerable number of co-conspirators would have to be involved with the creation of phony contracts – a crazy theory, backed up by zero evidence.

I made a statement that made it clear that the CEO and I were personally offended by the fact that such ludicrous and irresponsible charges had been leveled in the first place.

In short, we made a fool of the accuser. The government dropped the matter entirely. But that wasn’t the end of it.

Many years later, we reached a deal to buy out the third partner in the business at issue. For strategic reasons, they wanted out, but they were grateful that we had done a good job over the years, so they were agreeable to doing a deal on terms that were very favorable to us. The only catch was that we needed the government’s approval to proceed with the deal.

You guessed it: the accuser who we had fought had a veto over the approval, and he exercised it. He bore a grudge.

When our deal fell apart, our partner in the business sold its participation to one of our competitors. For complicated reasons not worth explaining here, that competitor was ultimately able to squeeze us out of the business entirely, costing us tens of millions in lost value.

A fine example of one of my late mother’s many aphorisms:

”You can be dead right and still be dead.”

A Shootout – 2004-2005

It was to be a showdown at the OK Corral: three companies, maybe a billion dollars’ worth of assets at stake, shots to be fired in plain sight. And it had been preceded by a behind-the-scene knife fight in which I had stabbed one of the possible gunfighters.

The confrontations that I’m about to describe happened long ago, in the years when it seemed that we could do no wrong. We were growing like wildfire; our ambitions were boundless

The prize that the shootout was over, a twenty-year contract with the government, had attracted global interest. It might have been the largest such opportunity anywhere in the world. No self-respecting industry participant would even think of not bidding for it – to do so would be an admission of being a third-rate player. So in the first round, everybody would bid.

It took nearly a year to prepare for the bidding process, and it cost us millions of dollars. Each bidder had to build functional product mock-ups, a bid process much like designing and building a new jet in the hope of supplying all the new planes to a given airline.

Each company, including ours, also had to figure out how to price its offer – a bet that, for our company, was of almost incalculable size. In a sense, we were crazy to think that our chances of success justified what we were putting into the bidding process.

But we did think we could win. We had a not-so-secret weapon: we were the only company that had a product line that was the perfect complement to the assets that everybody would be bidding on. So perfect was the fit between our products and the assets subject to the bid that we thought that we could make much, much more money from the bid assets than any other company could. Consequently, we could pay more than they could, and still do very well.

Also, to write simply that the CEO was crazy about the prospect of controlling the assets, and combining them with our products, wouldn’t even get you into the neighborhood of understanding just how strongly he felt. He wanted those assets as much as he had ever wanted anything. I saw the beauty of the possible combination, too, but not with the CEO’s passion.

Something remarkable happened in the first round of bidding: we emerged as the only American company that had made it into the second round. Our little company – which may then have only had $150 million in revenues – was still in the world’s biggest game, while our in-league competitors that were much more than ten times as large as we were, were out.

Wow. That left us as one of only three gunfighters coming to the final shootout, with the other two being enormous foreign companies that I will call Godzilla and Doofus.

Godzilla was a great company by any measure – in the CEO’s eyes, the best managed company in our industry, period. Hugely aggressive. Fantastically rich. European.*We didn’t know Doofus. They were a subsidiary of a gigantic company in another industry, active in our niche in a mid-sized way in various markets around the world. We had been pretty sure that Godzilla would make the finals, but Doofus was a complete surprise, like the absence of our larger American rivals.

In the run up to the first round of bidding, Godzilla had met with us.

Their CEO and the head of their US arm had come to our office for the meeting. They had proposed that we bid jointly with them. They saw the advantage in our complementary product line and professed great admiration for our rapid growth and élan. In response, my partner – usually referred to as simply the CEO in these posts – complimented them and their company profusely. He meant every word that he said.

I said next to nothing.

Their idea was that we would contribute our complementary products to a joint venture bidding entity. They would contribute design and a prototype of the needed jet, if you will, and their superior global track record as an aircraft manufacturer. The joint venture, of which each company would own half, would obviously win the bid – nobody else could possibly match our combined strengths.

In response to a question from me, Godzilla’s CEO said that the JV might last forever but that each partner would have an equal “you cut, I choose” right to get out of it any time.

My partner responded that the proposal sounded entirely fair, and that we would do it.

I interrupted to say that no, we wouldn’t.

Godzilla’s CEO looked at me in shock. “But the owner said yes,” he said.“I am an owner, too” I said “and I say no.”

Godzilla’s CEO was beside himself; in his world, subordinates didn’t contradict their bosses in public, ever. My partner looked at me; he was in shock, too. “I’ll explain later,” I said to him quietly.

“But the big owner said yes,” Godzilla’s CEO said.“I may be the small owner,” I responded, “but my stake means a lot to me. And I say no.”

That conversation took place twelve or thirteen years ago, but I would bet that Godzilla’s CEO remembers it quite well. And that he doesn’t remember me fondly at all.

I later explained to the CEO why I had behaved so uncharacteristically in the meeting – I had been convinced that Godzilla wanted the deal structured as described so that our entering into a JV with them could only end in our whole company being swallowed up by them – and pretty quickly. We would never have a chance to out-bid our joint venture “partner” in the buy/sell scenario they had outlned, or any realistic shot at offering our company to any other companies than them if we ever did decide to sell the whole business; hence, they would be firmly in the driver’s seat.

After thinking about my explanation, the CEO agreed that I had done the right thing. So we wouldn’t be bidding with them, we would be bidding against them.

The shootout:

We stretched and stretched and stretched, bidding every penny we could imagine bidding – about $700 million, to be paid over twenty years. Entirely apart from the drama of this story, it’s amazing that we were able to make that bid with full, letter of credit backing from a top bank. Good times.

The CEO figured that Godzilla might bid as much as we did – not because they could make as much money as we could from the assets, but because they could afford the bid much more easily than we, and wanted the assets for strategic reasons. We didn’t believe that Doofus – who had neither Godzilla’s, nor our, advantages – would be a factor.

Godzilla bid more or less exactly what we did. Doofus bid $1 billion and won control of the assets.

This chain of events had some unexpected longer term consequences.

The Great Recession hit a year or two after the showdown. Doofus lost a ton of money – several tons, actually; they never had a chance given what they had agreed to pay for the assets; the downturn in demand during the Great Recession almost certainly just hastened their doom. Eventually, their parent company went bankrupt, partially as a result of this deal; the company’s in-our-industry assets, including the deal with the government,  were sold to … Godzilla. But Godzilla took the deal for which Doofus had overpaid only after renegotiating its (otherwise uneconomic and, because of the bankruptcy, uncollectible) terms.

If we had won, even at $700 million, I believe that because of the entirely unexpected severity of the Great Recession, the deal would have sunk our ship; even without the deal, we came far too close to that fate.

If there is a simple lesson that comes out of this story, and the others I’ve recounted in recent days, it’s that sometimes in what look like straightforward contests, it’s possible to win by losing, and vice versa. We often don’t know until much later how the contests really turned out.  

I might even have been wrong to have summarily stabbed the proposal for a JV with Godzilla to death. But I don’t think so. 

Changes – 2007

In the beginning of 2007, just before the crash, I bought an expensive second home. I write “I” rather than the more customary “the Beloved Spouse and I” in spite of the fact that she’s on the deed, too, because I did the deal without spousal approval – a sensitive point about which she still reminds me from time to time. About some things, I’m a slow learner.

For some years before then, it had been clear to me that the value of my equity in the partnership I had with the CEO was considerable. Every year, the CEO and I would agree on what my stock was worth, and every year I would go home and tell the Beloved Spouse that, on paper, it was really something. Of course, I didn’t have any contractual right to sell my stock unless I left the partnership – which was the farthest thing from my mind – but I believed in what those valuations were telling us anyway.

The Beloved Spouse wanted to believe what I was telling her, naturally enough, but she couldn’t help but point out that all that theoretical value didn’t mean a thing in our day to day lives. I was being paid very generously, but we had four children in various private schools and colleges, and expenses that quite fully absorbed my current compensation.

I paid for the second home by asking the CEO to allow me to sell him one tenth of my interest in the assets that he and I held in common. I write about assets held in common rather than “the company” because when, ten years before, he had asked me to leave the banking business to become his partner, as part of our agreement he had given me an interest in all of his business affairs, including both the companies that we were building together and his other public and private investments. The theory was that that way, his interests and mine would be perfectly coincident – I would only recommend that he take money out of the market to put it into a company, say, if I thought that his doing so was in both our interests.

The CEO readily agreed to my request that he buy ten percent of my equity interests, an amount that I had calculated would yield me just enough to buy the second home and to pay the taxes on the equity sale. I figured that future compensation increases would eventually help me pay for whatever improvements I might want to make to the new property.

At the same time, the CEO asked me to do something that I hadn’t expected: sell him back all my interests in everything other than the operating companies that I helped run. Those companies now constituted the great majority of the assets we held in common, and he explained that it was becoming too complicated for us to judge the values of some of the other private investments, I didn’t have much to do with the management of those other assets and he wanted to do some estate planning that would be complicated by my interests in the non-operated assets.

I was a little taken aback by this request, but I didn’t think it was unreasonable. Also, the incremental sale would give me a nice financial cushion that I wouldn’t otherwise have, of which the Beloved Spouse would heartily approve. For these reasons I agreed – not that it was something that I really could have said no to.

So that’s how we changed our deal. We valued all the traded securities and private investments, and I got my full share of them as well as ten percent of my interest in the operating companies.

Not long after the deal closed – and I bought the new house – one of the CEO’s private investments, now wholly owned by him, had a startling liquidity event. He received a cash return on the investment in an amount much greater than the total value that we had placed on it in the mutual-valuations-of-the-investments process that had accompanied our deal.

The CEO did something that in anybody else would have been shocking: he gave me my full former share of the excess valuation amount, which was itself a great deal of money. He was under no legal obligation to do anything of the sort – we had valued the investments jointly, based on equal knowledge – but he simply felt that it was the right thing to do. This act, though not shocking to me in light of his character, was truly awesome.

In retrospect, the early 2007 transactions between the CEO and me – including his generous, post-deal behavior – had implications far beyond what we expected at the time.

The first of these was that it turned out that we had done the deals immediately before the advent of the ferocious Great Recession that I described in the Tougher Times posts. Because of the downturn, our operating companies would flounder and nearly sink, and our annual, agreed equity valuation of my interest in them would correspondingly drop precipitously. 

Also, my Great Recession earnings would be dramatically reduced – which means that had I not received a substantial financial cushion by selling my stake in the CEO’s non-operating businesses – the part of the deal that I really hadn’t wanted to do – and received what amounted to a huge post-transaction gift from the CEO, I would have had to turn right around and sell our new vacation home – no doubt at a deeply distressed price – because I wouldn’t have been able to come close to funding my pre-home-purchase lifestyle, let alone the new home’s carrying costs. It was those two unasked-for parts of the deal that enabled me to personally weather the downturn relatively unscathed.

Which brings me to the second unanticipated implication of our early 2007 deal: if we ever sold the mother ship, the CEO and I wouldn’t really be partners in anything like the same sense anymore. The vast majority of his capital and mine would come “off the table” through such a sale, so any remaining jointly-owned operating companies would presumably represent relatively small pieces of our over-all personal circumstances. What’s more, I had never had a great affinity for, or interest in helping to manage, those smaller companies. Most of his attention, and mine, would be on different things.

In 2007, neither of us believed that that would ever happen.We thought we were building something for the ages.

20. Tougher Times – Part 1 2007-2008

It’s not just scrappy, entrepreneurial companies that sometimes play rough. When the Great Recession hit, for eighteen months or so the sense of trust that usually facilitates mutually beneficial commerce between companies wore thin. I saw some of the proudest names in corporate America do things that shocked me. We played rough, too. 

To start with the simplest example: one of the highest-value companies in the land broke a lucrative, multi-year contract with us. Before then, I had seen such contracts as money in the bank.

When they told us that they were breaking the deal, they added that they knew that they were wrong, and that if we sued them we would win – eventually, after having spent years in court and a fortune on lawyers. But if we did sue, they said, they would make sure that no arm of their enormous corporation would ever do business with us again, and we didn’t want that, did we? We should be reasonable – they knew that in the current environment they could do a comparable deal with one of our competitors for a fraction of what they had agreed to pay us. They would agree to go forward with us with a re-signed deal at seventy cents on the dollar (which, as they probably knew, would deprive us of virtually all the deal’s profits) or they would see us in court.

What could we do? We took the deal.

Ok, so I get it – sometimes the big boys throw their weight around. But I really wasn’t prepared for the second example.

In the year after the recession hit, revenue in our industry fell by 26%. The industry had not had a year in negative territory in the previous thirty years – it had sailed right through recessions – so we and our competitors were completely unprepared for the magnitude of the changes we had to deal with.

I asked my friends what would happen to a company that paid its suppliers 50% of revenues and its employees 25%, with the rest earmarked to pay taxes and interest on loans, and to finance growth, if revenue fell by 26%? “Bad things,” was my suggested, sardonic answer. It was a painful laugh line.

We were fighting for corporate survival and, of course, not knowing whether the crisis would continue to worsen. The CFO and I were caulking holes and pumping water full time to try to keep the ship from going down. Tomorrow I’ll write a second Tougher Times  post on how the CFO, the CEO and I dealt with the internal, human costs of the recession; this post is more concerned with corporate mores.

We had one great piece of luck: before the recession, the CFO and I had negotiated a so-called “covenant lite” bank deal. What that phrase means is that our loans had no ratio-based agreements – no demands for specified or relative levels of profitability. As long as we made our schedule interest and principal payments, the bank group couldn’t take any enforcement actions against us, even if we were heading toward bankruptcy.

While, when the Great Recession hit, we didn’t know that we wouldn’t go broke even without the banks taking hostile steps, having to fight the banks could only make matters worse. We had to radically restructure our business model if we were to survive long enough to have the chance to thrive again.

The most tempting target for cost cutting was a subsidiary that was losing enormous amounts of money. It had three huge fixed-price contracts with suppliers – each of which worked, and was friendly, with the other two, rather like a bank group – at prices that, if left untouched, would guarantee losses for years to come. So bad were the numbers in that subsidiary – which was not vital to the parent company’s over-all strategic positioning – that they might actually sink the mother ship.

One plausible solution for us was to abrogate the subsidiary’s unfortunate contracts with its suppliers by having it – the subsidiary – declare bankruptcy. Our company’s over-all financial position would be dramatically improved by such a move, because it would immediately stop the subsidiary’s losses that we were funding. The one problem with this approach, from our perspective, was that while the parent company’s bank deal didn’t have any financial covenants, it did have a provision that the loans would be in default (which would enable bank enforcement action) if any of our subsidiaries went bankrupt.

I called the banker at our lead bank – one of the biggest in the country – and explained to him that our operating results would be immeasurably improved if we were to let go of the subsidiary, but that we couldn’t do so because of the provision I’ve just described. We couldn’t be expected to hand the banks a loaded gun.                

The banker was (and still is) a friend of mine – somebody I had known for nearly a decade. We had had meals with spouses and on several occasions he and I had gone skiing together. He told me he would run our request for a change to the deal, enabling us to put the subsidiary into bankruptcy, up the flagpole. It couldn’t have been a very big flagpole – he was a senior guy.

When my friend called back he explained that they would let us out of the provision – for an eight figureamendment fee. He explained that they knew that the change was in our interest – and in theirs, as creditors – but they needed to get the ridiculously huge fee (a more customary amount might have been in the low six figures – enough to pay for the paperwork) because our loans were trading at something like seventy cents on the dollar in the secondary market, and they needed to get back the money that they would be notionally losing by setting aside loan loss provisions based on the secondary trading values.

I told him that that was ridiculous – they were trying to charge us a fortune for prospectively doing something that it was in their interest that we do – and besides, the loans of virtually every company in our industry and related industries were underwater, and would recover as soon as the panic went out of the market. By charging such a fee – or maybe forcing us to go on operating the subsidiary at a loss – they would in fact be putting another nail in our coffin and further endangering their loans to us.

My friend agreed, but said he had his marching orders. I told him to tell his bosses to get lost – they were being way too greedy, and we would find another way out of our problem.

The CFO and I then flipped the script. We bluffed our way out of the problem.

What we realized was that our subsidiary’s three major suppliers didn’t know that in effect we were being prohibited from putting the subsidiary into bankruptcy by our banks. Without that constraint, bankruptcy would plainly be the right course for the subsidiary – and it would also deprive them, the suppliers, of all the business that they were getting from us.

So we went to each supplier separately, laid out the facts about how badly the subsidiary was doing and told them that unless they dramatically lowered our costs and switched from fixed-cost contracts to ones based on percentages of revenue that would allow us to make money, we would file.

Our threat was plausible enough, I thought, but I was very nervous during the renegotiations of our contracts anyway. The problem was that if any one of the suppliers called our bluff by refusing our demands – and in multiparty negotiations there’s usually one that will take a contrary position, just to see if it works – the others would see that we couldn’t follow through on the threat, and we would get no concessions and be left funding the subsidiary’s losses. Since they were friendly with each other I almost expected this development.  

In the event, each one agreed. We saved $8 million a year on a long term basis through the renegotiations – money that was a big part of what we needed to stay afloat through the recession.

As I wrote yesterday, business is sometimes a sharp-elbowed thing.       

P.S. One of the ironies that I love about this story is knowing that while the banks hated the covenant lite deals on their books during the recession – because they had no ability to do anything to the borrowers in those deals as long as the interest and principal were being paid, in our case the banks were nearly as lucky as we were that our deal was covenant lite. If they had made us make changes – like sell parts or all of our business – in those distressed times, the sales would have been at steep discounts, we would have lost everything and they would have lost something. As it was, we righted our ship and sailed on to greater glories – and their loans recovered to full face value.

After the recovery, we did change lead banks, though. By then, my friend wasn’t at all happy about that. 

Tougher Times – Part 2. 2007-2008

Our CFO was the quiet hero of the company’s survival during the Great Recession. For you to understand why that’s so, I’ll need to explain how we got through it.

As I mentioned in yesterday’s post, our company had never experienced a decline in demand before that terrible time. We had known that such a catastrophe was a theoretical possibility, of course, but our primary industry had been growing steadily for thirty years, and our company had been growing much more quickly than the industry. Further, by 2007 we felt that we had a deep equity cushion: our assets were worth far more than our debts, so if we did have a severe setback, we could always sell something to lighten the debt load. 

Our businesses were geographically diverse and separable. Over the course of ten years, we had purchased or started subsidiaries in eight or ten different markets; we also had two major product categories outside our primary industry. Within the various geographic markets, we had sub-categories of products that were managed and marketed separately. Consequently, we tracked something like seventeen business units in our internal numbers. Every business unit had been growing at rates exceeding our expectations; all were healthy. 

We felt very, very secure. Looking back, our complacency reminds me of an old joke about what the farmer said when the cow died: she never did that before.

Then came Lehman’s collapse and the economic freeze that followed. To write simply that it was unlike anything any of us had ever seen would be a terrible understatement. It felt like, maybe, the beginning of another Great Depression. As mentioned, our primary industry’s revenues fell by 26% that year – but we wouldn’t have the figures on that until much later. All we could see was that there was almost no new business. It was like living by the side of the sea and suddenly seeing the tide go out – and keep going until the ocean was far, far away. That’s when you know to run, but we could find no higher ground. 

As we realized the severity of what we were looking at, one of the first things we considered was selling a significant business unit. We had an obvious candidate: another company had been telling us that they wanted to buy one part of our business for years, and we should have been able to sell it for enough money – several tens of millions – to get us through the immediate crisis without too much internal pain.

The CEO and I tried to negotiate the deal, but it didn’t happen. The prospective buyers kept dropping the price, pushing to see just how desperate we were. They would agree to a price, then back off – repeatedly. Then we approached other companies that we had always assumed would have a strategic interest in buying that particular business – huge companies with multi-billion-dollar market capitalizations.

They showed no interest at all – they were in the mud, too, fighting their own alligators; they didn’t want to look at that market or anything else. In my previous business experience there had never been a time when a beautiful little business could attract literally no legitimate offers, but that’s where we were.

How to describe the CFO?

You’ve met him before – he was the person whom I had once described to the CEO as the best banker and the worst salesman I had ever met. The reason that he wasn’t a salesman is that he was incapable of even shading the truth – a guy whose integrity was (and is) as firm and clear as that of anybody I have ever met. He was also the man who would never leave his desk until he knew every number that was knowable, and the first person to start banging the drum that we needed to cut costs quickly and deeply. He was, in short, exactly who we needed in the trenches with us when the war broke out.

Mostly, a CFO’s job involves overseeing the recording of the numbers for things that have already taken place – keeping the books – and making sure that receivables are collected, bills are paid, benefits are appropriate, there’s no fraud going on (the story of the fraud that I told in Harsh Lessons had happened before this CFO had come on board) and prospective transactions are being properly evaluated – and helping to negotiate the occasional financing. It’s a complicated, important job under any circumstances.

But there’s another part of the job that’s inherently impossible: predicting the future. CFOs are central to the budgeting process and to tracking how various business units are doing against their budgets. They also project, based on current trends and their own best guesses, where the business is going. The pictures that emerge from these processes are necessarily uncertain in pleasant circumstances and terrifying in unpleasant ones.

Now imagine trying to project seventeen business units in the midst of a tornado. You know that in every number, there is risk. If you make a mathematical or accounting mistake, you’re a goat. If your estimates of the size of the unknowable future problems are too high, more people who you know – and almost certainly like – will have to be fired or take deeper pay cuts than really needs to happen; if your estimates are too low, the ship will go down and all hands be lost. Your sense of personal responsibility will keep you at your desk all hours, day after day, week after week, month after month for as long as the crisis lasts.

At a cost that was all too real, the CFO embodied personal responsibility throughout this crisis. 

Once the CEO and I began to understand the gravity of our situation from the CFO’s warnings and talks with the sales teams, we needed to figure out what expenses to cut. As the months rolled on and it became ever clearer that demand for our products was continuing to decline, this process became continuous. We needed to act, but we also needed to think about when we would act again – and what we would do next.

Broadly speaking, our costs could be thought of as falling into three categories. The first, easiest to cut and by far the smallest of these was expense accounts. A no-brainer. Our people had always had lavish expense accounts for the simple reason that we had always figured that as part of our Tiffany image we should out-entertain our competitors – it would come back to us in the form of new business. Up to the time of the Great Recession, our theory had certainly looked correct; but it was clear to us that there was no new business to be had in those times, so expense accounts were cut sharply. The savings from these cuts were small beer in the grand scheme of things.

The second category of expenses – and the largest by far – was payments to our suppliers, generally under long term agreements. With the exception of the renegotiation detailed in yesterday’s post, these were nearly impossible to cut. Our suppliers all had contracts; they would win in court if we simply abrogated those contracts, and besides, we couldn’t do without the things they were supplying us with. We did save a few dollars in this category by very carefully renegotiating our deals with some of the parent company’s suppliers, but like the expense account cuts, these didn’t amount to much.

The third and final category was people – ourselves and our colleagues. Our friends, who we had chosen and trained, and who had helped us build the business. The money had to come from somewhere or the company would end up in liquidation, and all our dreams be washed away. 

In conceptual terms, our task  – the CFO, the CEO and I owned it – was to figure out the least painful way to save the parts of the company that would be most essential to its survival and eventual recovery. How much pain could those of us who were staying bear, in terms of reduced compensation? Who would we have to fire? 

It fell upon the CFO to make the initial plans – for these cuts today, maybe for those cuts tomorrow – and for the two of us, but mostly me, to convince the CEO that some or all of them  – or different cuts of the same magnitude, to be chosen by the CEO and me – had to be done. This was an iterative process, with time constantly pushing us toward deeper cuts.

The CEO, no less than the rest of us, had never experienced anything like this. His whole persona was as the benevolent – and brilliant – father of the company. The last thing he wanted to do was admit that the world had changed and we needed to inflict terrible pain on ourselves and our colleagues. His whole life he had been a mensch, and now the CFO and I were telling him to be a tough guy. He didn’t want to do it. Nor did he want to spare himself the pain that others were feeling.

We ultimately cut something like $12 million in annualized compensation expenses out of our by-then mid-sized, very personal company. Together with the $8 million in annual supplier costs that resulted from the renegotiation described in yesterday’s post, these were enough to allow the company to survive. Eventually – for those who were still with the company – the compensation cuts would be restored. 

Only with more information about how we cut these compensation costs will a truly full picture of how we behaved emerge:  

To begin, almost every employee who remained employed took  four pay cuts. That’s four times that we and our friends – the ones who still had jobs – had to go home to our families and explain that things would have to change. First we cut bonuses, of course. Those had been a small pieces of the compensation for more junior people, but ever bigger pieces as you looked closer to the top of the pyramid. For those at the top, they might have been 50% of annual compensation.

And we had three separate rounds – as time went on, and things got worse – in which most employees’ base pay amounts were cut by 10% of their original level each time. We made an exception for the least well-compensated employees, like the assistants and accounting clerks – they only had base cuts of maybe 10% in total. They had to be able to live, after all. I volunteered to take a further 20% cut in base pay, making my base cuts total 50%. The CEO took no pay at all.

And we had to fire colleagues in several rounds. People of whom, in most cases, we were very fond. Consistent with our corporate ethos, we gave them packages that were generous by any customary standard, but of course this generosity also cost us money, and made the necessity for other cuts greater. Each dollar can only be spent once, I’m afraid. 

I did more than my share of the actual firing. It was awful for me, much worse for those to whom I was giving the bad news. In one case, the man I fired was a friend I had met through cycling many, many years before, and brought into the company from another, unrelated field. Eventually, he became one of the lucky ones – a year or two later, when business returned and his particular skills became essential again, we hired him back.

And through it all, the CFO was the lynchpin of our ability to know how to cut the barest minimum that was required by the circumstances, while keeping the company’s most important assets – its people – together to the maximum extent possible, carefully and accurately weighing the risks every step of the way. It was a fantastic – if painful – balancing act.  

You gotta do what you gotta do, and it ain’t always fun.

P.S. After the recession, the company that had jerked us around about possibly buying one of our subsidiaries came back to us, wanting to close the negotiated deal at one of the earlier, higher prices. Good luck with that!

A New Era – 2009-2014

Things were different after the war.

We emerged from the Great Recession relieved to still be corporately alive, but shell-shocked in ways that wouldn’t ever really go away. What had begun as an economic shock akin to having heard the news about Pearl Harbor – Lehman’s collapse, in our case – over the radio, had come home to us all in the form of now-missing former colleagues and siege-like starvation rations. Now we knew that a collapse of the company that we were building was within the realm of the possible. Over the course of nearly two years of steep revenue declines, we had stared that possibility in the face.

In the ten years preceding that catastrophe, ending with 2006, the company had grown like Jack’s beanstalk. It had taken a good long while for the other farmers to realize the extent to which our plant’s crazy growth was sucking some of the nutrients out from under their own, routinely-tended fields, and even then at first they hadn’t had a clue what to do about it. We had been having fun.

Sure we had made lots of mistakes in those early years – you know about most of them from previous posts – but our simple strategies of product differentiation and aggressive growth had seemed unstoppable. We had grown from an idea, an excellent, pre-established brand name, an experienced, trusted team (from the CEO’s predecessor company) and a modest amount of invested equity to having interrelated, profitable businesses in major cities all over the United States and in several overseas markets. To the point where we had bid on and, in a sense, should have won a contract worth something approaching a billion dollars. We had come a long, long way in a not-very-long time.

And during all those early years it had never really crossed our minds that such growth couldn’t continue forever. Demand for our products had been growing for thirty years. Our competitors were enormous, generally poorly-run companies – we had run rings around them from the start, and really, through the CEO’s predecessor company, for decades. Access to capital was seemingly limitless; we – and, as important, the banking world – thought our assets were worth several multiples of the money we had borrowed to finance our growth. Going into the Great Recession, we didn’t even have any debt covenants – and, in retrospect, thank God for that.

After nearly two years of pain and fear, though, we would emerge a very different company. And, as it would gradually become clear, we would emerge into a different world. 

The most important thing is that we would emerge at all. During the downturn, even without debt covenants, corporate survival had been very much at issue. We hadn’t known that demand for our products wouldn’t continue its unprecedented fall but we had learned that there were no backstop buyers for our businesses. We knew, also, that having let go of those who we could do without and cut most still-employed-colleagues’ pay by something like 50%, we had run out of ballast to throw overboard.   

So when demand for our products slowly started to come back, our sense of relief was overwhelming. We had survived the war – the company could once again begin to turn its attention to happier prospects. Over time, our pay would return to its former levels; our families’ lives could go back to what they had been and maybe even improve from there. We could feel safer again – but never as safe in absolute terms as we once had.  

The banking world would be different. We knew that as soon as we needed additional capital to do any kind of acquisition, we would be looking at tight new debt covenants that would make any future downturns in demand immediately threatening – we wouldn’t have the grace period to fix our own problems that we had had with the old covenant lite deal. Future financings would be all about debt ratings and constant monitoring by people who generally didn’t have the first clue about how our business worked. 

(As an aside, at one meeting with people from one of the top ratings agencies – a firm that had followed our company’s debt issuances for years, and to which the CFO and I had been making very regular presentations – it became astoundingly clear to us that the lead guy on the other side of the table understood virtually nothing about our business, even though we had been explaining it to his smiling nods for years. Which now seems kinda funny because I have always felt that both the CFO and I are nothing if not clear, straightforward communicators).   

Now, too, our still-much-larger-than-we competitors were fully awake to what our growth was costing them. Whereas in the earlier years they had mostly ignored us, henceforth they would utilize all their size and lobbying clout to try to squeeze our particular product niches. And when they couldn’t prevent us from coming into their markets, they would come right at our products to make our growth more expensive.   

Further, in part as a consequence of our competitors’ new efforts, the regulatory environment was gradually becoming decidedly more hostile to our business model. The bigger companies could afford to hire a lot more lobbyists than we could, and petitioning elected officials to change the rules in ways that help Mr. Big and hurt Mr. Small is a time-tested strategy that they were now focusing their efforts on.

An even more fundamental concern was that demand for our products was beginning to change in frightening ways. The internet is systematically reordering nearly every process in the world of business, enriching some and impoverishing others, and our market niches were not exceptions. For us, the effects of these changes would become visible only over time; ours wasn’t one of those industries that would be destroyed overnight by the invention of a simple new app, but some of our strength would be sapped – and our industry’s previous, rock-like stability would become a thing of the past.  

Finally, our company was becoming quite different from what it once had been. We were less a band of brothers, off to slay our bigger, less-well-equipped foes at Agincourt; ours was becoming a bigger, much more complicated – and, to some extent, internally-conflicted – army. Eventually, we would have about 450 employees, doing wildly different things in widely dispersed places. Going forward, we would have to spend as much time on personnel matters as leading raids on enemy camps. 

In spite of these challenges, over the next six years we would always find a way forward. The company would continue to grow in size and value. We would all – well, almost all – enjoy the delicious fruits of our labors in ever more generous quantities. We wouldn’t experience the same  simple, exuberant growth that we had in the early years, but it would work.

And it would be very interesting.

Our General Counsel – 1997-2014

I have been remiss in having not yet introduced you to our General Counsel.

I first met the man who would later become our GC in 1997, when he was leading the legal team working on the sale of the CEO’s first company; as you will recall, I was the investment banker on that deal. Not long thereafter, he also had a major, outside role in organizing our new company.

I had been deeply impressed by both his knowledge and his manner while we had worked on those transactions. C , five or six years later when our company’s original General Counsel flamed out, I had strongly advocated that we bring him in house.

You have already met the CFO; in an important sense, the GC and he had (and have) everything in common: they are both diligent to – but not past – the point of madness, and each one cares more about personal integrity than just about anything else. Their offices are next to each other and during our two great periods of crisis – the Great Recession and the sale of the mother ship – they both stayed at their posts pretty much around the clock for many months on end – twinned in heroic effort. They were loading ammunition and powder into our cannons while the CEO and I aimed and fired; we never would have made it through those battles without them.

In more readily apparent ways, though, the GC was very different from the CFO (and from me): he is a learned and observant Jew. Also, in contrast with yours truly, his is an instinctively gentle soul. (In spite of our differences in culture and character, and the fact that I am quite sure that the GC and I have never voted for the same candidates for political office, we were friends from the start.

Forget about the all-too-frequently-assumed personal animus between red and blue Americans in matters of politics and religion: in those rare times when the GC and I could find a few moments between our nearly endless business discussions – in which we generally found ourselves in agreement on policy – we loved to talk about either supposedly dangerous topic.

I would ask him for the Jewish perspective on some Old Testament lesson I had heard in church, or he would ask me about why conservatives think this or that about a particular issue. Each of us found the other’s perspectives fascinating and we learned that we agreed on most matters of fundamental values. We just had traveled, and were traveling, different roads, and we were both fine with that.

I can’t think of a colleague who I would rather have been the one who barged into my office on the day when I sat at my desk, trying to control my weeping. A person with whom I was very close was suffering terribly, and I was disconsolate at my own inability to do much to help.

The GC, seeing my condition, immediately forgot whatever business issue he had come to talk to me about. He sat down and we spoke. I don’t even remember what he said; what I remember is his genuine concern. I knew, even in those difficult moments, that he had cares too, but it was not the time to talk about them.

Everybody has sorrows; we men, in particular, usually try not to show them – not so much to be macho, as to not burden others with them. When the mask falls in the presence of colleagues, though, as is true in any stressful situation, you see what the people around you are really made of. Our GC was made of good stuff.

One of the lines from The Godfather that has always rung false with me is when Michael Corleone says “It’s not personal. It’s just business.”

Baloney. There are few experiences in life more personal than working shoulder to shoulder with somebody hour after hour, day after day, week after week for decades. Over time you come to know each other very, very well, and if you’re fortunate, to care about each other.

I have been very fortunate.

Against Wind and Tide – 2009-2014

Even after the sun had broken through the clouds, signaling that the typhoon that was the 2007-2008 Great Recession was over, we found ourselves struggling to regain our momentum. Our competitors were fiercer enemies now and the very seas had changed.

Our competitors – who viewed us as pirates, out to steal their treasures – were arming their ships to the gunwales and hoping to find us in some hidden lagoon where, with their new arms and greater numbers, they could blow us out of the water. They were also lobbying – with much success – to change the laws of the sea in ways that would hinder our attacks. These regulatory changes were new headwinds for us; in addition, the tides of underlying demand for our products had begun to ebb.

The whole purpose of our sailing – always a dangerous endeavor – was to return home with new treasures, not to trawl over-fished seas. The story of our first ten years had been one of many more victories than defeats, followed by two years of struggling to survive the storm. Now we needed to figure out how to move forward again in spite of the new obstacles we faced. We knew that in the business world as in sailing the seven seas, to accept stasis is to begin to die.

We had always been opportunistic. The turnaround acquisition that we had made in 1996 – in business different from our own, but close enough to seem familiar – had shown that. So had a smaller acquisition – also a turnaround in yet another different-but-vaguely-related industry that we had done in 2003. Both of those deals had ultimately turned out well, so by the time we emerged from the Great Recession, we had three businesses – the mother ship and the two turnarounds that had turned around. The mother ship was massively larger than the other two, but all three were facing real obstacles to growth.

As you already know, too, we faced serious new limitations on accessing capital for growth. Gone were the days of covenant lite borrowings based on lenders’ comfort with our projected cash flows and sky-high implicit equity values – some lenders (but not ours) had lost a lot of money on loans based on those sorts of calculations during the recession, so for companies like ours they now were a thing of the past. New borrowings would be narrowly ratio-based, considering trailing cash flows only.  Which meant that – unless we were to go back to raising wildly expensive funding from the P/E world, which we didn’t want to do – our capacity for the kinds of incremental borrowings that we would need to fund acquisitions would be minimal.

So if it was now much harder to attack our competitors directly, and acquisitions seemed impossible, how could we move forward?

In spite of the tougher financing environment, we managed to make two significant acquisitions after the recession, wholly funded with incremental borrowings – a neat trick. There’s a story there – or several stories, actually, one of which sowed seeds of discord within our company – but I’ll keep them short.

First, we bought another turnaround opportunity in a third different-but-related industry. In one very important sense, this acquisition would prove to be our first real belly flop – not only did we fail to turn the company around, after a year or two of modest improvements on our watch, the business suddenly disintegrated; demand for products that had been sold for decades went away entirely. I make no excuses here: we got it wrong. It was ugly.

On the other hand, strangely enough that first deal set the stage for the second, larger one, which was much more beneficial in economic terms, if not within our company, than the first deal was disastrous. The reason for this strange turn of events again goes back to access to capital. 

As mentioned, we were now borrowing strictly on the basis of a multiple of trailing cash flows – our own and any we acquired; we were also monitored on a going-forward basis by way of tight leverage covenants, so if our 
aggregate results deteriorated, we would quickly find ourselves in trouble with our banks.

The first of the post-recession turnarounds – the one that never turned around, except in the wrong direction – was purchased at a much lower multiple of its trailing cash flows than we were allowed to borrow under our bank facility. I don’t remember the exact numbers, but, roughly speaking, we were allowed to borrow at 5X trailing cash flows (because that would provide us with adequate profitability to service our loans, and the banks thought our assets would always be worth 8X-10X in a sale), but we were buying the hoped-for turnaround at maybe 2X.

Consequently, we could borrow up to 5X the selling company’s own cash flows to pay for its acquisition for 2X – in other words, we could borrow 2 1/2 times the purchase price! We were able to borrow all the money needed to buy the company while actually expanding our debt capacity, because the banks were making the facially crazy assumption that what we were buying was as stable and as valuable – in terms of multiples – as our primary business. Wow. Just wow.

Still, the deal and all that access to new capital would have ended up as a poisoned chalice if the second deal hadn’t worked out brilliantly. Which it did, in economic terms, anyway.

The second deal was of a strange company in our own industry. In some ways, in it we saw a distorted mirror image of ourselves. It was smaller and younger than the mother ship, and run in a fashion that caused the larger companies to hate it as a pirate.

But there was a huge difference between its kind of piracy and ours: like Sir Walter Raleigh, we operated with a letter of marque, making our actions entirely lawful; they did not. In a few years, they had established a well-earned reputation for being pirates of the most buccaneering sort, laws of the sea be damned.

A year or two before we got a chance to buy the company, the navy had come into contact with this particular pirate ship and blown some big holes in its hull. It had gotten away, but was still taking on water as a result of the battle.

We had long known that these other pirates had come into possession of some real treasures, but from the outside it was impossible to tell which of them might cause the navy to attack again, and maybe hang the pirates – or us if we possessed them. Some of their treasures were the legitimate spoils of sailing the seas, others not. 

The other pirate ship was owned by a huge financial firm that owned many independently-run businesses. At a point in time, they decided to sell them all and get out of the business of owning other companies in disparate industries. 

When the pirate ship was put up for sale, we were the only ones who looked at it closely. The larger companies in our industry were scared off by the fear of tainted treasures – they believed that it would be impossible to figure out which assets were ok, and which not, during the bidding process. Financial buyers had heard the same stories of the battle with the navy, so they stayed away too.

Consequently we were in a commanding position to both take all the time we wanted to determine the legitimacy of each asset and to negotiate a price that seemed to fall with each passing day. In the end, we determined that maybe 2/3rds of the assets were fine – terrific, even – the rest not. We figured that we would simply throw the improper-provenance assets overboard, and were getting an amazing bargain on the good ones. And we were right. 

So the deal worked out exceptionally well from an economic perspective. But it wasn’t an unmixed success. 

In the course of negotiating the acquisition, the first major rift in our senior management team appeared. By this time, there were six or eight of us who were almost always in on the big decisions; we were all people who had worked together for years and had enormous knowledge of and respect for each other’s strengths – and affection for each other, too. We had been in a lot of hard battles together. 

One of the most important members of this team was adamantly, angrily against the acquisition of the other pirate ship. First off, he thought it was a terrible idea to buy real pirates’ booty – what made us think we could quickly determine which assets were ok, and which not  – or emerge from that process with clean hands? And second, he had a personal reason for fighting the deal with all he had.

One of the CEO’s great strengths was that he delegated huge amounts of authority to the company’s leaders. Hence, this particular member of the senior management team had managed his part of the business with a free hand. He had even – and this was the sore point – promised one of his subordinates a huge promotion in authority and prestige without clearing it with us.

During the diligence portion of our negotiations to buy the other pirates’ booty, the CEO and I had been hugely impressed by an employee of the company we were hoping to buy – the man who managed their best products. We had decided that if the deal went forward, we would give him the job that, unbeknownst to us, our colleague had already promised to a subordinate. Thus if we went forward with the deal, not only would we be interfering with how our partner managed his part of the business, he would have to endure a huge loss of face with his subordinates.

Our partner was not really wrong to have managed as he did – he had the right to expect that sort of autonomy based on past practice – but we weren’t wrong to want to proceed as we did.

And we did proceed as we wanted, even to the extent of making the personnel changes. Everything worked exactly as we had hoped. But these wins had come at a cost; pirates need to know that they have each other’s  backs. 

Something Happened – 2012-2013

I was raised to believe that one of the most important and characteristic aspects of our country’s culture is that our government can be relied upon to be honest. We don’t have the kinds of corruption that plagues other nations and keeps their honest people down. Sure, a bad apple can always appear here or there, but America is defined by the rule of law…

Except when it isn’t.

As you know, we had had a terrible experience with abused government power back in 2004 when we were publicly accused of having defrauded our home town without any evidence or even a coherent theory; but that had been the fault of a particularly dim and ambitious politician out to profit form our alleged shortcomings, and while the accusation had manifestly hurt us, as a matter of law it it hadn’t gone far (meaning: the government had declined to prosecute the case). And of course there had been the time when an arm of the federal government had reneged on a contract with us (albeit for understandable reasons).

So we certainly knew that government officials could behave in an arbitrary and unaccountable fashion. But those experiences didn’t prepare us for what happened not long before we decided to sell our largest business. Indeed, the experience I’m about to describe was one of the reasons we decided to sell.


By this time, we did substantial amounts of business in roughly a dozen major US cities and, through subsidiaries, in many other countries.

One of the US municipalities in which we did business took an action that had the effect of greatly devaluing our assets there. And that action was certainly both illegal and arbitrary in ways that, let’s just say, would not have reflected well on the city’s administration if it had received any scrutiny. Which it didn’t, in part because when we went to the city’s major law firms to see if they would help us sue the city, they said no thanks, explaining that if they took such an action they would be run out of town.

How do I know that the city’s behavior was dirty? They claimed to have held a legally-required competitive bid for the program that they had instituted that damaged our business, and that the losing bidder had been … us. Which press release was literally the first time we heard of the program. And if there had been such a bidding process, the person who would have overseen our response would have been yours truly. Never happened.

Yeah, they did that. And it set us to thinking: if that municipality could behave in such an arbitrary, illegal and damaging manner, could our home town? And if they did, wouldn’t that bankrupt us?

We had just learned that we weren’t big enough to fight city hall.

Three Lessons, Applied 2004-2014

I learned so much from the CEO over the years. Today, I’ll describe three of the lessons that proved to be of the utmost importance in my life and the lives of others, and how they did so.

The first relates to negotiating. On three separate occasions, I had the ringside seat from which to watch the CEO walk away from a negotiation with millions more for our company than I ever would have dared to hope for, let alone expect. 

How did he do that? Think of negotiations as a game of poker: the CEO was brilliant at reading the other guy’s hand and revealing nothing of his own. He could smell the other fellow’s particular desire, or his particular weakness. He could ignore the weakness of our cards, and thereby convince the other side that our hand was vastly stronger than it was. All three times, mindful of the risk that our bluff would be called, I sat by his side wrongly hoping that he would just close out the hand and leave the game with a much smaller pot than he ended up winning. 

I never have, and never will, play cards against the CEO. I don’t recommend that you do so, either. My guess is that he could still read you – or me – like an open book.

The second lesson was about when to hesitate and think things over before making an important decision. As I have mentioned, in our private disagreements, I was generally the one pushing for more decisive action. The CEO always wanted to gather different opinions than his own and weigh them methodically before acting. 

And finally, the CEO taught me how to be steadfast. An example: as you know by now, our business had fantastic highs and terrifying lows. The CEO had made decisions to quietly, anonymously give his personal support to certain charities on a long term basis, and he did so without complaint through thick and thin. Sometimes, when we were in the frightening thin cycles, I wondered if he would flinch from reaching for his checkbook, but he never did; nor did he complain about the pain of writing those checks. 

Those lessons came to the fore in the two situations I’ll describe in the rest of this post.

I’m pretty sure that, eventually, Saint Peter will smile on me. I know that I have made a difference in the lives of others through the school I helped build. (I would like to think I did a lot more more good than harm in business, too, but that’s a very different matter).

Helping underprivileged children was not something that I had looked for an opportunity to do, but when that chance fell into my lap I was at least awake enough to the possibility of doing something for others to take advantage of it. Lots of deserving children are better off because I had that good fortune.

Early on in the process of my involvement with the school, I almost walked away from it. I had a disagreement with the school’s founder in a board meeting and felt that he had handled our disagreement so badly that I should resign. I wrote a resignation letter to the board while sitting at my desk in the office.

The CEO wandered in as I completed the letter, and asked what I was up to. You can guess how the story goes: he talked me down off the ledge. Had he not done so, many children might well not have had the advantages they have since received – and my own life would have surely been much less psychically rewarding.

If the CEO hadn’t urged me to stop and rethink what I was in the process of doing, I wouldn’t have learned that the school’s founder was one of the best people I would ever really get to know, either. 


If you have been reading these business story posts for any length of time, in a narrow sense, you know how the meta story ends: we sold the mother ship for a great deal of money and I left the partnership I had with the CEO. In the sale process, I showed some of what I had learned about negotiating from the CEO.

The sale process was the biggest poker game that either the CEO or I had ever played and we knew that our hand had terrible weaknesses. 

I have already made it clear that the CEO was a master of ignoring the weaknesses in our cards and playing off his understanding of the weaknesses of other players’ hands. The sale of the mother ship was one of the three occasions in which he did just that, earning our team extra millions in the negotiations. But, strangely enough, I may have played an even more important role.

In offering the mother ship for sale we were taking a gamble. We had our difficulties  – fighting the wind and tides, internal dissension and serious financing issues – but we knew that there were very, very few companies that could offer us anything close to what we would think was a fair price for our treasures. And there were any number of reasons that none of those companies might bid.

If a sale didn’t happen for whatever reason, we would have grievously damaged our own ship in the process. The crew would start to plan other lives for themselves. Our competitors – the very people we were hoping would buy the company – would surely attack, since they had many more ships and would have us trapped in a shallow lagoon. Our suppliers (sorry, there are limits to the serviceability of my nautical metaphor) would begin to worry and, as important, it would be even more difficult to find new suppliers, because prospective ones would worry about maybe doing long term deals with an about-to-disappear or even a failing company. Rumors would abound. 

The ship represented most of what we had in the world. If the attempt to sell it failed, we would figure out how to make repairs to it, for sure, but it would be nothing like the sleek, well-armed raiding vessel that our enemies had once feared.

Each bidder, assuming there were any, would naturally want to pay as little as possible, and calculate what the upper limit of its possible bidding should be. We might have a minimum price, but would have no upper limit to what we would like the ultimate buyer to pay. So at one level, the question was: was at least one buyer’s upper limit more than our minimum? The answer to that question was never in doubt. The tougher and more relevant question was: would the negotiations allow the ultimate buyer to pay very little, as we had so conspicuously done on several occasions, or force one or more buyers to pay an amount at or close to its theoretical upper limit? 

Each bidder’s perceptions about the strength of our cards depended on their understandings of the levels of interest among the small number of other possible bidders.  The key would be – as it always is – for the process to play on each bidder’s fears that our treasures might fall into their competitor’s hands, thus weakening the post-deal relative market positions of the losing bidders. In other words, each bidder was focused not only on how much our assets might be worth to them, but on what the world would look like after the deal if our assets were in somebody else’s hands. 

I struggle with how much I can reveal, even in the anonymized format of these posts. Withholding the details, as feels right, also robs the story of much of its color. Oh, well.

Suffice it for me to write that in the midst of the process I had a totally unexpected and unplanned-for brainwave about how we could send a perfectly simple, straightforward and proper smoke signal from which those who were on the other side would quite likely draw the incorrect inference that our hand was far stronger than it was.

We sent the signal, and it got a very big reaction, meaning that the bidders had taken the information conveyed, as I had hoped, as implying something that it didn’t actually say. In other words, I was reading not only theirhands, but how they were reading – and might be induced to misread – ours.

The result? The buyer presumably ended up paying an amount much closer to its upper limit than it would have liked. C’est la guerre. 

Do I know that the smoke signal was decisive in getting to the final result? No – but I strongly suspect it.

In any event, we received a very handsome price for the ship and its contents – and both our crew and we emerged better off than we would have in any other realistic scenario. The crew all had shares of the booty or new ships to go to or, more often,  both. And we had the biggest shares of all.

Even so, even so, it was a sad moment when we hauled down the Jolly Roger after all those years of sailing the deep blue seas together, hunting fat Spanish galleons. It would take each of us a long time to find our land legs again, and we already knew that we would be heading in different directions.

Another Man’s Story – 2000-2014

Across my desk was a young man of whom I was quite fond – whom I had brought into the business, and watched grow and thrive. He was telling me of his intention to quit.

I had met him on a weekend bicycle ride seven or eight years before. At that time, he had been just a kid, fresh out of school and employed by a friend with whom I rode daily. The young man was a Canadian national, born in Cyprus, of Palestinian extraction. At the time when we met, he was new to riding and not such a strong cyclist, but he had an effervescent personality so I liked him right off. He did the annual summertime ride to Maine with my friends and me a couple of times, once almost getting himself arrested by a female cop for peeing by the side of the road. He had been doing his business discreetly, but she was quite waspish about the whole matter…

A couple of years after we had met, by then a vastly stronger cyclist, he decided to quit working for our mutual friend in order to try to become a professional bike racer in France. I hired him after his return from France, a year or two after that.

He had done well at our company – everybody liked him. Well, everybody but one person – his boss. His boss was the same man who had blown up the deal in Istanbul, and would eventually lose his job to another such incident. I don’t think the boss actually disliked my Palestinian friend – that would have been impossible – but he disparaged him constantly. That was why the young man came to me to quit.

Well, part of the reason: he explained that while his boss was a big part of the problem, there was also a young French woman who he wanted to spend more time with, to see whether she was the one. He wanted to move back to Paris.

I had an idea that the CEO might be a better person to convince my friend to stay than I. I pressed the button under my desk that opened the sliding door between my office and that of the CEO, shouted out to the latter and sent the young man in to see him, closing the door behind him.

Twenty minutes later – meetings with the CEO rarely lasted long – my young friend came back into my office with a big grin on his face. He was going to move to Paris, but still work for us. He would open a new business there, reporting to me.

That young man’s story could be written as a book, and hold your interest the whole way. It had many surprising twists and turns, and much interesting behavior on all sides. I’m going to try to tell it in around 1500 words. I’ve got 1100 left in that allotment.

The business in Paris didn’t work. The young man hired a bunch of people and brought some excellent products to market but was stymied by the French regulatory bodies. They blatantly favored the French national company that was our principal competitor in the market – turning down many of our products while approving their identical ones. After a couple of years, we gave up on the market – selling our business there at a small profit on the over-all investment to a local competitor.

My young friend returned to the States, French bride and baby in tow. For a couple of weeks, they stayed with the Beloved Spouse, my children and me while looking for an apartment. The CEO and I also had to figure out where in the company to put him.

We decided that while the French business had not gone as hoped, he had done everything right, so we should give him another chance to start a business for us. He would move to another major city – American this time – and try to build a business from scratch there. This was a city that we had looked at from time to time. It was a big market, and tempting, but some aspects of the market had frightened off my young friend’s former boss, who by that time was gone.

(Incidentally, the vignettes that have made it into this thread so far have all made my young friend’s former boss look like a one-man wrecking crew; that’s a far from complete picture. He was central to the creation of our single most profitable business – and not an intentionally unkind man – but, sadly, had weaknesses that got the better of him).

So my friend moved his young family to another city, and set about building a business.

Over the following eight years or so, I saw less and less of him. He had started out reporting to the CEO this time – closer co-ordination throughout the mother-ship was required – on a day to day basis he would work with people all over the company. Again, he hired a local team; again, he proved effective at creating products of the kind we needed. People liked him, and this time, he wasn’t running into adverse regulatory feedback based on national-champion preferences, so the business grew. From nothing, he and his team – with help from the mother ship – built a business that was worth tens of millions.

As you may recall, we had devised a system through which we could award non-voting “B” shares – equity in the company – to highly productive employees. In effect, such grants came right out of the CEO’s pocket and mine, since we owned whatever was left after such share issuances, but we believed that it made sense to reward great employees in this fashion, and to incentivize others to try to become great. Also, the shares couldn’t be sold during employment; unless the company were sold, they had to be sold at a formula value by departing employees at retirement or other departure, so equitized employees were incentivized to stay, and hold onto their shares, for long periods of time. If the company were sold, which we didn’t think would happen, “B” shareholders would get their pro-rata amounts without reference to the formula values. 

Employees who had been given such equity interests, and eventually there were about 15 of them – in wildly varying amounts – were described internally as partners. Partnership interests became the brass ring for which many strove.

In the course of the eight years or so after my friend moved to the city that was now his home, our company had grown enormously. At length, the CEO decided that our younger friend should report not to him – he had far too many direct reports – but to another man who had ultimately succeeded the guy who had wrecked the Istanbul deal. This new fellow – one of the brightest people in the company, then or ever – didn’t mesh well with our now-less-young friend who, it must be said, resented no longer reporting to the CEO or me.

And the market in which the younger man lived had changed – the new regulatory situation made it much more difficult to introduce new products, stunting growth, which was the younger man’s strong suit.

By now it was early 2014. The Great Recession was long past, but our industry – and particularly the segment that all our products were in – was experiencing a sharp downturn of its own. By now, we had a new bank deal that was not covenant lite, so as our operating results suffered we began to worry about a possible default. For completely unrelated reasons, the CEO and I were also, for the first time and unbeknownst to our colleagues, thinking about selling the business.

We fired my friend, or rather, I did.

His boss, and another important member of the mother-ship senior team had made the argument that given our default worries/cost pressures and the fact that his particular skills didn’t seem to be helpful any more, he had to go. I had fought these arguments – the younger man had built a great business for us, and the CEO and I loved him – but the business case for firing him was very strong, especially since the younger man’s boss was making it.

Ultimately, the CEO sided with the he-had-to-go side. Given my closeness to the younger man, I had to deliver the news.

My friend was a perfect gentleman in that very sad meeting. He promised to help with the transition.

In addition to giving him a generous severance package, we bought his stock at the formula value, as we were required to do. This was a significant sum, but not a fortune.

Not six months later, we sold the mother ship for a great deal of money – and several multiples of the “B” shares’ formula values.

As the sale prepared to close, the CEO and I knew what we were going to do. The CEO called our former partner to tell him about the sale and said that we had gotten an outstanding price. We were going to pay the younger man the difference between what we had paid for his shares six months previously, and what he would have gotten if he had still been with us at the time of the sale. The difference was a small fortune.

My friend was shocked. But as he thought about it afterward, he realized that that was the kind of behavior that the CEO and I had always believed in.

He used the extra money to start a new business, which thrives today. He and his wife have two rapidly growing children and, oh yes, they are all American citizens.

Reflections – 2019

I miss the power I used to have. I miss having the power I used to have. I miss having my decisions matter to lots of people. I miss having them laugh at my jokes.

There are few feelings more rewarding than leading a successful team. I wasn’t the leader, but I was his alter-ego; together we built a business to the point at which it had hundreds of employees, most of whom were very happy to be with us.

When I think back, some of the decisions of which I am proudest were about individuals – giving somebody a chance that he or she wouldn’t otherwise have had, and watching them flourish. I changed people’s lives – I could name more than a few.

Business is about people – it’s about meeting their needs and taking advantage of their capabilities more so than grand strategy. Nearly everybody has had a Very Big Idea, but very few can make them happen. To be in business – in all cases, but particularly as an entrepreneur – is to be involved with other people in complicated, important and generally mutually-beneficial ways.

Oh, don’t get me wrong: we nailed it. We sold at exactly the right time – just when the stock market valuations of the companies that could pay a big premium for our assets were peaking: the stock of the company that bought ours is down about 40% over the last four years (as is its largest competitor), while the stock market as a whole is up about 30%. We were right to see that the tides had shifted in our industry, and we chose our moment perfectly.

We also sold very well – by playing our cards carefully, we managed to eke out a big premium even by the standards of the time, when values in our business were much higher. So from that perspective, we won, plain and simple.

Selling was the right thing to have done on a human level, too. Changes in the rules put our smaller company at a disadvantage relative to our much larger competitors – and the tide, shifted by the internet’s gravitational pull, was about to start running out for all of us. If we had carried on, our whole crew, ourselves included, would have suffered again as we had in the Great Recession, but without the prospect of a predictable macroeconomic recovery. As it was, most of our people found safer – but not safe – births on the buyer’s much larger ship. And, as I’ve mentioned, everybody got a share of the booty.

After the sale, my younger daughter told me that if she ever finds me feeling sorry for myself she’s going to hit me over the head with a frying pan. (An odd threat, coming from a prosecutor, to be sure).

She’s right, though: for me to feel anything less than gratitude for my life’s innumerable blessings would be obscene. Entirely apart from the personal blessings of having a family I adore and many wonderful friends, that my former partner and I sold when we did, and well, meant that we could say goodbye to our crew generously and walk away with financial security and the ability to do important things for our families and the institutions that we support. Very, very few people are so fortunate.

Even so, all those achievements – and failures, and pieces of good and bad luck – are ever-more-distant yesterdays, while living, like business, is all about interacting with other people with tomorrow in mind.

M.H. Johnston

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