What to Say to Get Pain Meds at the Er
NEW YORK (MarketWatch) -- It's good to be king. Vice king? Not so much.
So it goes at Bear Stearns Cos. BSC,
Late responding to a deepening confidence crisis in his management ability, Bear's chief executive, Jimmy Cayne, decided to come in the office Aug. 1 and employ a proven Wall Street method for shoring up a firm in a crisis: he pushed out co-president Warren Spector.
Other than Jimmy, anyone feel better?
To a reasonable observer, the firing of Spector, a 49-year-old heir apparent to Cayne and a loyal executive was a head-scratcher. There's no public evidence Spector made the bad bets that resulted in the collapse of the hedge funds. An internal investigation - that a committee of the board ordered one is telling -- has not even been completed.
Nor did Spector drive down the stock price 30%. He wasn't the one taking long weekends on the golf course as the funds were very publicly begging borrowers for a little more time.
It's true Spector had direct responsibility for the asset-management division at Bear. It's also true Ralph Cioffi, along with Richard Marin, came out of Spector's side of the business.
But Cayne is responsible for the firm and had the power to assuage investors and clients. He's also 73. He's going to step down on his own accord in the next few years at most. Assume Spector didn't push the button that blew up the funds. If I'm a Bear Stearns investor, I want the young guy to stick with the company, not the guy who's all but ready to fill his days playing bridge and hitting the links.
"Forget Sun Tzu's 'The Art of War.' In the financial world, as in any industry, if the CEO is in trouble, the honorable thing is to make someone else fall on the sword."
So why the dismissal? In this business Spector was the natural choice for getting whacked. Forget Sun Tzu's "The Art of War." On Wall Street if the CEO is in trouble, the honorable thing is to make the No. 2 guy fall on the sword.
Spector is now a member of a pantheon of the honorable dishonored. He is Hugh McColl's David Coulter at Bank of America Corp. BAC,
No fooling
And Spector, just like his sacked No. 2 comrades, did not go quietly. The next day two major news organizations offered a blow-by-blow account of the boardroom tumult. Heck, they even had details of the meeting between Cayne and Spector in the CEO's "smoky, dimly lit office" as The Wall Street Journal described it.
Someone is talking and by the looks of it, it ain't Jimmy. Maybe someone had a mouse in his pocket.
"I have to do this," Cayne said according to the New York Times. "I can't work with you anymore."
Now, Bear has tapped Whitewater lead investigator Robert Fiske to look into the decision-making behind the collapsed funds. If Spector is largely exonerated will he be rehired?
Unscathed
Since May, Bear has been downgraded by three research analysts. In the week that has followed Spector's departure, there have been no upgrades and some analysts have called into question Cayne's leadership - just in case the CEO was wondering how much confidence the move has inspired.
Though Bear Stearns officials declined comment, people inside the firm clearly feel the Bear's funds were victimized by the marketplace and the loans managers took to make the bets. Combined with redemption calls from investors and pressure from lenders, Bear did step up and commit more than $3 billion to back the funds.
The point is: though it may be fair to criticize the funds' risk management, Bear Stearns has emerged financially unscathed as Standard & Poor's, Moody's and the successful sale of $2 billion in 5-year notes on Tuesday have affirmed.
Throughout, Cayne was unfairly characterized as out of touch, his defenders say. Since trouble first emerged, Cayne more often than not has been in his office bunker - pledging loans, ordering conference calls, cleaning house.
Long live the king
In the end, who can blame Cayne and Bear? The temptation for a CEO to fire his top subordinate is vindicated by history. Sumner Redstone, American International Group Inc.'s AIG,
"They (second in commands) are the living embodiment of the mortality of the chief executive," said Howard Anderson, founder of the Yankee Group and now a professor at the M.I.T. Sloan School of Management. "Sooner or later, they all become the fall guy."
"No. 2s "are the living embodiment of the mortality of the chief executive" - Howard Anderson, Sloan School of Management."
Those fall guys also have a habit of returning to show up their old bosses. Jamie Dimon has reemerged atop J.P. Morgan Chase & Co. JPM,
As for Lazard's Rohatyn and Rattner. Both struck out successfully on their own and David-Weill was eventually deposed ungraciously by Bruce Wasserstein. McColl is long gone from BofA and David Coulter reemerged at J.P. Morgan before joining private equity firm Warburg Pincus.
And we all know what happened between John Mack and Philip Purcell at Morgan Stanley MS,
Ultimately, Spector may have the last laugh. Cast into the wilderness, away from the place he had called home for 24 years, Spector is young enough to return to the industry in a better place. He has studied at the right hand of one of the toughest leaders on the Street. The odds are not against him. Meanwhile, Bear, Cayne and his new heir apparent, Alan Schwartz, have a wounded reputation to mend.
And Schwartz might want to work on his resume.
What to Say to Get Pain Meds at the Er
Source: https://www.marketwatch.com/story/two-is-the-loneliest-number-on-wall-st
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