Chairman and chief executive officer, Lehman Brothers Holdings
Born: April 26, 1946, in New York City, New York.
Education: University of Colorado, BA, 1969; New York University Stern School of Business, MBA, 1973.
Family: Son of Richard Severin Fuld and Elizabeth Schwab; married Kathleen Ann Bailey; children: three.
Career: Lehman Brothers, 1969–1984, managing director; Shearson Lehman Brothers, 1984–1990, vice chairman; Lehman Brothers, 1990–1993, president and co-CEO; 1993, copresident and co-COO; 1993–1994, president and COO; Lehman Brothers Holdings, 1993–1994, CEO; 1994–, chairman and CEO.
Address: Lehman Brothers Holdings, 745 Seventh Avenue, New York, New York 10019; http://www.lehman.com.
■ The original Lehman Brothers were the German Jewish émigrés Henry, Emanuel, and Meyer Lehman, who started their firm around 1850. As family-business owners they would have appreciated the continuity of the company man Richard Fuld, himself Jewish. Fuld began his career at the firm in 1969—at the end of an era, when the last members of the Lehman family ceased working at the firm. Over a 30-year career Fuld helped transform Lehman from a bond house into a major investment banker.
With 2003 sales of $17 billion, Lehman Brothers was an investment bank known as an aggressive trader. The firm offered investment and merchant banking services as well as the underwriting of equities and fixed-income products (such as bonds and other debts), asset management, institutional sales, and private client services. In addition Lehman traded stocks, currency, derivatives, and commodities. After being weakened by economic turmoil in Russia, Lehman was growing again, forming joint ventures for investment banking with the Bank of Tokyo-Mitsubishi and for online bond offerings with SOFTBANK. The firm was also a leading online bond offerer in the United States. Its 2003 acquisition of Neuberger Berman brought assets under management past the $116 billion mark.
Richard Fuld joined Lehman in 1969 as a commercial-paper trader and earned his reputation running the firm's fixed-income business. In the early 1980s at the age of 37 Fuld became the supervisor of both the fixed-income and the equities divisions, overseeing all trading at Lehman. Fuld had met with great success as a trader, but his skills as a manager were less obvious. His interactions with coworkers were decidedly limited; when he did speak, he tended to use monosyllables. He was notoriously described in Ken Auletta's 1987 book, Greed and Glory on Wall Street: The Fall of the House of Lehman , as "the 'digital mind trader,' someone who spent so much time in front of his green screen or making rat-tat-tat decisions that he was no longer human." Yet with his new responsibilities Fuld had 22 managers reporting to him in divisions that accounted for two-thirds of the company's profits. Fuld excelled, and in 1982 his divisions generated record profits.
Fuld, who earned his MBA from New York University at night, was considered by many in the industry as one of Wall Street's supreme traders. One Lehman partner said of Fuld in Investment Dealers' Digest , "This is a very smart guy, tough as nails" (August 24, 1992). As reported by Fortune , a notorious temper earned Fuld, a weightlifter, the nickname "gorilla" (December 11, 1995).
Toughness was a prerequisite to surviving Lehman's cutthroat corporate culture. Intense acrimony nearly brought the firm to its knees in 1984, due to a power struggle between the firm's top trader and top investment banker, and again in early 1990, due to a clash between the Shearson Lehman chief executive and the chairman of American Express.
The history of Lehman Brothers could justifiably fill several books, with a chapter or two devoted solely to the firm's relationship with American Express. Shearson/American Express acquired Lehman Brothers in 1984; six years later Shearson Lehman Brothers split its operations into a Shearson retail division and a Lehman Brothers Investing banking/trading division. A primary figure during this period was Fuld.
After the 1990 operations split, Fuld became co-CEO of the Lehman Brothers division, sharing the title with J. Tomilson Hill. The pair of executives comprised two-thirds of a power struggle that also involved Fuld's longtime protégé T. Christopher Pettit. Pettit, the West Point graduate who joined Lehman in 1977, worked side by side with Fuld for much of his career and emerged in the early 1990s as a controversial rally-the-troops leader. Pettit managed to insert fixed-income executives personally loyal to him in top operating positions firmwide, provoking tensions between him and Fuld. Hill was ultimately ousted by the American Express Company chief executive Harvey Golub; Pettit and Fuld, meanwhile, would meet with further confrontation later on.
In the mid-1990s Lehman Brothers mirrored a dysfunctional family intent on tearing itself apart. After the company finally reclaimed its independence in 1994—having been spun off from American Express 10 years after it was first acquired by the firm—infighting abounded. The squabbles had the potential to ruin Lehman at a crucial moment in its history. On the competitive front, the company had claimed a commanding position in the bond business, but it had yet to obtain a significant presence in the high-margin businesses crucial to success in investment banking. In 1994 Lehman Brothers' ranking in Institutional Investor 's poll sank to number nine after the company had claimed the top position for three consecutive years in the early 1990s. Lehman also lacked a major international presence overseas.
When the smoke from the spin-off process cleared, Fuld emerged unscathed. His fixed-income division was the only segment of Lehman Brothers making any significant money. One head of debt-capital markets at a rival Wall Street house noted in the Financial News , "If Dick and his bond team had walked to, say, Morgan Stanley, it is likely that Lehman would have folded within six months" (March 25, 2002).
Fuld, who was named chairman in April 1994, made substantial human-resources changes after his company broke free from American Express. One of the most notorious personnel shake-ups involved his protégé Pettit. A fallout between the mentor and younger employee arose after Pettit was given dayto-day operating control of the company and overstepped his boundaries. Pettit made a few dubious moves—essentially in attempts to give himself more power—and his relationship with Fuld deteriorated. As news of Pettit's alleged affair with a subordinate spread throughout the firm, tensions between him and his mentor were exacerbated further. In April 1996 Fuld stripped Pettit of his day-to-day business responsibilities and removed most of his handpicked executives. Six months later Pettit resigned. Just a few months afterward he was killed in a snowmobile accident on his 52nd birthday. Through the beginning of the 21st century Fuld refused to discuss the matter publicly.
After regaining its independence, Lehman raised its return on equity to nearly 14 percent in 1996, from the low of 3 percent reached just after the firm was spun off from American Express. Roy C. Smith, the professor of finance at New York University's Stern School of Business, called Lehman "a cat with 19 lives" in the New York Times , commending the company on its ability to survive a slew of stressful changes; he noted, "They're a bit like an accordion—they can squeeze when they want to. They're amazingly durable. Some of the credit for that goes to Fuld" (June 3, 1997).
Fuld would come to change the leadership in each of the company's three major operating units—investment banking, equities, and fixed income. He focused the company's investments in high-margin businesses like mergers and acquisitions and also equities by recruiting several expensive hires. In January 1997 Fuld approved $48 million for additional executive compensation—a full $46 million of that was earmarked for the investing, banking, and equities divisions, leaving just $2.4 million for the fixed-income division's recruits. His strategy was crystal clear: move Lehman away from its age-old reliance on fixed income.
Such a shift could not happen overnight, but that did not prevent Fuld from feeling pressure. As reported by Investment Dealers' Digest , in addressing analysts at a 1997 meeting Fuld said, "The process of building our high-margin businesses and shifting our overall business mix takes time. It starts with leadership at the top, then at the next level, then the talent needed to meet client needs and produce revenues. Once all that is in place, it takes time to get the resources to work together properly to build or expand relationships, and create revenues" (August 25, 1997).
As Fuld worked to get his company back on track, he was forced to contend with endless rumors and speculation that Lehman was on the market for purchase. He remarked in the New York Times , "We are building a strong independent investment bank. We are certainly not looking to be bought" (June 3, 1997).
Lehman's investment-banking business began to seriously take root in the midst of a massive crisis: the September 11, 2001, terrorist attacks and the loss of the firm's World Financial Center headquarters in downtown New York. The midtown Sheraton Hotel became the company's temporary central offices. There, instead of grouping bankers by the type of financing in which they specialized—the typical setup—management grouped bankers by industry. So for the first time the bankers who underwrote debt and the bankers who put together stock offerings worked side by side in the same makeshift office—a cocktail lounge. The setup worked so well that the arrangement was retained when the company moved into its new headquarters in 2002, resulting in increased communication among bankers and more innovative financing solutions for clients. In the past the company had measured success on individual bases; after the restructuring, noted Fuld in BusinessWeek , "it was all about the team" (January 19, 2004).
In 2001, amid the global recession and stock-market collapse, Wall Street firms felt the economic pains most of all. Lehman at least outperformed the industry; Fuld's reward was a 2001 compensation package worth $105 million, making him the fourth-highest-paid chief executive in the United States. Most Wall Street chief executives—including those at Goldman Sachs, Morgan Stanley, and J. P. Morgan Chase—reduced their pay packages at the time.
Despite Fuld's laudable performance in turning Lehman Brothers around, outsiders criticized his payment package as irresponsible in a year during which shareholders—even those who owned a piece of Lehman—suffered: Lehman's stock had started the year at around $75 and finished at around $65. Ian Kerr of Financial News described 2001 as "the type of year when small shareholders and retail investors might have gawked at the investment bankers' seaside mansions in the Hamptons and the boats in Sag Harbor and asked, 'But where are the customers' yachts?'" (March 25, 2002).
Fuld was a long-term player and knew that better days were ahead. Lehman's rebound continued in the first few years of the millennium, as the firm earned a reputation for its stellar management through three primary accomplishments: First, the company kept employees' salaries in line with earnings, with the ratio of compensation costs to gross revenues hovering around 51 percent. Second, Lehman maintained a strong focus on U.S. government bonds, global fixed income, and credit derivatives at a time when the equities and investmentbanking markets were losing propositions. Finally, the firm retained its best managers by handing them substantial portions of stock in the firm. In 1994 employees owned 4 percent of Lehman; by 2004 they owned 35 percent. In 2001 the firm allocated $544 million for stock-based pay, accounting for 15.8 percent of its total compensation expenses, as compared with the 6.4 percent allocated for such purposes at Merrill Lynch. Fuld's message to new recruits: If you join us, we promise to make you rich—perhaps seriously rich. And he delivered on that promise—by 2002 the company was teeming with self-made millionaires.
Despite its success, Lehman Brothers still lingered in the shadows of such megafirms as Goldman Sachs and Citigroup. Although its market cap grew from $2 billion in 1994 to $15.8 billion in early 2002, the firm still lacked the type of balance sheet that would allow it to make a significant acquisition.
In October 2003, after several painful years of sitting on the sidelines, Lehman Brothers seized on an opportunity to expand its business. Thanks to historically low interest rates, the bond market exploded—along with Lehman's profits—and a sizable acquisition finally proved financially feasible. The target was Neuberger Berman, a money-management firm focusing on the affluent. In 2004 Lehman Brothers acquired Neuberger Berman in a deal valued at $2.63 billion.
For Fuld the Neuberger acquisition was the realization of a strategy he had been espousing since the mid-1990s: to diversify the company's business and lessen its reliance on the bondtrading market. The company expected the acquisition to increase its percentage of fee-based revenues from 13 percent to 21 percent. The move put Fuld's company on equal footing with Morgan Stanley, Merrill Lynch, and Goldman Sachs, all of which had significant money-management businesses. In Neuberger Berman, Lehman had obtained a firm with $63.7 billion under management, a well-regarded cadre of mutual funds, and a slice of the sought-after business of financialservices provision to high-net-worth clients. As quoted in the New York Times , Fuld said in a conference call, "Neuberger Berman is one of the largest and most respected, independent, high-net-worth managers. When Neuberger is combined with our existing wealth and asset-management group, Lehman Brothers will emerge as one of the leading providers of services to a highly desirable marketplace" (July 23, 2003).
In 2003 Daily Deal awarded Lehman Brothers the "Top 5 Global M&A Announcements of 2003 Deal of the Year" for its consultation with Travelers for the company's $16 billion merger agreement with St. Paul Companies. All told Lehman consulted on $99 billion worth of U.S. mergers and acquisitions in 2003, increasing its market share by 6.2 points to 18.9 percent, according to Thomson Financial. That gave the firm the lead in mergers and acquisitions in the industry, over Credit Suisse First Boston, Merrill Lynch, and J. P. Morgan Chase. Among major Wall Street firms, Lehman claimed fourth place in mergers and acquisitions overall, up from ninth in 2002. In 2003 the company raised $314 billion in debt and equity issues for clients, cementing its position as the number-two underwriter of securities in the United States—behind Citigroup—up from the number-four spot in 2002.
Lehman Brothers' success stories were largely a byproduct of Fuld's focus on offering a complete array of financial services, including advisement on corporate merging, raising capital, hedging risk, and making debt payments. Fuld's transformation showed foresight. As the economy picked up, bond insurance was expected to soften; Lehman's investmentbanking operations would be the counterbalance to the expected downturn in bonds. In a nod to Fuld's efforts, Blaine A. Frantz, the senior credit officer at Moody's Investors, told BusinessWeek , "It is a much more diversified shop than it was five or six years ago, and it operates in an extremely disciplined fashion" (January 19, 2004).
Another nod from Wall Street came in January 2004 when Institutional Investor ranked Fuld first in its annual Best CEOs in America survey in the Brokers & Asset Managers category.
Plenty of room for improvement, however, existed within Lehman Brothers' overseas operations. The company was ranked fourth in European M&A work in 2002, with a market share of 19 percent, but it fell from number eight to number nine in the global rankings for announced mergers. As of early 2004 one of Fuld's goals was to improve the company's overseas market share, partly by appointing two top executives in Asia and Europe to the company's executive committee.
In good times and bad Fuld displayed unquestionable consistency and strength. One would expect nothing less from the leader of one of the top investment firms in the world. In a tough business few proved tougher than Richard Fuld.
Auletta, Ken, Greed and Glory on Wall Street: The Fall of the House of Lehman , New York, N.Y.: Warner Books, 1987.
Cooper, Ron, "Can a Troika Take Lehman Up a Level?" Investment Dealers' Digest , August 24, 1992, p. 16.
Horowitz, Jed, "Does Lehman Finally Have It Right?" Investment Dealers' Digest , August 25, 1997, p. 16.
Kerr, Ian, "Fuld's Pay Sheds Light on Lehman," Financial News , March 25, 2002.
Thomas, Landon, Jr., "Lehman to Buy Neuberger Berman for $2.6 Billion," New York Times , July 23, 2003.
Thornton, Emily, "Lehman's New Street Smarts," BusinessWeek , January 19, 2004, p. 62.
Truell, Peter, "Is Lehman Ready to Take the Plunge?" New York Times , June 3, 1997.
Tully, Shawn, "Can Lehman Survive?" Fortune , December 11, 1995, p. 154.