Chapter One
"EVERYONE KNEW HE WAS BRILLIANT": THE WOOING OF JAMIE DIMON
In 1999, Chicago's Bank One Corporation was headed for trouble. Many investors and board members believed that they knew the precise source of the problem: Bank One's CEO, John McCoy.
Although Bank One could trace its roots back to 1868, it was under McCoy's stewardship that it had grown into a modern colossus. Appointed CEO in 1984, McCoy was one of the first bankers to take advantage of loosening restrictions on interstate banking. Beginning in 1986, Bank One purchased banks throughout the Midwest and Southwest. Within a decade, it had made over one hundred acquisitions, propelling it from the thirty-seventh largest bank in the nation to the fourth. Over the same period, Bank One's stock price had increased 500 percent and John McCoy had become one of the nation's most profiled bankers.1 In 1999, however, after completing its purchase of First Chicago NBD-its largest acquisition to date-Bank One began to falter; its stock price started a steep descent in an environment in which most financial stocks were booming. The First Chicago acquisition was not supposed to have turned out this way. The $19 billion merger had been intended to create an earnings powerhouse with branches stretching across Florida, the Midwest, and the Southwest, and total assets exceeding $260 billion.2 Integrating First Chicago, however, had turned out to be more difficult than anyone at Bank One had expected. Operationally, there were a number of overlapping services that needed to be eliminated and disparate information systems that needed to be integrated. Culturally, Bank One's decentralized, entrepreneurial culture clashed with First Chicago's more conservative style. Politically, jockeying for position was endemic and old loyalties not easily disentangled.
Meanwhile, in the opinions of many investors and board members, John McCoy seemed to have lost interest in running Bank One. This view may have simply represented a new interpretation of a management style for which McCoy had long been known and even celebrated. Once one of the country's most highly regarded banking executives, McCoy had a leadership style that had been immortalized in a case taught in the Harvard Business School's required General Management course.3 His trademark as a leader was his trust in people. In particular, McCoy exhibited this characteristic when integrating acquisitions, trusting managers at the banks he acquired to run their businesses effectively in what Bank One referred to as its "Uncommon Partnership" philosophy. Moreover, McCoy was known for his ability to win the trust of others-a talent he exercised while on the road as often as three days out of five, meeting with employees and customers.
Only as Bank One began to stumble in the wake of the First Chicago acquisition did these features of McCoy's management style begin to be labeled as a problem. As the company's performance deteriorated through 1999, investors and directors began to characterize the CEO's behavior as indifferent and aloof.4 Many of the company's problems were caused by Bank One's credit card operation, which was experiencing severe pricing and customer-retention problems that seemed to have materialized out of nowhere. Yet even as the national press chronicled an active customer revolt against Bank One's poor customer service that summer, McCoy appeared unconcerned. He drew criticism when he refused to cancel a European vacation after delivering a surprise earnings warning to investors in August. When he traveled to Dallas in mid-September for the Senior PGA Tour-which Bank One was sponsoring, and which several Bank One customers were attending-the Chicago press had a field day, and First Chicago veterans groused.5 Donald P. Jacobs, dean of Northwestern's Kellogg School of Management and a former First Chicago director, remarked censoriously, "A good banker goes to where the emergency is, hunkers down, and goes to work."6
Such comments began to be uttered more and more often, and that fall a full-scale revolt against McCoy started gathering steam. Former First Chicago directors were bombarded with faxes, e-mails, and phone calls arguing that McCoy was not taking the bank's problems seriously. Many analysts began telling Bank One board members that they felt they could no longer trust him.7 The CEO's informal style and supposed inattention to detail earned him the nickname-one that he despised-of "Fly-by McCoy."8 Part of the problem seemed to be that many of the former First Chicago executives and board members simply didn't take to McCoy's folksy ways. Another was the blow to civic pride that Chicago had sustained when a bank from Columbus, Ohio, took over a venerable local institution.9 The Chicago newspapers seemed to have a direct line into Bank One via the First Chicago connection, and articles on Bank One regularly cited sources from the board room or "a former First Chicago executive." These articles often ridiculed McCoy, making him the object of suspicion.10 Routine events became news, and people in Chicago started whispering about matters that would have gone unnoticed before but that became grist for the anti-McCoy coalition's mill. For example, not only the CEO's vacation plans but even the number of weekly managerial meetings he held were regularly reported on.
Finding himself in a political snake pit unlike anything he had ever faced in Columbus, McCoy reportedly remarked to his wife, "Get me out of this trap. This is not fun. I don't like playing these games."11 But others were, by now, preparing to extricate him from the situation. During one board meeting that fall, a group of former First Chicago directors brought up the CEO's frequent absences from the office. As soon as this occurred, the endgame was inevitable: John McCoy would have to step down. (An office pool sponsored by former First Chicago executives was actually taking bets as to the day that the board would ask for his resignation.) After the announcement of another earnings shortfall in November, the Bank One directors lowered the boom. In a November 1999 meeting with his few remaining friends on the Bank One board, McCoy-four years shy, at 56, of his planned retirement age-negotiated a separation agreement that included a $10.3 million cash payment on top of $7.5 million in "special recognition" awards for 1997 and 1998, plus a pension of $3 million a year beginning in 2001.12 With 1.87 million shares, McCoy also remained a major Bank One shareholder.
When in early December the board announced McCoy's departure and the appointments of former First Chicago executive Verne Istock as interim CEO and outside directors John Hall and James Crown as interim co-chairmen, Bank One's stock jumped 11 percent.13 When the board also announced the formation of a search committee consisting of six outside directors-three from Bank One and three from the former First Chicago-the business press and retired First Chicago employees deluged Russell Reynolds Associates, the search firm that the board had engaged, with phone calls. The retired employees wanted the search consultants to know that they had most of their retirement savings in Bank One stock. The business press was interested in the human drama of the high-profile search. As December progressed, Bank One's stock price became increasingly volatile, shifting dramatically with every rumor of a possible successor. The stock price swings, heightened media and analyst attention, and employee and investor anxiety14 combined to create a sense of urgency among the directors.
From the start of the search, the head of the search committee, John Hall, made it clear that Verne Istock would be considered as a finalist against any outsider. Istock, often described as a staid, conventional banker, had run First Chicago before the merger with Bank One and was now actively working to heal the wounds from McCoy's departure. The former First Chicago board members on the search committee actually favored, and pushed for, awarding Istock the CEO job permanently. The non-First Chicago board members on the committee, however, were lukewarm to the idea. While considering Istock an excellent manager, they felt he lacked the stature that Wall Street analysts and the business press demanded. These committee members argued that a full-blown external search was needed. "We viewed our task as no less than to find the best person in the United States to lead us back to the top," said Hall.15 As Charles Tribbett III and Andrea Redmond of Russell Reynolds tell it, the old Bank One directors on the committee felt that the company needed a high-profile outsider, someone with a financial services reputation big enough to restore Bank One's prominence in the eyes of the outside world. While every committee member ranked financial services experience and branding as important, many members also sought the prestige that a celebrity CEO would bring to the company. According to Redmond, "Most important was to find a CEO who could reinvigorate and revitalize the company. Someone who could harness the energy of its employees and inspire them to excellence." The overriding principle guiding the search, Redmond adds, was "leadership, leadership, leadership."16
Once the search committee and the search firm began putting together its list of names, it wasn't long before the directors became captivated with one particular individual: James (Jamie) Dimon, one of the most successful financial services executives in the world, recently ousted as president of Citigroup by his former mentor and longtime partner Sanford (Sandy) Weill. Ordinarily, a firing would have disqualified a figure such as Dimon from being considered as CEO at a major corporation. Yet because it was well known that his dismissal had resulted from internal corporate politics, not performance, Dimon's star had continued to shine. Indeed, his entire career to date had already made him a legendary, even mythic, figure in the world of finance.17
Jamie Dimon had been all of forty-two years old when he became president of Citigroup, the company created by the merger of Citibank and Travelers in 1998, now the largest integrated financial services firm in the United States; he also served as chairman and co-CEO of Citi-group's subsidiary investment bank, Salomon Smith Barney. At the time of his firing, Dimon had been viewed both inside and outside Citi-group as the leading candidate to be the next chairman of the financial services giant. Dimon's professional career had begun in 1982, almost at the start of the investor revolution of junk bonds, takeovers, and mergers that was about to forever change the world of Fortune 500 companies. A graduate of Harvard Business School, he began his career near the top. Dimon's first job out of business school was at American Express Company, where he became assistant to the president, Sandy Weill, with whom he formed a close relationship that would last sixteen years.
The Weill and Dimon families had been close for several years, and Dimon had actually written his undergraduate thesis on Shearson Lehman, the company Weill had built during the 1970s and sold to American Express in 1981.18 At American Express, Weill and Dimon were known for their ability to rapidly restructure poorly performing American Express subsidiaries such as its Fireman's Fund Insurance division. Eventually, with his path to the CEO position blocked by the master corporate chess player James Robinson III, Weill quit American Express.19 Surprisingly, Jamie Dimon-only three years into his job, and presumably with a successful and secure career at American Express to look forward to-decided to follow his boss into unemployment. The two rented an office in Manhattan, where they formed perhaps one of the most successful ventures in modern financial history.
Weill and Dimon began by buying Commercial Credit Corporation, a privately held, struggling Baltimore loan company whose primary business was lending money to working-class families from a network of four hundred field offices.20 While most financial executives would have seen no future for this business, Weill and Dimon viewed it as a base from which to begin building a large, integrated financial services company.21 Both commuted during the week to Baltimore and worked weekends at Weill's home in Greenwich, Connecticut.22 Through a combination of cost cutting and investment in sales and marketing, the partners dramatically improved the firm's performance. During this period, Dimon began to acquire a reputation as a smart but arrogant executive whose angry outbursts were calculated to intimidate critics-a mode of behavior very much like that of his mentor. Dimon and Weill's screaming matches were legion, but their argumentative style, by all accounts, resulted in a greater mutual respect and sharpened both men's business skills.
The turnaround of Commercial Credit and its subsequent successful initial public offering provided the capital for Weill and Dimon to begin expanding their company. In 1988, Commercial Credit acquired Primerica Corporation and adopted its name. Primerica, a conglomerate that had fallen on hard times, owned the well-known brand of the brokerage Smith Barney.23 In 1993, Weill and Dimon extended their reach to the insurance company Travelers and again adopted their acquisition's name. Travelers, which was struggling owing to the recession and poorly performing investments in the real estate market, was ripe for Weill and Dimon's type of surgery. Then in 1997, the two made one final move that put them in the big leagues on Wall Street. After several failed attempts to acquire the famed investment bank J.P. Morgan, Weill and Dimon landed the trading house Salomon Brothers. Like their previous two acquisitions, Salomon had run into financial problems but also had a valuable brand-this time, one known around the world. The Salomon acquisition gave Travelers the global presence it needed to push its way into Wall Street's upper tier of financial services companies.24
Since his early days on Wall Street, Weill had spoken about "competing on a 24-hour cycle."25 Even in his days at American Express, he had envisioned the creation of a global financial supermarket-a world in which "Chilean teachers and Polish miners will each be buying annuities from Travelers and term insurance from Primerica."26 With the financial supermarket he and Dimon had built since their purchase of Commercial Credit, Weill was closer than ever to realizing this dream. Yet the Salomon acquisition also focused greater attention on Jamie Dimon. With each acquisition in Weill's expanding financial empire, Dimon's responsibilities and visibility had increased.
Continues...
Excerpted from Searching for a Corporate Saviorby Rakesh Khurana Copyright © 2004 by Rakesh Khurana. Excerpted by permission.
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