For a successful executive, a big organization can become a velvet coffin, providing a cozy and lucrative home but work that is no longer all that satisfying. That may mean it is time to set up a shop of one’s own. But picking the right moment can be tough.
Peter A. Weinberg came to this point in 2005. As chief executive of Goldman Sachs International, he had discovered that “slowly, you get removed from the clients and the [asset] management business, which is what I loved so much.” He found himself thinking more and more about launching a new business. “I had been at a big company my entire life, and I really did not have a clue about how to do that,” he recalled during a recent Wharton Leadership Lecture.
Meanwhile, over at Morgan Stanley, vice chairman Joseph R. Perella was getting restless, too, and finding that his views of company policy no longer fit the chairman’s. As a Wall Street veteran, he knew that all firms have flaws. “The question is whether or not you can live with them,” he noted. “What you do is you tell your boss, ‘Here’s a problem, and here’s how we might fix it.'” Depending on the boss’s response, one is left with three alternatives, Perella said: Live with the policies and practices as they are, become a voice for change — or quit.
When Perella found his suggestions were making the relationship worse rather than better, he decided it was time to leave. “It was a provocation rather than a plan.” As it turned out, Perella and Weinberg already knew each other. In fact, decades earlier, Perella had gone to school on a scholarship established by Weinberg’s grandfather. Having heard that Weinberg was thinking of striking out on his own, Perella called him, and the two started to talk.
While both men were big names on Wall Street, their paths to this point had been quite different, although they did share a Harvard background. Perella graduated from Lehigh University in 1964 with a degree in accounting. He served in the Air Force and in 1972 received an MBA from Harvard. That same year, he joined First Boston and held several senior positions before leaving to co-found the merger and acquisition specialty firm, Wasserstein Perella & Co., in 1988. In 1993, he joined Morgan Stanley, where he held several executive positions.
Weinberg graduated from Claremont McKenna College in California in 1979, and received his MBA from Harvard in 1983. He then spent five years with Morgan Stanley, followed by 18 years with Goldman Sachs. At Goldman, he founded the financial sponsors group, headed investment banking services, the communications, media and telecom group and the global investment banking division before spending his final six years as CEO of Goldman Sachs International.
Wharton accounting professor Robert W. Holthausen, who moderated the presentation, asked how, with so much riding on the decision to join forces, prospective partners can tell if their leadership styles are compatible. It is less a matter of hashing out strategies, rules and policies than of general outlook, Weinberg answered, recalling that the two executives shared a meal and talked about how they wanted to spend the next 15 years. “That turns out to be more important than what you do” as a firm, he said.
But Weinberg didn’t simply follow his gut, he added. “I made about 100 calls to people about Joe,” he said, collecting reports on Perella’s integrity, experience and treatment of others. “The profile I got of Joe was a great profile.” For his part, Perella knew Weinberg by reputation. And Perella knew Weinberg’s father, uncle and cousin — all Wall Streeters. “I had always regarded the family as the top tier of Wall Street, the best of what Wall Street was supposed to be about,” Perella noted.
The partnership formed in 2005 and the two launched the business a year later. “I’m not exaggerating; I’ve never had a major disagreement with him, and I’ve had a lot of disagreements with people over the years,” joked Perella, whose conflicts have sometimes been the stuff of headlines. The firm itself was widely discussed in the blogosphere in 2009 when a lawyer representing a group of Chrysler’s debtholders said a White House staffer directly threatened to ruin Perella Weinberg’s reputation if it did not support the Obama administration’s reorganization plan for the then-bankrupt automaker. Both the White House and Perella Weinberg denied the claim, and the company ultimately backed the settlement.
When the two launched the firm, the plan, according to Perella, was not to start what would eventually become another Wall Street giant, but to fill a void that had grown in recent years as the major firms abandoned the traditional partnership model to become publically traded corporations with more emphasis on the short term than the long. As firms became larger, conflicts of interest resulted, he said. In the partnership days, for instance, a big firm might have just one carmaker as a client, but in recent years, a publically traded financial firm might do business with that client’s competitors as well, Perella noted. “So what can that client tell the bank — with complete assurance that the information won’t be used against them?” As a result, clients had less trust in the firms that served them, he added. The big firms “went from being pretty much monogamous to, ‘We sleep with everybody.'”
Bringing Back the ‘Good Old Days’
With the formation of Perella Weinberg Partners, the idea was to bring back the best of the old Wall Street partnership model, focusing on providing advice and not getting tangled up with all the issues and conflicts that arise from other activities like proprietary trading, Perella said. Perella and Weinberg believed they could provide a home for investment bankers “who would long for the world as it used to be, and would want to be part of the future.”
The firm was launched in June of 2006 and enjoyed 18 months of boom times before the financial crisis struck, tarnishing the reputations of the large banks, Weinberg said. “In an ironic way, we had a lot of wind in our sails as the crisis unfolded.” Perella Weinberg grew quickly and now has about 415 employees at offices in New York, London, Abu Dhabi, Austin, Beijing, Denver, Dubai and San Francisco. The partnership manages about $9 billion in assets and provides advice on a variety of business issues, including mergers and acquisitions, financial restructurings and raising private capital.
Managing rapid growth takes restraint, or quality will suffer, Perella said. The new firm, he noted, refrained from offering some services until it had just the right people aboard. “There’s always a sort of tension between the desire to grow and maintaining productivity per partner, because in our model the individual [providing client advice] matters a lot.”
Developing a strong company culture is critical, and cannot be achieved with simplistic approaches like mission statements, Perella said. It helps enormously if everyone in the firm can see how intense the partners are about developing the business, added Weinberg. He recalled receiving a call on a Saturday from a European bank that wanted the firm to make a business proposal by midnight Sunday. Top-level partners rushed to the office to meet the deadline, and the firm landed the account. Examples like that set the tone for the entire organization, Weinberg noted. “Having the organization see that intensity at all levels, that’s really huge,” he said. “It’s a great thing for people to see.”
Holthausen asked Perella and Weinberg to describe the biggest failures of leadership they have seen on Wall Street. “You don’t have to look too hard,” Perella joked. He said that in his 40 years on Wall Street the biggest failures he had witnessed involved bad succession plans. “People-intensive service businesses are very sensitive to what we would call ‘the leadership,'” he said, noting that it does not take many failures to get talented employees to leave. “If the wrong kind of person is given the reins, a lot of problems can develop very quickly, and morale can be undermined.”
To avoid such succession issues, Perella Weinberg detailed its own succession plan in its partnership agreement, which was in place on day one, Perella noted. The agreement named the next generation of leaders. “The next generation is in place,” assuring clients and employees that there will be no radical change after Perella and Weinberg depart, he said.
Another key element of leadership, added Weinberg, is a commitment to living by the principles the firm espouses, especially when it is inconvenient. He cited Enron, the energy firm that collapsed in 2001, as an organization that failed to live up to its own standards. A large part of Enron’s business was to provide transparency to the energy and energy-derivative markets, and yet the firm was caught fudging its own financial numbers. On a day-to-day level, he said, a company’s leaders must decide how to deal with problems like a highly productive employee who violates standards of integrity. “It’s very tempting to just pretend to deal with it.”
Perella recalled a case in which a top-performing executive was behaving inappropriately with women in the office. Perella said his response was to deny the executive a promotion he had otherwise earned. Moving the man up would tell all the women in the office that the firm didn’t care how they were treated, he said. “The minute you say, ‘Well, we’ll make an exception just this one time,’ you are on the slippery slope.”
