The Secret of Michel David-Weill

The death last week of Michel David-Weill, longtime head of the Lazard merchant banking firms and scion of the founding family, is a moment to reflect on the glory of the Wall Street general partnership. Michel, as all his partners called him, was the archetype of the kind of character such partnerships require.Michel was my senior partner for more than 15 years. He hired me in 1985 from Lehman Brothers at the behest of Bill Loomis, who had also come over from Lehman and headed up Wall Street talent spotting for Michel. Loomis later became Lazard’s first worldwide CEO under Michel as executive chairman.Michel told me that in two years I’d either be a partner or be gone. When the time came, he told me I was too young but nonetheless would be a partner. I spent my first day practicing my signature as not my name but as “Lazard Frères & Co.” That was the custom in a general partnership.What I came to understand about Michel was how he embodied the qualities necessary for a general partnership, in which each partner has big potential gain but unlimited personal — in legal terms, “joint and several” — liability. He would say, “You can build a reputation over 20 years and lose it in a day.”The combination of shared opportunity and bottomless downside creates dynamics that Michel understood better than anyone else I’ve known. In his view, they made — and eventually broke — his Lazard, which was among the family partnerships that financed the industrial revolution and post-World War II boom.Founded in 1848 at New Orleans, the partnership moved to San Francisco during the rush for gold. It then expanded to Paris, London, and New York, the world’s preeminent financial centers. Michel entered the partnership in Paris in 1961 at 29, becoming senior partner there in 1975 and in New York in 1977.By the time I joined, Michel’s net worth might have been in the low hundreds of millions of dollars, and everything he owned was at risk should any of his partners get into trouble, say, or break the law, or incur a catastrophic loss. The upside was that partnerships can be extraordinarily productive. A client marveled that Michel had something like 60 direct reports. He managed Lazard by conversation and a single sheet of lined yellow paper containing the names and profits interests of each partner. Most of his day was spent talking to a stream of partners, with an occasional client call or meeting sandwiched in.He would look at that page from time to time, sometimes covering it in doodles of geometric shapes. His job was to select, exhort, and advise partners and, once a year, juggle the partnership interests. The discipline of a partnership is that the sum of those interests could not exceed 100 percent.This led disappointed partners to put out the story that Michel was “ruthless,” “Machiavellian,” and intent on dividing partners to rule them. If anything, though, he was protective. One time when I was advancing a case for a higher percentage, he said almost plaintively, “I want to make you happy, but then I will make others unhappy.”Michel once told me it was his job to make sure there were always at least four or five superstars in each of Lazard’s constituent firms in New York, Paris, and London. In New York, Loomis helped him attract partners like Steven Rattner, J. Ira Harris, and Vernon Jordan.Michel once told me that when his counterpart in one of the European banking dynasties asked him why he shared profits with “those Americans,” he replied, “I would rather have 10 percent of a big number than 100 percent of a small one.”At the peak of the Japanese postwar financial boom, a major Japanese bank wanted to pay a lot for a minority interest in Lazard and place some interns among us to learn, as Michel explained, “our zaitech,” our “financial technology.”“What happens when they figure out we don’t have any?” Bill Loomis asked. My own view is that Lazard’s zaitech was the esprit of the general partnership — not only the authority but also, as Michel liked to stress, the “responsibility.” That was the side of the coin that followed from unlimited personal liability.When I was raising the capital for our first billion-dollar institutional private equity fund, an investor asked Michel what was Lazard’s capital base. He replied, “It is the sum of the personal net worth of all the partners.” That was what the general partnership was all about. The art of being Michel David-Weill at the helm of a general partnership like Lazard was to keep an eye on our unlimited liability, while nonetheless animating the partners to be ambitious in seizing opportunities to advance the interests of client companies and governments.Succession became an issue as Michel got older and as central bankers started to abandon the idea that the money they printed should be moored in specie or, at least, in the real economy. The flood of money printing that began in the late 1990s made Wall Street and the City too big for Lazard partners to risk their personal assets.Ultimately, Michel was forced to cash out of his own firm by those who thought they could make more money out of Lazard as a public company. The 60 percent decline of Lazard’s stock against the S&P 500 since its IPO in 2005 is not so much a comment on his successors as, at least I like to think, a tribute to Michel. In my last conversation with Michel as chairman of Lazard, as he was leaving the firm he had shepherded for almost three decades, he told me he thought he had made only one big mistake — converting to a company that abandoned the unlimited liability whose power was his secret.

The Secret of Michel David-Weill

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