During the ten years in which their lives crossed at Lehman, the relationship between Peterson and Glucksman was an odd one. On a personal level they were never intimates. Except for a drink they had together at Oscar’s Delmonico in 1973, when Peterson was deciding whether to join Lehman—Glucksman can recite the time and the place—for the next ten years they never dined or shared a drink alone. When Peterson married Joan Ganz Cooney in 1980, a few Lehman friends were invited to the small ceremony presided over by the Greek Archbishop, including part-time advisory directors George Ball and James Schlesinger, a former Cabinet colleague; Lew Glucksman and the other members of the executive committee were invited only to the Cosmopolitan Club reception.

Their galaxies were distinct. Peterson was a prominent Republican whose friends included Henry Kissinger, William Paley, Katharine Graham, Barbara Walters, Brooke Astor, the Rockefellers; he sat on six prestigious corporate boards; he owned a ten-room apartment overlooking the East River in Manhattan’s exclusive River House, its walls covered with his extensive modern art collection, which includes works by De Kooning, Henry Moore, Rothko and Richard Hunt. Art books cover the coffee tables, and in the den the bookshelves are crammed with works on current affairs. Peterson, like Glucksman, rises at dawn, not to meet with his team but to dictate into a machine in his office; when he arrives in the office after a business breakfast, he expects that teams of secretaries will have his dictation transcribed. Now Peterson is chauffered about in a dark, four-door Oldsmobile,* and keeps a $45,000 slate-blue two-seat Porsche 928 with a sunroof in the driveway of an expansive home overlooking Georgica Pond in East Hampton.

Lew Glucksman, on the other hand, boasts of being a Harry Truman Democrat (who nevertheless voted for Reagan) and of owning the American car of a client (Chrysler). At Lehman he rose early and mingled with members of “my team,” as he called them; he sat on just one corporate board (Revlon), devoting his outside energies to serving as a principal fundraiser for New York Hospital, to helping New York University, William and Mary College, and to fulfilling his obligations as chairman of the finance committee and director, until December 1984, of the Port Authority of New York and New Jersey. His walls are covered with pictures of clipper ships, navigational charts of the Florida Keys, and paintings of fish; his bookshelves are dominated by histories of maritime battles, studies of marine life, and tool catalogues, although he can surprise associates by suddenly bringing up the work of Joyce Carol Oates and other contemporary novelists. Unlike Peterson, whose East Hampton home is shielded from the road by tall pine trees and tasteful landscaping, Glucksman’s former home in nearby Three Mile Harbor had a flag out front for all to see: DON’T TREAD ON ME.

When Glucksman reveals his true feelings, he can be remarkably blunt. When Fred Ehrman died not long after he was booted out as Lehman’s chairman, and partners huddled to express sorrow and offer tributes, Glucksman would have none of it. “Let’s not be hypocrites, gentlemen!” he snapped.

Although Peterson saved Glucksman’s job at Lehman in 1973, tensions between the two men rose over the next five years. Peterson thought of Glucksman as a ferociously “volatile,” sometimes brutish man. Tales came back to him of Glucksman throwing a telephone at partner Allan Kaplan (Kaplan and Glucksman deny it, though other partners remember him throwing a telephone and once shoving Kaplan against an elevator wall), of Glucksman heaving a plate of underdone fried eggs at a glass wall in his office or ripping the shirt off his own back in a rage (Glucksman also denies all of this). Peterson heard that Glucksman would meet with junior partners or associates, close the door to his office, and ask them, “Will you join my team?” There was a gulf between the two in their approach to cost controls. “Lew, by temperament, did not really believe in building profits by reducing costs,” says Peterson. Throughout his years at Lehman, Peterson would send a stream of memos to his managers, including Glucksman, demanding cost containment, urging “a firm-wide review on where we can cut expenses,” asking for reports on “break-even levels of the firm by division,” proposing to determine “measurements of output per man.” Glucksman, on the other hand, believed profits were best generated by expanding business, which meant confronting every opportunity and having ample staff to do this. In other words, by taking risks. Peterson also wanted to expand and branch out, but more cautiously. To Glucksman this telegraphed: “Pete wanted to cut back. I didn’t think we could remain a nine-hundred-man firm. I was willing to put more money back into the business.” Glucksman envisioned pulling even with, if not overtaking, Goldman, Sachs and Salomon Brothers in trading.

It bothered the chairman that Glucksman joined bankers like Robert Rubin in criticizing the merger he engineered with Kuhn Loeb in 1977. “I was not that enthusiastic about it,” admits Glucksman. “As a student of mergers, my belief is that this merger was not a good one.” Lehman, he felt, paid too much for too little: “You got no additional foreign business, which we needed.” The negotiations, conducted by Harvey Krueger, president of Kuhn Loeb, and Rubin, head of Lehman’s banking division, were protracted and often bitter. Each time they broke down, Peterson stepped in to rescue them. He came to feel that Rubin, perhaps aided by Glucksman, was trying to kill the merger. “For reasons totally unclear to me,” says Peterson, “Rubin and a few others were trying to sabotage the acquisition.” When the negotiations concluded, Peterson replaced Rubin with Kuhn Loeb’s Krueger as chief of the banking department, which displeased Glucksman.

Added to these business disagreements between Peterson and Glucksman was the bad chemistry at Lehman and throughout Wall Street between bankers and traders. Ten or twenty years ago sales and trading supported banking, offering supplemental services to banking clients; in recent years, as interest rates have fluctuated wildly and new financial products have blossomed, sales and trading have become a profit center in their own right, accounting for hefty portions of the profits of most major investment banking firms. The new volatile environment has pushed bankers and traders to work more closely together, forming hybrid functions—like capital markets groups, teams of bankers who work on the trading floor and provide companies with the latest menu of financing possibilities.

This transactional environment has transformed banking as well as expanded the importance of trading functions. The spotlight, for example, now shines on a new group of bankers, the merger and acquisition, or M. & A., specialists, who have more in common with traders than with traditional bankers. Like commandos dropped behind enemy lines, they have become celebrated warriors. “These were different guys,” observes Martin Lipton, a lawyer prominent in the takeover game. “They were more aggressive, much more transactional-oriented. They were dealing with a different commodity. They were dealing in war. Up until 1974 and the International Nickel Company’s offer to buy the Electric Storage Battery Company, none of these firms were involved in hostile takeovers.” Although International Nickel won an extended bidding war, the deal turned out to be a financial disappointment. The legacy of the deal is that it became a landmark. Prior to this date, blue chip companies did not become raiders, and top investment banks did not get involved in initiating hostile takeovers. Investment bankers and most corporations considered hostile takeovers unethical.

The banking world has changed. Nevertheless, the war of stereotypes between bankers and traders persists. “It’s like cowmen and farmers in the West,” observes Andrew Sage, Lehman’s most senior partner in terms of service. Traders are often caricatured as poorly educated drones with digital minds, robots hunched over their Quotron and Telerate screens, crudely barking orders, thinking for the moment, not the longer term. Bankers, in turn, are often cartooned as elitists, as Ivy League preppies in suspenders who rise late, take long lunches and, like salesmen, massage contacts but do not produce a product.

This polarization was particularly acute at the House of Lehman, where—unlike Goldman, Sachs or Salomon Brothers—there was no history of significant trading prior to Glucksman’s arrival in the early sixties. “It was evident in the way Lehman set up its commercial paper division,” observes Robert Rubin. “It was set up as a corporation, even though we were a partnership. People were afraid of it. They tried to isolate themselves from risk. They set up Lehman Commercial Paper, Inc., with only $350,000 of capital.” In 1971, to protect partners from personal liability in case of lawsuits or bankruptcy, the firm was officially incorporated in the state of Maryland. The partners, of course, still owned the business, but risked no personal exposure.

At Lehman, trading and banking functions were kept physically distinct. Until 1980, when the Lehman offices were finally consolidated at 55 Water Street, the trading operation was actually located in a different building from the House of Lehman at One William Street. Glucksman, who was then working out of 55 Water Street, pushed hard for the firm to consolidate into one modern headquarters, where there would be room to expand. “Pete and I almost came to blows because he didn’t want to move to 55 Water Street,” recalls Glucksman. Peterson awards himself more credit: “The toughest decision I had to make was the move to Water Street in 1980. The investment bankers hated that. They didn’t want anything to do with that group. They found them a lower form of species. They were the elite. Those guys over there were referred to as ‘animals,’ as ‘crude,’ as ‘short-term.’” The decision to move was finally made in 1977, and when it was made Peterson left little doubt as to who deserved the credit. He gave Glucksman a pen and pencil set, inscribed: TO LEW GLUCKSMAN, “FATHER” OF 55 WATER STREET.

Though Peterson strove to appear evenhanded, Lew Glucksman could not have been pleased to read the July 31, 1974, issue of Financial World, in which Peterson said: “My understanding of the great successes of this company and its creative contribution to banking is that the essence of this firm has been in creative entrepreneurial work and not in other areas such as trading, etc. There are plenty of very good people who do that job very well.” Peterson’s attitude was not lost on Glucksman, who noticed that the chairman rarely ventured onto the trading floor, didn’t mingle with trading or distribution people, had lunched only once with a key trader and fellow board member, Richard S. Fuld, Jr.; the chairman volunteered to people that he also knew little about trading, an attitude that Glucksman felt communicated disdain. So vexed was Glucksman that he began to visit headhunters to explore leaving Lehman.

Peterson had his own vexations. He was troubled that Glucksman was a friend and ally of board and executive committee member James Glanville, a Texan who headed Lehman’s energy business and who openly disparaged Peterson. Glanville, who had become a partner in 1961, led the opposition within Lehman to Peterson’s new marketing plans and “new product” memos and to his vision of transforming Lehman into a full-service firm. When Peterson began to accept Glucksman’s position about consolidating the firm under one larger roof, which would mean abandoning their eleven-story building on William Street, Glanville led the resistance, blaming Peterson, not his friend Glucksman. To the board he stormed, “You get more space and you’ll get more people. Size will be the death of the company.” Glanville, whom Peterson detested, says the real reason for the push to move was that “Pete wasn’t happy with the size of his office. He felt in Bobbie’s shadow there. I can’t emphasize enough what an ego the man has.” Peterson tried to turn the other cheek, but it was difficult. In March 1977, Peterson announced that Lehman would move to 55 Water Street.

Glanville, Glucksman and Bob Rubin huddled often, sometimes mocking their solemn chairman. At meetings of the eight-member executive committee, they were often arrayed in opposition to Peterson. On the surface, the Glanville-Glucksman alliance made no sense, since Glanville was opposed to growing those parts of the business managed by Glucksman; if Glanville had his way, Lehman would remain a traditional investment banking firm. This suggests that the cement for the alliance was a common hatred of Peterson. To Peterson, no matter how much oil business Glanville brought to Lehman, he was a hater, a venomous man who thrived on rumors, cabals, acrimony. “Before coming to Lehman Brothers,” recalls Peterson, “I was told the firm itself was seriously divided and Jim Glanville was at once very productive in the energy area and perhaps the most divisive and even vindictive of the partners. I found both statements to be accurate. He constantly initiated charges, sometimes serious, against individual partners … Glanville created dissension at the firm’s most senior levels and often attempted to involve Lew in his various schemes.”

Glanville’s angry missives became legendary around Lehman. Once, when Glanville asked the firm to make out a $5,000 bonus check to William Loomis, who worked for him, Peterson and the executive committee resisted. Bonuses, they said, were decided by the firm, not by individual partners. On July 21, 1977, Glanville wrote a one-sentence note to Peterson: “So it is to be war.” The year before, when he disagreed with decisions taken by a new select salary committee, Glanville circulated a memorandum that said, in part: “The percent increase in salaries awarded to certain members of the Committee indicates to me that they behaved with the emotional maturity of a six-year-old turned loose in a candy store.” He ended the two-page, single-spaced November 16, 1976, memo with a menacing, “I would not underestimate the importance I attach to this matter.”

Peterson was not the only partner who felt Glanville pumped poison into the firm. Fairly or not, a number of partners believed he was an anti-Semite, despite his friendship with Glucksman. To them, a confirming piece of evidence was a March 26, 1980, letter Glanville wrote to former Under Secretary of State George Ball after Ball published a signed article in the Washington Post that was critical of Israeli policy. Two years after he and three partners had left Lehman to join Lazard Frères, Glanville wrote to his former partner: “My view on U.S. relations with Israel completely in line with yours (as they should be, as I learned from you) but I doubt if they receive much sympathy from the members of your Executive Committee. The members of that Committee are overwhelmingly of one ethnic persuasion with the exception of one gentleman who found it necessary to change his name in order to disguise his heritage. This is the same Committee that exhibited such glee over the opportunity to delete four Presbyterians from their list of partners.”

Glanville says, in response to charges that he is anti-Semitic, “It is the sort of typecasting you give to someone when you can’t figure out what to say about them. Peterson would go around waving that letter, which is outrageous.” Lew Glucksman, for one, sides with Glanville: “Over the years I had two very close friends at this firm, Bob Rubin and Jim Glanville. People have said Jim Glanville is anti-Semitic. That’s bullshit! He was a guy with lots of strong opinions on every subject in the world.”

Glanville and three banking partners—“The Gang of Four”—left Lehman under murky circumstances in September 1978 amid angry charges and threats of lawsuits. Peterson says he learned, and brought to the executive committee, a report that Glanville and three partners were about to enter into a secret sweetheart real estate deal with the McMoran Oil & Gas Company, a Lehman client. At the time, in addition to representing McMoran, Lehman had a $2 million investment in the company, which partners wanted to withdraw; Glanville resisted. Six of the nine members of the executive committee confirm that there was a proposed sweetheart deal. The facts appear to be as follows: In order to raise cash, McMoran decided to sell and lease back an office building and discussed this plan with several Lehman partners, including the chief of the energy department, Jim Glanville. Instead, the three partners and Glanville proposed to buy the building themselves, a proposal that they did not disclose to their partners, as was required. “I was rather shocked at it,” says former executive committee member Alvin E. Friedman, who had been a partner at Kuhn Loeb. “Something like this never would have happened at Kuhn Loeb. It would have been considered a ‘misuse of corporate opportunity’ to siphon business from the firm to a special group.” It reminded Friedman of brokerage houses in the twenties—called “bucket shops”—where partners sneaked into the office in the morning to open the mail and pocket the checks.*

The executive committee, according to Peterson, “unanimously” authorized the chairman to confront Glanville. “If the transaction goes through,” Peterson remembers saying, “I have the unanimous support of the executive committee to accept your resignation.” Neither Rubin nor Glucksman share Peterson’s recollection. “Glanville quit, he wasn’t fired,” says Glucksman. “The executive committee never gave Glanville an ultimatum.” Neither Glucksman nor Rubin say they recall the McMoran real estate deal.

Two-thirds of the executive committee do recall the deal. Executive committee member Harvey Krueger confirms that the committee was upset by it and did discuss Glanville’s possible resignation. “We asked Pete to work out the McMoran thing with Glanville,” Krueger says. However, Krueger does not “recall” authorizing Peterson to accept Glanville’s resignation because, “I think Glanville had already announced he was going to Lazard.” Krueger is backed by former chief administrative officer and executive committee member David G. Sacks, who says it is “untrue” that Peterson was authorized to confront Glanville. “If McMoran is what caused Jim Glanville to leave, I’d be shocked and surprised,” says Sacks. Nevertheless, two-thirds of the former executive committee agree: They were distressed with Glanville and the three other partners, and did inform Glanville and the three partners of their unhappiness. They differ only on whether Glanville was given an ultimatum.

Glanville has a totally different recollection. He dismisses the notion that the executive committee gave him an ultimatum as “a figment of someone’s imagination. This is the first I’ve heard that story. Peterson never talked to me.” What happened, he says, is that he met one afternoon with Peterson and two senior bankers, William Morris and Harvey Krueger, and told them he planned to go to Lazard Frères. “I offered to take them to my clients so they could secure the firm’s continued relationship.* The next morning I was with a client in Tulsa and Pete called. He said, ‘You’re out now.’”

Did Glanville urge his partners not to unload $2 million in McMoran stock? “It is not impossible that I said that,” he says.

Did Glanville plan to invest in a private real estate deal? “Not that I remember,” he says.

It was like a divorce, says Morris, who succeeded Glanville as head of the energy department. “Divorces always start with an agreement to split the money, and things are relatively amicable. And they go downhill from there. That’s what happened.” Door locks were changed, credit cards were canceled. Glanville says of Peterson, “He canceled the bonuses of my secretary and of the other secretaries who were leaving.” Peterson went to see the managing director of Lazard Frères, to warn him that Glanville was poison. Glanville retained former federal judge Simon Rifkind as his attorney. Missiles camouflaged as letters were lobbed back and forth.

In the showdown between Peterson and Glanville, Lew Glucksman sided with Peterson, rupturing his friendship with Glanville. Glucksman explains, “For the good of the firm I had to support the management here.”

In the end, this crisis blew over. With Glanville gone, Peterson saw an opportunity to recruit Glucksman to his management team. Despite the tension between them, Peterson never wavered in his estimation of Glucksman’s financial and managerial talents. And now Peterson felt he needed those talents.

Peterson had just gone through a difficult two years, and his troubles were not over yet. In August 1977 he had had surgery for a brain tumor, which happily turned out to be benign. And in 1978 Sally Peterson stunned her husband by asking for a divorce. Peterson was crushed. For all his worldliness, Peterson, at heart, is a surprisingly innocent man. He admits he was late to learn that his first wife was involved with a University of Chicago faculty colleague. Treasury Secretary John Connally had elbowed him aside in Washington. Associates had to delegate Pete’s good friend Dr. Mitchell Rosenthal to tell him that Sally was in love with her godson. And he was unaware of the rage bottled up within Lew Glucksman.

For a year and a half after Sally left, or until he began dating Joan Ganz Cooney in 1979, Peterson was distracted; he attended the dinners and cocktail parties of friends, and indiscriminately poured his heart out to anyone who would listen. Recognizing that he was distracted, Peterson looked for someone at Lehman to shoulder more of his burden. And when he looked about, the most capable manager he could find was the head of Lehman’s fastest-growing division, Lew Glucksman.

In the autumn of 1978 Peterson approached Glucksman for a heart-to-heart conversation. “Lew, you’ve got to make a quality of life decision,” Peterson recalls saying. “You’ve been operating in this environment so long you think it’s a normal environment. Frankly, most business doesn’t operate this way. We spend an immense amount of time here on internally divisive stuff. Lew, frankly, you’re part of the problem.” Glucksman told the chairman he wanted broader responsibilities. The chairman told him, “You’re easily the most talented operational person around here, and we should have more burden-sharing around here.”

Glucksman, who was wary of Peterson, profusely thanked the chairman for this vote of confidence. Peterson came away satisfied that with Glanville’s influence over Glucksman removed, and with a little stroking and a little added responsibility, Lew Glucksman would join Peterson’s team. Since many bankers were “resistant” to Glucksman, Peterson says he had to “build up Lew” gradually. The chairman assumed this precaution was reasonable; Glucksman, privately, considered it an insult—“a tip,” he calls it. He believed Peterson was treating him as if he were a helpless insect, trapped first in Glanville’s web and now in Peterson’s.

But Glucksman said nothing. Over the next five years his responsibilities and power at Lehman grew. In 1979 he was made chairman of the operating committee; soon after, several divisions were directed to report to him; he was elevated to chief operating officer in 1980, to president in 1981, and in 1983 to co-CEO. Peterson proudly told partners that Lew had changed, had become less tempestuous, more measured, easier to work with. “Around me he was nearly always a perfect gentleman, deferential, supportive,” recalls Peterson. “Even his worst enemies would admit a lot of his volatility of the seventies had moderated.” But Peterson still had his problems with Glucksman, still was concerned about what he believed to be Glucksman’s unwillingness to confront unpleasant situations, to speak his mind to Peterson or to concentrate on curbing overhead costs. But with Lew’s surrogate son, James Boshart, serving as an intermediary, meeting daily with the chairman, interpreting Glucksman’s moods and facilitating communications, Peterson was convinced he had succeeded, like professor Henry Higgins, in civilizing a raw talent.

The chairman had reason to feel content, for Glucksman went out of his way to appear respectful to Peterson, to play the grateful Eliza Doolittle. Soon after Peterson promoted Glucksman to president in July 1981, for example, Glucksman wrote a note, which read, in part: “What a nice place you have made this firm. I thank you for that and for the opportunity you have given me for self-expression.”

But real differences persisted between the two men. It galled Glucksman to listen to Peterson’s constant refrain about cutting costs, even when the firm was rolling in profits. Despite skyrocketing earnings in 1980, Peterson peppered Glucksman with cost-cutting memoranda. Repeatedly, Peterson asked for “a net reduction in personnel levels, particularly in those areas of our business where the earnings trend, rate of return, and prognosis has not been and is not favorable.” This violated Glucksman’s belief that trends in investment banking were essentially unpredictable and even irrational; one had to be prepared to move fast, and Lehman would be hampered if it focused more on dangers than on opportunities. Peterson’s cost-cutting emphasis grated on Glucksman in another way: he thought Peterson took callous pleasure in contemplating the firing of employees. Glucksman could be ruthless, but he thought of himself as a sentimental man, a man who freely hugged and kissed co-workers. It enraged Glucksman to read a January 2, 1980, memo dictated by Peterson that referred to “marginal people”; the chairman conservatively estimated that at least 10 percent of these “marginal” employees could be identified and axed.

For his part, Peterson continued to fret, even as he entrusted more responsibility to Glucksman, that Glucksman lacked broad vision. Although Europe had become an important market for new business and a new source of capital to finance deals in the United States, Peterson was frustrated that Glucksman did not assign the same high priority to international business that he did. He remembers being taken aback when Glucksman was quoted in Euromoney Magazine as saying, recalls Peterson, “Doing business in London is like doing business in Indianapolis.” Competitors in London, recalls Lehman partner Stephen Bershad, who was sent in 1981 to manage the London office, “were quoting that all over Europe,” disparaging a “parochial” Lehman Brothers.

But Peterson and Glucksman’s critics had twisted what Glucksman actually said. The full quote in the April 1981 issue of Euromoney Magazine reads: “I tend to look on international—without being parochial about it—the way I do Indianapolis, for example. We don’t have a separate Indianapolis corporate finance office. International business is merged into our domestic business whether we look at banking or securities, because they all have the same common basis of support.”

Still, Peterson was aghast. The comic-minded Bershad put up an extra clock in the London office. Now, in addition to clocks telling the time in London, Tokyo, New York, Chicago and San Francisco, sandwiched in the middle was a clock labeled, “Indianapolis.”

Another underlying source of tension between the two was Glucksman’s suspicion that Peterson was hoping to sell the firm before he turned sixty. “There was no question he was interested in selling the business,” says Glucksman. “He was obsessed with money.” But although Peterson had whispered to his wife of his desire to sell the business, he never said or did anything to give Glucksman solid clues. Glucksman believed he was too shrewd a poker player for that. He reasoned that for Peterson to talk openly of selling Lehman might cheapen the sales price.* What Glucksman and other partners remembered were occasional lunches around the partners’ table in the dining room on the forty-third floor, where Peterson would solicitously listen to colleagues who spoke of bringing in an outside investor to add more capital to the firm, while Glucksman strenuously objected. They knew that Peterson believed that a full-service investment bank such as Lehman was striving to become would need additional capital to finance a broader range of client services and would need to take greater risks.

Glucksman is apparently correct that money was very much on the mind of many partners. Peterson, for example, concedes that by the spring of 1983 “the vast majority of the partnership wanted to sell the firm.” His own mind, Peterson says, “was very open” on a sale; Glucksman’s mind was closed.

Beyond fears that the sale of the firm might frustrate his developing dream of one day running Lehman Brothers alone, Glucksman harbored other anxieties. He was anxious to see more traders become partners and to increase their stock ownership. In 1982, for example, of Lehman’s $122.8 million in profits, the trading divisions produced $2 in profit for every $1 produced by banking. Yet Glucksman knew that bankers then owned 67 percent of the approximately 100,000 Lehman shares; he knew that traders, whose departments contained most of Lehman’s employees, boasted but twenty-eight of the then seventy-nine partners; he knew that the executive committee of the firm was dominated by senior bankers, not traders; and he knew that as profits soared so would the value of the partners’ stock. Distribution of power and wealth within the firm was unfairly skewed toward bankers, and Peterson, too, recognized this, though he differed with Glucksman about how to alter it. As trading profits began to dwarf banking profits beginning in 1980, Glucksman began to press his partners to redistribute the firm’s wealth; at operating committee meetings Richard Fuld, a protégé of Glucksman’s, who then ran the commercial paper division, used to rant about “those fucking bankers” who hogged the wealth.

These pressures came to a head during the annual debate over bonuses and stock in 1982. It was different now from when Bobbie Lehman called partners into his office and asked them what their ownership share should be or alone decided how large a share to grant them. Now the various departments made recommendations to the operating committee, which in turn made recommendations to the executive committee. The executive committee, led by the chairman, decided on the size of each partner’s bonus; the board of directors determined how to apportion shares among the partners. Glucksman, though he was president of the entire firm, behaved like an advocate for the trading divisions. He met with Peterson and recommended what Peterson considered a “radical plan” to redistribute the firm’s ownership and bonuses. Glucksman believed that a partner’s current performance, more than his seniority or record in past years, should determine the size of his bonus. According to Glucksman, even if a banking partner had had a good year, his bonus might slip in order to accommodate the trader who had a great year. Such a system would, inevitably, tilt the bonus schedule toward traders.

Peterson was stunned. He remembers that in the face of “record earnings and bonuses,” Lew wanted to slash the bankers, particularly the shares and bonuses enjoyed by four senior bankers, Harvey Krueger, Peter Solomon, William Morris and Yves-André Istel. To reduce his shares, a partner sells back his stock to the firm at the current book value, which in late 1982 was about $1,250 per common share. These shares, in turn, are sold to partners designated by the board. What Glucksman wanted to do in September 1982 was to pare Krueger’s, Morris’s and Solomon’s shares from 2,500 to 2,000, the same number held by less senior partners. He wanted to drop Istel below 2,000 shares. And he wanted to disband the executive committee, on which the four bankers sat.

Peterson remembers cautioning, “Lew, put yourself in the skin of Harvey Krueger, who was the president of Kuhn Loeb, or of Yves Istel, who was the president of Kuhn Loeb International.” The proposal would, he said, polarize the firm. “Lew, I’m going to turn you down on this. It’s much too sudden to cut the stock and bonuses of all bankers. We’ve got to have a five-to-ten-year plan.”

Nevertheless, at the next weekly executive committee meeting Glucksman glared at the four senior bankers and exclaimed, “You guys have more shares than you deserve.” The bonus schedule was still being considered by the departments, yet the word was out that Glucksman was on a rampage and was brandishing a radical plan to redistribute stock and bonuses. Banking partners were aghast, trading partners heartened. Rumors danced up and down the corridors, arousing violent argument. “It was like a bluefish-feeding frenzy,” says Glucksman, who thought the bankers were being greedy; the bankers thought he was being vengeful. Peterson, exercising his corporate judicial function, tried to calm the waters. He said three criteria should be used to gauge bonuses—performance, corporate teamwork and seniority. When Peter Solomon privately complained that his bonus was to be only $250,000, much lower than expected, he recalls that Peterson privately cautioned, “Don’t get in a fight with Glucksman. It’s only a couple of hundred thousand dollars. I’ll make it up to you.”

Just three years before, mindful of disparities in ownership, Peterson, who in 1979 owned 5,750 shares, voluntarily slimmed that number to 3,500, selling his shares back to the firm. Glucksman also voluntarily pared his ownership from 4,300 to 3,500 shares. The 3,050 shares they had thrown into the pot were to be divided among the other partners. Since the total pot was only 102,000 common shares to be divided among a total of almost eighty partners, Peterson and Glucksman were trying in their own way to redistribute income.

Soon after they made this financial gesture, however, each man complained to the board that the number of shares he owned was not commensurate with either his broad responsibilities or with what the two top partners at competing firms retained. Responding to complaints from Peterson and Glucksman, in 1981 an internal committee was appointed to review this matter. The committee concluded that Peterson and Glucksman had penurious pension plans, providing them with an annual retirement payment of just $9,000. As a substitute, the committee recommended that the board award each man deferred compensation equal to 1 percent of the firm’s net profits, beginning in 1982. This 1 percent would be placed in an interest-bearing account, not to be touched until 1986. In the event the firm lost money, 1 percent of the net loss would be subtracted from their account. In the event the firm was sold, the buyer would be required to honor the contract. Board members were not pleased to cede 2 percent of the firm’s profits, but they went along with it.

Now, in September 1982, Peterson, hoping to temper conflicts within the firm, told the executive committee that Glucksman was right about the inequitable distribution of stock, and warned partners that they had to be prepared for change. He singled out Henry Breck, a banker, and said that he was too passive and that his bonus should be kept low. Then, just as he thought compromise was at hand, he learned that Glucksman had made what partners referred to as a “deal” with his friend Bob Rubin, who was a good analyst but not a good business producer. Rubin would receive two-thirds the amount of whatever bonus Glucksman got. Such a decision, Peterson felt, would disrupt the tenuous peace. Since Glucksman desired a bonus of $1.25 million, this would mean Rubin would receive about $900,000, while Solomon, their premier investment banker specializing in the retail industry, received only $250,000. To bring Rubin’s share down, Peterson voluntarily reduced his own bonus below Glucksman’s, to $1 million. This was a clever tactical move, which flattered Glucksman. Since the chairman was taking less, he could now pare Rubin to $700,000, while elevating Solomon and some of the other bankers.

Many partners applauded Peterson’s shrewdness and generosity. The chairman was satisfied. He believed he had maneuvered the firm past the shoals of this controversy by being firm with the partners and with Glucksman. And, clearly, because of his intercession Glucksman did not get what he had wanted. But the way Peterson deferred to Glucksman and the passion with which Glucksman presented his case left many partners with the feeling that the currents were moving Glucksman’s way. “Like all of us, Pete Peterson likes to think he was firmer than he was,” says Harvey Krueger. “Lew was on a roll.” Everyone, from Peterson on down, wanted to placate the man with the golden business touch.

To further satisfy Glucksman and to right what he perceived as an internal wrong, Peterson made one other decision related to the 1982 bonus battle. He agreed that the executive committee was unrepresentative, composed as it was of four senior bankers, as well as Rubin, Peterson and Glucksman. Dick Fuld and Shel Gordon, the firm’s principal traders, were not members, nor were any of the three men then jointly running the banking department—Roger Altman, François de Saint Phalle or Vincent Mai. Nor was the chief of money management, Edmund Hajim. So Peterson agreed in October 1982 to expand the duties of the board of directors to include those of the executive committee. He announced that the board would henceforth meet more than once a month. This accomplished, he placed the executive committee in limbo; instead of reconstituting the committee, as Glucksman wished, the chairman simply refrained from calling meetings. The disbanding of the committee, according to members, was more a loss of status than a real blow to the firm. “The committee met weekly and talked about nothing,” says one former member. “Pete would come in and say, ‘I’m going to meet with the chairman of this or that company today. What do you guys think of that?’ It was anything that was on Pete’s mind. The committee was useless. If there was an operating issue, it was settled by the operating committee. If it was an important issue, Lew and Pete settled it.” This banker believes that in light of what would later happen, Peterson’s decision to phase out the executive committee was a fateful one. “In the end, when Pete wondered where the executive committee was, ironically he had allowed it to disappear.”

Peterson alone was CEO, the final authority, but he was not the boss. A partnership, he learned when he came to Wall Street, is not a corporation like Bell & Howell, with a pyramidal structure. Decisions often had to be made consensually. Moreover, the very nature of the marriage of convenience between Peterson and Glucksman necessitated compromise. Peterson looked upon Glucksman as a tempestuous personality, as a center of power to be placated, rather than as a true partner.

In late 1982, Peterson appointed a cost-reduction committee chaired by a protégé, mergers and acquisitions specialist Stephen Schwarzman. By early 1983, Schwarzman had unearthed $10 million in potential savings, including wasteful across-the-board pay hikes, unnecessary taxis, padded expense accounts, employees who neglected to use the tie-line to London and instead telephoned through an operator. Schwarzman, who had been forewarned of Glucksman’s wariness of cost-cutting schemes, privately visited him and ticked off the areas of waste. Glucksman, Schwarzman recalls, exploded, saying it was “chicken-shit” and would divert the firm’s energies. Schwarzman went to Peterson expecting to be supported. After all, $10 million was a lot of money. Instead, Peterson allowed the cost-reduction committee, like the executive committee, to fade away. Peterson said he did not want to confront Glucksman, did not want Glucksman to feel undermined. He spoke privately with James Boshart, the partner who served as their go-between, and remembers saying, “Let’s do this quietly. All we have to do is inspect a few expense reports and word will get out.”

Peterson believed that this technique would curb costs and mollify Glucksman. Partners groused that Peterson’s decision had more effect on Glucksman than on costs. Still, this was not a major issue. Lehman’s profits were rising. Most partners were drowning in work. And as Lehman moved into 1983, partners sometimes sensed tension but rarely saw signs of trouble between the chairman and the president. Everyone had pretty much come to accept this odd couple. Richard Bingham, who ran the mergers and acquisitions department, put the relationship into perspective: “There was constant tension. The reason for it was that these were dramatically different personalities. Peterson was a corporate businessman, a broader strategic thinker. He had certain management principles he thought ought to be applied to investment banking. Lew was more an instinctive operator and trader, and a very good one. Pete had come from the West, Lew from the East. Lew was happier inside the organization, Pete was happier promoting it on the outside. The two of them working together were outstanding. The strengths and weaknesses of both men complemented each other.”

Peterson was aware of these differences; he was not aware of deeper currents gathering force within Lew Glucksman. As in any insincere relationship, each man responded to shadows. To Peterson, Glucksman was a checklist—check with Lew that it is okay, check that Lew knows about this. Glucksman’s smoldering resentment of Peterson was so intense that emotion sometimes warped his memory of events. Such was the case with O.P.M. Leasing Services, once one of the nation’s premier computer leasing companies. O.P.M. served as a middleman, purchasing computers and then leasing them to their eventual users. After a sensational rise, the company filed for bankruptcy in 1981, leaving behind a trainload of blue-ribbon creditors, scores of lawsuits, and allegations that O.P.M. employed bogus leases and phony bills of sale in order to secure loans that allowed the firm to carry its bad debts. The U.S. Attorney launched an investigation, and lenders filed class-action suits against O.P.M.’s investment banker, charging that it should not have lent its good name to the company and should have known of the fraud. The investment banker was Lehman Brothers.*

Lehman agreed to an out-of-court settlement, in effect acknowledging its fiduciary responsibility and failure to monitor what O.P.M. was doing. In the fall of 1982 the Lehman board agreed to pay $23 million to settle the civil lawsuit. Glucksman was immersed in the case, chairing meetings, ascertaining which Lehman employees had been lax, giving sworn depositions. Peterson, however, had been so uninvolved in O.P.M. matters that he was not even asked to be deposed. Yet when the papers settling the O.P.M. case were to be signed in March 1983, Glucksman says he was enraged. As president, Glucksman signed the papers and he says he assumed Peterson, as chairman, would also sign: he says he was shocked when Peterson refused. The matter came up in one of the regular meetings the two men held once or twice a week in Peterson’s corner office on the forty-third floor. “I brought it up and it got dismissed,” says Glucksman. He recalls that Peterson had said, “Lew, you are the one who assumed working responsibility for O.P.M. No one could believe that Peter G. Peterson could be involved in something like that.”

To Glucksman it was typical of Peterson to be preoccupied with his image, to worry more about his good name than that of the firm. It symbolized to him Peterson’s growing noninvolvement with Lehman Brothers, his preoccupation with the outside world, with such activities as the Bi-Partisan Budget Appeal or the Third World debt crisis. So Glucksman vented his rage to Bob Rubin, who as a longtime member of the board offered to affix his name to the document. “Bob Rubin signed because he was unwilling to let me be the only name there, for clearly it was not my responsibility,” says Glucksman. Rubin, who during this period had been more open than Glucksman about his disdain for the chairman, says, “Lew thought Pete’s behavior was unconscionable. You have to take responsibility for the mistakes of your organization.” Both Glucksman and Rubin say that O.P.M. was one of the critical issues that gnawed away at Glucksman and led to his July 1983 explosion.

Peterson’s recollection of this event is diametrically different. “Lew never asked me to sign that piece of paper,” he says. “To say he did is an absolute lie!” He recalls that when the matter came up, Glucksman said, “Pete, this is an immense source of embarrassment to me. I signed it. I didn’t see any reason to get you involved in this thing.” If Glucksman was unhappy, he wonders, why didn’t he say anything at the time to the board of directors or to the head of the audit committee?

That is a question asked by other partners as well, who are puzzled by Glucksman’s recollection. The head of the audit committee, Harvey Krueger, says that Glucksman never said a word to him expressing anger at Peterson’s handling of O.P.M. And Shel Gordon, who then worked directly for Glucksman as head of equity trading, says, “My understanding was that Lew had really been handling the O.P.M. thing as chief operating officer and that Pete really wasn’t involved. When it came to the signing, if my recollection is correct, Lew said he really didn’t want Pete to sign because of who Pete was and because he really wasn’t involved. My recollection is that Rubin said to Lew at that time, ‘I’m not going to let you sign alone.’”

What is not disputed by either Glucksman or Peterson is that Glucksman did not register his complaints with Peterson; in fact, he said nothing. That two partners might have business differences is hardly unusual. What is unusual is that Glucksman could be so angry and yet not betray this anger to Peterson. Such silence suggests the chasm between the two men. It also suggests that just as Peterson stroked Glucksman and feared his estrangement, so Glucksman often feared offending the chairman. Lew Glucksman enjoyed his reputation within the firm as a man who motivated people through a combination of fear and love. But with Peter G. Peterson—one of them—he was usually respectful, and brooded silently.

The two men, as the O.P.M. matter suggests, were uncomfortable with, even afraid of, each other. They met alone, by Peterson’s count, only twice weekly. Much of their business was conducted through intermediaries like Jim Boshart, who usually met with Peterson two or three times daily. Peterson was insecure about his knowledge of trading operations, Glucksman about his relations with bankers and the establishment. Peterson was insecure about losing Glucksman, and thus being forced to return to managing daily operations, which he dreaded. Glucksman was insecure about his relations with the banking department and the outside world. Within Lehman it is much remarked that Glucksman was out to prove something and was at bottom a profoundly insecure man. But some partners believe that Peterson, despite his brusque manner, was also insecure. “Pete is a very insecure guy,” says one former partner whom Peterson considers a friend. “Look at the way he treated people and wanted to subordinate them. He made people feel like second-class citizens around him. He would be an intensive name-dropper and say things like, ‘Lew, I want you to ride out to the airport with me.’” Though Peterson condescended to Glucksman, as he did to others, deep down perhaps he was afraid of Glucksman, certainly afraid of alienating him, which is why he asked Jim Boshart to serve as an interpreter to him of Glucksman’s true feelings. “One of your jobs,” he would tell Boshart regularly, “is to be sure that nothing happens to sour relations between Lew and me.” When he noticed that Lew seemed moody, Peterson would say to Boshart, “I noticed that Lew seemed distracted. Remember, Jim, if there’s any problem, be sure I’m the first to know.” Often he would simply ask Boshart, who was like a son to Glucksman, “Is Lew happy?”

The chairman would nevertheless mix solicitude with condescension, not thinking twice about lecturing Glucksman about the stains on his ties, his obesity, his unfashionable clothes—about how his personal appearance harmed the firm’s image. And when, beginning in late 1982, Glucksman lost about seventy pounds, Peterson would boast to insiders and outsiders alike how “proud” he was of Lew. Glucksman turned the other cheek, but says he seethed inside.

Peterson remained blind to Glucksman’s rage. However odd a couple they might be, he believed there were rational advantages for him and Lew Glucksman to work as partners. The bottom line was his proof—since 1978 the firm had had consecutive record-profit years. During the first nine months of the 1983 fiscal year, Lehman had enjoyed higher earnings than at any other time in the firm’s one-hundred-and-thirty-three-year history; by the end of that fiscal year, pre-tax and pre-bonus profits would climb to $148 million and Lehman was on the brink of breaking into underwriting’s elite of so-called “special bracket” firms—the five leading banking houses of Goldman, Sachs; Salomon Brothers; Merrill Lynch; Morgan Stanley; and First Boston—a ranking destined to attract even more business.

Peterson had served in the Nixon Administration and knew the men who had behaved so irrationally after their landslide victory in 1972, but this encounter with human frailty did not alter Peterson’s confidence in the power of reason. He understood that Glucksman could be excessive, could flare at partners, but he was convinced that he had tamed Lew.

Peterson’s approach to life is cerebral. He prides himself on no longer being “a stranger to one’s subconscious,” as he puts it. For Peterson, this meant that he now tried to isolate personal weaknesses and will them to cease; he spent more time with his children, he controlled his anger, he learned to be self-deprecating, to be more deferential to Lew, insisting that Lew be included in any Lehman picture the chairman posed for. The trouble with such a rational approach is that it is self-centered. Peterson isolated and corrected those weaknesses that he perceived, not necessarily those perceived by others. And when he did reach out, he tended to rely on what others said, not on his own intuitive radar.

With the benefit of hindsight, one former Lehman partner thinks Peterson had been naïve, even foolish: “There’s blood in the sea and a shark is circling and he’d ask the shark, ‘Have you had enough to eat?’ The shark said, ‘Yes,’ and Pete said, ‘I’m safe!’”

Peterson felt so safe that he had begun to toy with the idea of elevating Glucksman to co-CEO. On September 10, 1981, he invited John C. Whitehead and John L. Weinberg, co-CEO’s of Goldman, Sachs, to join him and Glucksman for breakfast at Lehman. Such meetings between competitors are not uncommon on Wall Street, particularly since firms co-manage various underwritings. Whitehead and Weinberg, however, were special, for they not only ran what is widely considered to be the premier investment banking house but also performed as true partners. At this breakfast, Whitehead recalls that Peterson pressed them to explain how they divided responsibilities and how they dealt with compensation: “I remember questions such as, ‘Do you and John have the same percentage?’ ‘How much of a gap is there between the top two persons and everyone else?’”

As usual, Peterson had a game plan. He was thinking about the eventual succession at Lehman. In the short run, he wanted, as he told associates, “to build up Lew.” In the long-term, he had his eye on three younger prospects who were developing broad familiarity with all aspects of the business, and he hoped one of them might eventually manage the firm. The leading prospect was probably Sheldon Gordon, then forty-seven, a Harvard-trained economist who had received an M.B.A. from the University of Pennsylvania’s Wharton School, completed his course work for a doctorate in economics, and served on the Wharton faculty before launching a Philadelphia-based economic analysis and portfolio management company. After merging this company with the Philadelphia Life Insurance Company, and becoming president of their asset management subsidiary, in 1972 Gordon gave it all up. He decided to accept a faculty appointment at the Wharton Graduate School. This move, which impressed his Lehman partners, helped stamp Gordon as a man of inner calm, a man who did not lust for power or money. He joined Lehman in 1975 and became president of its investment management division, moving on to run the corporate bond department in 1979, to head the equity division in 1981, and then joined both the operating committee and the board.

Working in the trading area, Gordon became known as a Glucksman protégé. But unlike some protégés, Shel Gordon was not a polarizing figure. His relaxed manner, his ability to listen, to speak only after careful deliberation, his gentle skills as a manager—all conspired to make Gordon a popular figure. In the simplified war zones of Lehman, Shel Gordon was cast as a “trader.” Yet Gordon, unlike most of his colleagues, was able to rise above the fractiousness at Lehman. Like Talleyrand, Shel Gordon did not break, he bent. It was Peterson’s tentative plan to make Gordon head of the banking division, thus broadening his platform for the future.

The second partner the chairman had his eye on was Roger Altman, then thirty-seven, a man who shared Peterson’s intense interest in public life. While studying for an M.B.A. at the University of Chicago in 1968, Altman took a leave to labor on behalf of Robert F. Kennedy’s quest for the presidency. He came to Wall Street in 1969 and joined Lehman’s banking department, eventually becoming the firm’s youngest partner. But government and politics beckoned, and in 1977 Altman moved to Washington as one of four assistant secretaries of the Treasury (for domestic finance). While overseeing the federal loan guarantee program for New York City and the Chrysler bailout, the lean, dark-haired and boyishly handsome Altman was popular among the various combatants, in part because he is a pleasant man who cultivates a network of relationships, in part because he can articulate and frame issues well, in part because Roger Altman does not make waves.

When Altman left the Carter Administration in 1980, Peterson at first encountered resistance when he tried to bring him back to Lehman. Bob Rubin, among others, protested that he was a better salesman or “politician” than banker. Peterson finally succeeded in placing Altman in charge of new business development, which made him familiar with Lehman’s various divisions. Then, in 1982, when William Morris was relieved as head of investment banking, Altman and two colleagues—“the troika,” as it was called—were put in charge of investment banking. Altman was made a member of the operating committee, and because of his relationship with Peterson he was perceived as a comer at Lehman. Yet his deep involvement in Walter Mondale’s presidential quest, beginning almost as soon as he rejoined Lehman, the pictures arranged on his office wall—Altman shaking hands with President Carter, Altman standing with former Treasury Secretary Michael Blumenthal, Altman with Mayor Edward Koch—hinted at his true love and no doubt fueled the resentments of partners who thought him “too political.”

Another member of the troika, François de Saint Phalle, also then thirty-seven, was the third partner singled out by Peterson. He was a senior at Columbia University when the 1968 student riots closed the school. He decided to leave, and landed a job as a part-time researcher at Newsweek. This son of a French textile-company owner decided not to return to Columbia for his degree. He joined Lehman that fall and, after a time, was placed in the syndicate department. His job was to decide what type of security to issue on behalf of a company wanting to raise funds, to decide how much could be raised, set the market price on each public offering, join with other investment banks to forge an underwriting syndicate and determine when to go to market. In this capacity de Saint Phalle was often on the trading floor, where he got to know Lew Glucksman. He became one of those who sat around Glucksman’s glass office at seven each morning and was considered a member of his “team.” De Saint Phalle was part of that growing army of bankers who worked on the trading floor and, unavoidably, blurred the distinction between “traders” and “bankers.”

In 1975, de Saint Phalle was named head of the entire syndicate department; in 1982, he became a member of the operating committee. “France,” as he is called, is six feet tall and muscular; his blond good looks were highlighted by bright suspenders, round gold-rimmed glasses and thick cigars. Both Peterson and Glucksman agreed: France was a real financial whiz, “a pro,” as they referred to him. If he had a weakness, apart from his not being acquainted with all aspects of the business, it was that he could be gruff with younger associates and withdrawn from his partners. De Saint Phalle was more a loner than Gordon or Altman.

Peterson’s immediate plan began to unfold in the spring of 1983, when he quietly polled a handful of board members about the idea of elevating Glucksman to co-CEO. Outside public activities, including the Bi-Partisan Budget Appeal, were now claiming more of Peterson’s time. Thinking decades ahead, as he liked to do, Peterson had come to believe fervently that the nation’s mounting deficits would drive up interest rates, crippling productivity growth, and thus the economy as a whole. Interest charges on the cumulative federal deficit already consumed over 10 percent of the federal budget.* Peterson decided to act on his convictions and organized a powerhouse group of business leaders and others to apply pressure on the President and the Congress to adopt a policy of short-term pain for long-term gain. Consisting of himself, five former Secretaries of the Treasury, including his old nemesis, John Connally, and a total of five hundred or so business, government and academic leaders, the initial group was announced in May 1982. By January 1983, with Peterson taking responsibility for the details, they had carefully delineated $175 billion in spending cuts and tax increases, which they urged on President Reagan and the Congress for fiscal 1985. The Bi-Partisan Budget Appeal had caught the attention, if not yet the support, of the President and the Congress. The group issued alarmed statements, which were prominently displayed by the media. These pronouncements were drafted by Peterson. A May 1983 statement warned:

Massive Federal borrowing will consume savings urgently needed for investment in new plants and equipment, new infrastructure and new jobs and training. Overvalued dollars will crush export industries. Real long-term interest rates will remain high for the foreseeable future, smothering capital-intensive sectors and causing the recovery to sputter and stall. The long-term result will be even more painful than the steps that avert it.

As he thought about the future of Lehman, Peterson believed his chief value was his strong strategic sense, his ability to market and sell ideas, his detailed grasp of marketing and recruiting new business, his role as the firm’s Mr. Outside. But he also understood Glucksman’s value as Mr. Inside—handling most day-to-day details and juggling the various egos. Keeping Glucksman happy became a Peterson obsession. He received signals through intermediaries that Lew “wanted more recognition” and more managerial freedom, and honestly tried to give him both. He tried to assuage Glucksman by cooling his cost-cutting ardor. He tried, none too gracefully, to compliment Glucksman about the weight he had lost, about his new tailor. On one of the infrequent occasions that she encountered Glucksman, Joan Ganz Cooney recalls this whispered advice from her husband, “Be nice to Lew.”

In one of their regular meetings in May 1983, Peterson asked Jim Boshart, “Is Lew happy?” Boshart remembers responding that Lew had some frustrations, particularly about the credit he did not receive for managing the day-to-day affairs of the firm.

“The right thing to do is to make Lew co-CEO. My ego can handle it,” said Peterson. “In every sense we’ll be co-CEO’s.” He cited the co-equal team of John Weinberg and John Whitehead, at Goldman, Sachs. He knew that at First Boston, Peter T. Buchanan, a former trader who had become president and CEO, divided responsibility with the chairman, Alvin V. Shoemaker; even at Morgan Stanley, where trading and distribution were sneered at for years, Richard B. Fisher, a man who had spent the last decade as a trader, was on the rise and would (in January 1984) become president. After the meeting with Boshart, Peterson went about drafting a logical and orderly division of responsibilities.

Determined to proceed, Peterson met alone with Glucksman. “Lew, look, I think we have a common set of goals,” he recalls saying. “We always talk about the institution first. I have talked with you about how I have wanted to build you up and build a team that can succeed us. I get too much of the credit. We’re the same age. You’ve worked so hard for so long that fairness in terms of sharing the glory and the credit means that you should share the job. Also, if something happens to me, the institution requires a clear succession. Until now, if an ultimate decision needed to be made, I made it. Now there will be two of us making decisions.”

Glucksman seemed pleased: “I think that’s very fair of you, very generous of you. I never wanted to be chairman. I don’t have the right talents to be chairman.”*

Peterson then reviewed the May 16 memorandum of understanding he had drafted. After praising Glucksman’s contributions, the draft memo to all Lehman employees said that while both men would retain their respective titles as chairman and president, “effective immediately” they would “share the chief executive responsibilities as co-chief executive officers.” The move permitted them to define “areas of primary as well as shared responsibility.” Peterson would “focus more time on a number of future initiatives—such as future business strategies and development, and a much expanded special investment activity—in addition, of course, to continuing to work with investment banking clients.” Glucksman’s primary responsibilities were defined as “exercising principal day-to-day responsibility for our various operating divisions and departments.” And, together, “we will continue to share in basic organizational and strategic decisions, and will maintain our ongoing involvement in strengthening the firm’s client relationships.” Peterson arranged for Glucksman to receive the same $225,000 salary reserved for the chairman.

The chairman felt satisfied, felt he had behaved magnanimously, thinking first of the long-term interests of Lehman, as he did when he coaxed Glucksman to join his management team in 1978. Pete Peterson had mastered his own ego.

Glucksman feigned pleasure, effusively praising Peterson, but says he felt no gratitude. What Peterson saw as generosity, he saw as necessity; what was compassion to Peterson came off as condescension to Glucksman. Peterson thought he was offering recognition to a talented man who could never, on his own, run the prestigious House of Lehman; Glucksman thought he was truly running Lehman already and resented the need to defer to a self-important chairman he disliked. “Peterson resisted ever making me president until I forced the action,” Glucksman says today. “I was very unenthusiastic about this co-CEO thing. It was a slap in the face. Another example of Pete’s unwillingness to let go when his interests were outside the business.” What he really wanted, Glucksman now says, was for Peterson to announce plans to step down eventually, as he thought Peterson planned to do when he wrote the memo in 1980 alerting Rubin and Glucksman of his thoughts about a “transition” at Lehman.

Glucksman had reason to believe Peterson was thinking about stepping aside one day soon. Even Peterson’s close friends interpreted the co-CEO announcement as a move in that direction. After ten years at Lehman, says Peterson’s good friend Eli Jacobs, “Pete had felt he had done his job.” This successful venture capitalist remembered a drink he had had with Peterson at the River Club in June 1983, when Peterson suddenly said, “I wish I could be doing what you’re doing.” The two men then talked about one day going into business together. Jacobs assumed Peterson wanted out. Glucksman’s friend Bob Rubin got the same signal: “I think Lew took the May statement for what it said, which was that ‘I, Lew Glucksman, am going to be responsible for running the business, and Pete won’t meddle. I’m not going to be frustrated anymore by pretending we’re doing it together.’”

Peterson called a board meeting at eight-thirty in the morning on May 16, 1983, to ratify the change. The board unanimously approved the resolution, though afterward Peterson remembers a few partners whispering to him, “Are you sure this is what you want?” Peterson said he was sure.

At eleven all seventy-seven partners were invited to sip champagne and celebrate in the partners’ dining room. Warm toasts to Glucksman and Peterson and the team were made, but Jim Boshart could sense that Lew was restive. He seemed subdued. “I could tell he wasn’t thrilled,” says Boshart. “He said nothing. The sense I got was that he felt it was anticlimactic. That he deserved it before. He felt that way when he was made president. He felt it was anticlimactic. Almost like, Okay, you’ve been a good boy so you get a pat on the head.”

The co-CEO announcement was made that afternoon. After reviewing Lehman’s impressive growth, the two-page Peterson memorandum to all Lehman employees and the press, which followed word for word Peterson’s draft, concluded: “I doubt that this move will in fact result in Lew and I working more closely together in the future than we have in the past, for that would hardly be possible.”

The board and most of the partners were pleased, believing the new titles merely confirmed the reality that Glucksman was truly in charge of day-to-day operations at Lehman. No matter how crude some partners thought Lew was, he was a proven moneymaker. Even board member Peter Solomon, who detested Glucksman and, as on most matters, did not camouflage his emotions, was satisfied. “It was okay with me,” he says. “I thought everything was terrific. We were in the middle of a bull market. I was banging out deals.”

Oddly enough, a lonely dissent was uttered by Joan Ganz Cooney, Peterson’s wife. She recalls once saying to her husband, “You never talk about your work. You talk about what you did in government. You talk about Bell & Howell. You talk about the economy.” She doesn’t remember his precise answer. “But it was to the effect that Lehman wasn’t ‘a pleasant place to work. It’s a troubled partnership.’ I once heard him say, ‘I don’t know what Lew would say to that.’” She wondered why her husband, the chairman, had to be vexed by such things. She also knew that Pete and Lew had had differences over the years. She knew that Glucksman was violently opposed to the idea of selling the firm, while it was Pete’s private hope to sell Lehman before he reached sixty. “Pete certainly hoped it would sell in that period, and we’d have no money worries,” she says. She remembers that when Pete first talked to her in May about a promotion for Glucksman, she warned, “Pete, you give him a fingernail and he’s going to take an arm.”

*At Lehman, Peterson also had an Oldsmobile.

*“There was a McMoran transaction,” concedes former chief administrative officer and executive committee member David G. Sacks. “There was an incident that provoked irritation,” confirms former partner Yves-André Istel, who refused to discuss details of executive committee sessions. “It was a real ethical problem,” says another former member of the executive committee, who requested anonymity. “Can you visualize working for a firm where each partner took clients and did deals for himself? McMoran was a firm client not a Glanville client. What he proposed to do was totally inconsistent with the moral obligations of a partner.”

*Morris confirms this was a cordial meeting at which Glanville “offered to be helpful.”

*Other partners also believed that Peterson wanted to sell, though they, too, offer little solid evidence.

*Like other investment banks, Lehman received its share of lawsuits charging malfeasance or worse. By the spring of 1985, several former customers had brought suit, charging that in order to inflate their commissions Lehman salesmen “churned” customer accounts excessively. One Chicago businessman, Francis Wagner, filed a suit contending that such deliberate “churning” cost him, according to the April 5, 1985, Wall Street Journal, “more than $1.7 million in interest, commissions and lost interest capital.”

*Interest on the national debt was projected to cost $155 billion in the budget year ending September 30, 1985, a sum greater than the entire 1966 federal budget.

*Glucksman admits he acted as if he were pleased, but wasn’t. And: “If I did say I didn’t have the right talents to be chairman, I would have been lying.”