Glucksman began to nibble at Peterson’s authority. Instead of consulting Peterson on personnel decisions, he began to act unilaterally. Within days of Glucksman’s appointment, a stunned Edmund A. Hajim, chairman and CEO of the Lehman Management Company (Lemco), appeared in Peterson’s office. The chief of Lehman’s money management arm told the chairman that Lew Glucksman had terminated him as CEO of Lemco, and was transferring him to the banking department. Peterson says he was flabbergasted. How could Lew remove Hajim? By every bottom-line measure, Hajim was a success. When Peterson became chairman in 1973, money management was viewed as an auxiliary business at Lehman. Peterson had the vision to significantly expand this effort. Within six years, Lemco controlled $2 billion in assets. Since Hajim assumed command of this division in 1980, the assets Lemco managed climbed from $2 billion to more than $10 billion; revenues tripled; and the mutual funds he supervised performed in the top 3 percent of all mutual funds. Yet here Hajim stood—a member of the board of directors, a man Glucksman himself had recruited from E. F. Hutton—and informed Peterson that his new co-CEO had removed him.

Hajim protested that Glucksman offered no criticism of his performance, instead emphasizing that he liked to move people around, and adding, “We need you in banking.” Glucksman remembers he told Hajim, “You’re growing the business too fast. There are no clear management controls.” Glucksman wanted firmer management at Lemco and throughout Lehman.

Equally appalling to Peterson, Glucksman intended to replace Hajim with investment banker Henry Breck, then forty-six, a friend of Bob Rubin’s who had befriended Lew Glucksman. Peterson believed that Breck’s management skills were untested and that he had not proven to be a dynamic banker. He remembered how in 1982, with Glucksman’s concurrence, Breck was awarded a mere $250,000 bonus. Like some banking partners, Peterson was never comfortable with Breck. He seemed so controlled, so wary, so distant, reminding partners of his mysterious C.I.A. past and prompting some to refer to him as “the spook.”

“This was the first indication I had that he was not following our written agreement of May 16, in which all significant organizational changes were to be reviewed in advance,” says Peterson. Peterson says that Hajim had performed ably and that Glucksman’s conversations with Hajim came as a surprise to him. Glucksman insists that he spoke first to Peterson. “The facts are that we discussed the need to replace Hajim because we felt the business should grow more slowly,” he says.*

Peterson accepted the decision. Since Hajim reported to Glucksman, he says good management practice left him no choice but to accept. Now his concern was twofold: Who would replace Hajim? And how to use Hajim’s talents? The chairman spoke with Glucksman and protested that Henry Breck, who joined the firm as an investment banker in 1968, lacked management experience and that since he was a friend of Lew’s, his appointment smacked of cronyism. He tried, and failed, to persuade Glucksman to rescind his decision. But he did induce him to install a more experienced manager, Robert Arkison, as president and chief operating officer under Breck. He also induced Hajim to report to the banking department, and got Glucksman to agree that Hajim’s stock ownership would not be cut and that he would remain a member of the board. Finally, Peterson had Glucksman set up a meeting between the co-CEO’s and Breck. Peterson remembers telling Breck what was expected of him; Glucksman remembers that Peterson “spent one hour ungraciously telling Henry of his faults.”

Peterson’s allies, including Hajim, were disappointed; they felt he sacrificed Hajim to appease Glucksman. Many partners thought the move made no business sense. It was, says senior banker Harvey Krueger—called “Uncle Harvey” by colleagues because of his avuncular manner—“an error in judgment to pull Hajim out of the job.” The less reverent Peter Solomon put it differently: “The Ed Hajim thing was whacko!”

Glucksman’s appetite for power grew, and soon he made another unilateral decision, appointing Michael Schmertzler as chief financial officer. Glucksman says, “I’m positive I consulted Pete first,” and remembered that Peterson asked, “What experience does he have?” Peterson was troubled that the decision to elevate the thirty-one-year-old Schmertzler was sprung on him and that he was not yet a partner, a man with “no comptrollership experience.” Yet he was being asked to fill the shoes of former partner Arthur Fried. Privately, Peterson wondered, Will Schmertzler stand up to Glucksman the way Fried would? It could not have pleased Peterson to hear Schmertzler tell partners that Bob Rubin would be “the de facto chief financial officer.” And yet Peterson went along, he says, because he believed Glucksman had the right to select his own deputies and because Schmertzler enjoyed a reputation as a bright young man.

Another point of friction became Mario d’Urso’s status as a banking partner. A lean, suave and charming international banker, with shiny black hair combed straight back, his face perpetually tan, the forty-four-year-old Naples-born d’Urso came to Lehman in the merger with Kuhn Loeb. His aristocratic father had been a friend of Bobbie Lehman’s, and between trips to Rome, Zurich, London, the Philippines and Manhattan, Mario had established his own impeccable political and social credentials. He could be seen at cocktails with Henry Kissinger, dining with Marietta Tree, William Paley, the Agnellis, Imelda Marcos, jogging in Central Park in a red velour running suit, coming to work late and then taking a leisurely lunch with such close friends as Enrico Braggiotti, the Milan banker who served on Lehman’s board and was its sole outside investor. D’Urso did not believe the firm should be gambling its money guessing interest rates or engaging in risk arbitrage; he believed in trading only to accommodate the banking clients. To Peterson, d’Urso had valued international business and social contacts. To Glucksman, he was a dandy, the personification of a lazy banker to whom the office was a place to rest his hat and coat and receive telephone messages between lunch and cocktails. Beginning in the winter of 1983, d’Urso became a fixation of Glucksman’s. “He asked me to leave the firm,” says d’Urso. “He said he was prepared to tell me the reason in two years.”

Glucksman’s face would redden at the mention of d’Urso, but each time Glucksman tried to fire him Peterson would intercede, testifying to his value as a banker and his value as a friend of Braggiotti’s and others. Braggiotti, who intervened in February to spare d’Urso, recalls saying, “D’Urso is the best public relations man in the world. He is very good to put people together.” Glucksman backed off, but he believed relationship banking had died with the Lehmans and Loebs; he thought that Peterson, like a boy from Nebraska whose head had been turned by the big city, was too easily impressed by glitter.

Peace reigned for a few months, and then Glucksman went after d’Urso again. In one meeting he told d’Urso to “shut up.” In the spring, recalls Peterson, “To my astonishment and embarrassment, Lew called Mario a liar in a meeting with Enrico Braggiotti.” Peterson thought he was once again witnessing the irrational Lew Glucksman of what he refers to as the “Glanville era.” D’Urso was not in attendance, but he remembers, “Braggiotti was so shocked he told me he would not tell me what happened. Afterwards we had lunch.” The issue festered. “Lew had strong feelings about d’Urso, and Pete stood in the way and didn’t want Mario to leave,” says Jim Boshart. “It became a symbolic issue, proof that Lew really wasn’t running the business.” Finally, in June, Glucksman got his way—d’Urso left to run for the Italian Parliament. “It was not a Glucksman decision,” says Glucksman. “It was a consensus view of a substantial number of the firm’s managers.” Peterson dissents: “That is not true. There may be some people who felt Mario had too many shares. But a lot of important people around the world didn’t like his departure at all.” On this issue, many Lehman bankers stood, uncomfortably, beside Glucksman. A senior banking ally of Peterson’s, who was consulted, supports Glucksman: “A substantial number of us felt that if shares were scarce, as they were, then they ought to come from d’Urso before they came from others.”

Yet another point of friction arose at a May 31 luncheon Peterson was to host at the River House for Japanese Prime Minister Nakasone. As was often the case with Peterson’s public activities, he carefully circulated a memo to select partners asking for suggested corporate clients or prospective customers to invite. When the internal responses came in, Peterson noticed that every partner had responded—except Lew Glucksman. Invited to the luncheon, in addition to twenty-four Japanese officials, were the chairmen of Citicorp, Manufacturers Hanover Trust, PepsiCo, the Ford Motor Company, Johnson & Johnson, ITT, ABC, RCA, Revlon and the chief executives of several Wall Street competitors. Glucksman complained to friends that Peterson had not thought to invite him. Glucksman noted that Peterson did think to invite a Lehman senior adviser, Richard C. Holbrooke, a former Assistant Secretary of State for Asian Affairs. Peterson says the “guest list was totally under the control of the Japanese Ministry of Foreign Affairs. I gave them a list of top executives. They then gave me back an approved list.” Peterson says he suggested Glucksman’s name. Holbrooke, who helped organize the lunch, blames himself for not being “sensitive” enough to suggest that Glucksman be invited.

Most Lehman partners applauded such outside activities of Peterson’s, and appreciated how diligent the chairman was in soliciting their suggestions for clients to invite. However, at least two partners were angry about the lunch. One was Peter Solomon, who recalls, “I was upset I wasn’t invited. I had been to Japan six times for Lehman Brothers. Holbrooke was there; I should have been.” Peterson might dismiss Solomon’s anger as vanity. At Lehman, Solomon’s manner was often either outraged or prankish, which is why some partners called him “the brat.” But Glucksman was something else. His anger, unlike Solomon’s, was rarely leavened with humor. Peterson was aware that Lew had not responded to his memo. This was, he told friends, the “first time” he became aware of personal tensions with his co-CEO. The other disagreements he considered business differences; this seemed more personal, for Glucksman seemed to be unusually quiet, curt, testy. Asked why he failed to respond to the chairman’s memo, Glucksman says, “I didn’t have to be a flunky!” A year after this incident, the fire within Glucksman still burned, for when he was asked whether he was upset that he was not included, he raged, “No. Want to know why? Those lunches were dipshit! A waste of time. Grease for his vanity. Lehman didn’t count for anything in Japan, and we weren’t going to count for anything in Japan.”

Still other differences of opinion or procedure surfaced. “Glucksman became more gruff,” explains Peterson’s executive assistant, Melba Duncan. “He wasn’t as controlled as before. He was now co-CEO. Just like Peterson. He had very little time to say good morning.” Tensions were “palpable,” recalls James Hood, who joined Lehman in September 1982 to coordinate all marketing and public relations, and had a box seat across from Peterson’s office on the forty-third floor. Parading before him, says Hood, were “rivaling sports teams—the Bankers versus the Traders.” Hood noticed that with Glucksman’s ascendancy employees in the trading divisions grew more assertive, while bankers became more defensive. Traders spoke of how “we” do this, while bankers receded, became more self-conscious. Working closely with both Peterson and Glucksman, Hood began to notice that the co-CEO marriage partners no longer pretended to be in love. In private meetings that spring, Glucksman told Hood, “Pete won’t be much help on the details of that, so talk to me about it.” And Peterson, when speaking of strategy, told Hood, “Well, you and I have to work this one out because Lew is only dealing with day-to-day operations.”

Glucksman’s ascendancy frightened many bankers, yet few saw Peterson as their champion. As the tenth anniversary of his chairmanship of Lehman neared, Peterson had worn thin his welcome. In reflective moments, many partners would concede that he had saved the firm in 1973, that he was a brilliant strategist, an effective cost cutter, a terrific business getter, a superb salesman and public face for the firm. But the words most used by partners (including many whom Peterson considers friends) when describing Peterson are “condescending,” “self-centered,” “vain,” “uncaring.”

By the spring of 1983, Peterson seemed to be out of the office more and more, while Glucksman was in charge. By then, says former senior banker and board member George Wiegers, who announced prior to that summer that he was moving to Dillon, Read, “Pete had little support among the senior banking partners. Peterson was frustrating to most of the partners. He was a very demanding and self-centered man. His allocation of time and resources always preempted everyone else’s.” Senior banker and board member Peter Solomon, who would have supported Peterson in a showdown with Glucksman, says of Peterson, “He doesn’t have the milk of human kindness passing through his veins.” William E. Welsh, who headed special projects and also served on the board, and who was a cheerful man, popular among most of his partners, says, “Pete was very standoffish. He was interested in himself. If you met him as an individual, you’d witness a monologue.” In the end, Peterson was thought to be close to only a handful of partners—Roger C. Altman, mergers and acquisitions specialist Stephen A. Schwarzman, banker Steven R. Fenster, among them. Yet one of these men, who admires Peterson’s talents, concedes, “Pete was apersonal. Over time he did not have a lot of friends at the firm.”

It rankled partners that the chairman often treated them as coldly as the numbers on his yellow pad, that he rarely remembered their wives’ names, that they were often summoned without notice to ride uptown with him, that he read memos in meetings with their clients, that he preferred to dine in a private room he had constructed adjoining his office and rarely ventured into the partners’ dining room, rarely took time to schmooze, seemed preoccupied with his own press notices.

Partners collected anecdotes about Peterson’s brusqueness: for example, about the time Peterson had a cold and was visiting the London office, and how he matter-of-factly turned to the nearest partner and commanded that he go fetch him some aspirin. Henry Breck remembered a hot summer day in 1977 when he and Peterson were in George Ball’s office at One William Street, having returned together from lunch. They were reviewing a banking matter when, suddenly, Peterson rose from the couch, his face white, his eyes rolled back, and he fell like a tree. Peterson was having a seizure. Ball rushed to summon a doctor. Breck rushed to jam a wooden ruler in Peterson’s mouth, preventing him from swallowing his tongue. After days of tests and an operation on his skull by a specialist recommended by Henry Kissinger and Averell Harriman, a tumor was located, pressing on Peterson’s brain. It was benign. Peterson quickly recovered and was out of the hospital in two weeks. Yet what still rankles Breck, eight years later, is that Peterson never once thanked him or even acknowledged his presence that day.

One former partner remembers how brusque Peterson could be with partners and sometimes with clients: “Pete’s head was a little bit up in the clouds. Even with clients he’d come into a luncheon and start reading his notes for something else. Clients like you to try and pay attention. He’s so quick that when the client started talking, he’d catch right up.” A friend and business associate of Peterson’s observes, “Pete in some ways is like Henry Kissinger. He never got over being in government. I believe everything that has happened to him since is like a way station to going back either as Secretary of the Treasury or Chairman of the Federal Reserve.”

This brusqueness is placed in a somewhat different though not necessarily endearing light by Peterson’s friend and former partner Warren Hellman, who now lives in San Francisco: “Pete is a guy who gives enormous attention to business. Once he came out to San Francisco and we were going to have a social dinner. We went to Ondine’s for dinner, a very elegant restaurant. It was just the two of us. As soon as we sat down Pete said, ‘Can we order the whole meal now?’ We were out of there in forty-five minutes!”

Peterson was largely unaware that many of his partners found him imperious. He believed that as the chairman he often had to make painful personnel choices (when bonuses and shares were distributed in September, when promotions were granted) and that to maintain the appearance of fairness he had to keep distant, like a judge—“like De Gaulle,” his wife explains. Peterson also says, “I wasn’t running for office. I had a partner. Lew wanted to run operations. I didn’t think he would appreciate it if I was in touch with people.”*

Nevertheless, there are those who look at Peterson and instead of seeing coldness, see shyness and warmth. Peterson can be awkward in a social setting, and on weekends in the Hamptons he is most comfortable seeing a few close friends. He is now more attentive to his five children, whose pictures are sprinkled throughout his homes and office. He dotes on his wife Joan, and eagerly discusses her work as president of the Children’s Television Workshop, her membership on five corporate boards. Some may think it was insensitive of him to have had a secretary call for a first date to the ballet, as Pete did with Joan in 1979. “He probably had fears of rejection,” explains Joan. “He is somewhat shy. And having your secretary call is totally appropriate in the business world.” She turned down the initial offer, thinking he was still married. His failure to glimpse Glucksman’s hostility is seen by Joan as a virtue, not a vice. “Pete was totally trusting of Lew’s compliments,” she says. “He wanted to believe Lew had changed.”

Although Peterson’s fastidious concern for appearances is often remarked upon, it is also true that he suffered openly after Sally Peterson left him in 1978. “He was a basket case,” says Joan, who spotted him at a party at Linda and Morton Janklows’. “Pete was in a corner telling his troubles to Barbara Walters, who is a close friend. And Linda Janklow was coming by and saying, ‘Joan, Joan. Talk to Pete.’” She avoided him because he was so downcast. After their first date, arranged by the Janklows, Pete pursued her with a single-minded intensity. “Pete is like a horse with blinders,” she says. He can be obsessive. Soon, like a thrilled, innocent adolescent, Peterson announced to friends and acquaintances, “I’m going steady.” He waited until their fifth date to kiss her.

Melba Duncan, who went to work for Peterson as a secretary in 1976 and rose to become his executive assistant, saw a kind, not remote man. She recalls that on the morning of his brain surgery, he telephoned and said, “I just want to say how much I appreciate all you’ve done. You’re a terrific person. And if I don’t come out of this, I want you to know that.”

The first word that comes to former Senator Charles Percy’s lips when Peterson’s name is mentioned is “friend.” He explains that when his daughter Valerie was murdered in the mid-sixties, Peterson was “among the first to arrive at our door that fateful Sunday morning not only to offer sympathy and help but also to take over many of the difficult situations imposed upon us as a family.”

As is the case with Lew Glucksman, there is more than one truth about Pete Peterson’s personality, depending on whom one talks to. Sometimes partners had contradictory impressions of him, none of them frozen, each impression changing from day to day. Sometimes people hid their true feelings, which is another reason that Peterson may have missed the gathering storm. After all, Glucksman did help organize, on June 6, 1983, a tenth anniversary luncheon honoring the chairman, at which he served as host. Holding aloft a glass of champagne, Glucksman offered an effusive toast about what a great honor it had been to work beside Pete and how he looked forward to working beside him for many more years. On behalf of the partnership, he presented to the chairman a $25,000 Henry Moore charcoal drawing. Senior banker William Morris, whose dislike for Peterson was well known, had to be persuaded by Glucksman to attend the lunch.* Morris stunned many of his partners by adding his own tribute to the chairman.

This was not the only occasion on which Glucksman was insincere. Over the Memorial Day weekend that year—six weeks before Glucksman presented his ultimatum to the chairman—the Petersons were dining at the Palm Restaurant in East Hampton with another couple and they bumped into Inez and Lew Glucksman and their two daughters. They stopped to say hello. Later, Glucksman came over to their table, where he lingered for about five minutes while the food was on the table, heaping encomium after encomium on Peterson. In an interview a week or so before he confronted Peterson, Glucksman told Lenny Glynn of Institutional Investor,† “If I were to devote my energies to being on the outside, I could not manage this business on a day-to-day basis. Pete takes responsibility for maintaining relationships with hundreds of clients. One man couldn’t do both jobs.”

Months later, when asked why he had hidden his true feelings, Glucksman said, “I’m a great actor. I tried to make the place work, despite whatever feelings I may have frequently had. Life isn’t exactly like an Al Capone dinner, where you stand up and beat an associate to death.”

Peterson’s friends say if he is to be faulted for missing the rage building within Lew Glucksman, it is because he was too trusting; detractors say he was a fool to be so blind. Peterson says it wasn’t until about mid-June that he became aware that Lew was always “tense.” And yet he did not confront Glucksman. Instead, he continued to rely on James Boshart, and said he hoped that if anything was bothering Lew, Jim would keep him informed.

Peterson, too, tells friends his vice was really the virtue of being too trusting. In a reflective moment in the summer of 1984, Peterson probably best summed up his weakness when he said, “I saw a movie last night. It was Robert Redford in The Natural. At one point he said of the woman who shot him, ‘I should have seen it coming, but I didn’t.’”

*Peterson later amended his earlier recollection, saying he knew that “Lew hated Hajim,” and therefore he was not completely surprised by the move.

*It is possible that with the passage of time, and the outcome of the turmoil at the firm, partners today project greater hostility toward Peterson than they felt then. It is also possible that the polite things many said at the time were unfelt.

*As did Harvey Krueger, who had grown tired of the chairman’s monologues.

†Glynn’s compelling piece, “The Big Power Play at Lehman,” appeared in September 1983.