Last Man Standing (7 page)

Another hire who worked closely with Jamie Dimon was John Fowler, a former executive vice president at Warner Amex Cable Communications. Fowler also took a 50 percent pay cut. One of Fowler’s memories is of Dimon pointing him toward the annual report of Warren Buffett’s Berkshire Hathaway and suggesting that he read how Buffett ran a property and casualty insurance company in order to maximize investable assets at the lowest possible cost of money.

Fowler remembers one particular lunch meeting with Weill and Dimon at The Four Seasons. Dimon, who smoked at the time, had a cigarette brought to him at the end of lunch in lieu of dessert. A few years later, having quit smoking, Dimon chastised Fowler for keeping up the habit. He said that if Fowler quit for five years, he would donate $5,000 to a charity of Fowler’s choice. Fowler took him up on the offer, and five years later Dimon paid up.

The majority of Weill’s hires were refugees from big companies, people looking for less formality and more upside. “His mantra was, ‘Down with the bureaucracy!’” remembers Calvano. “It was, ‘This is gonna be just us guys and girls, and we’ll get it done the right way.’ It was very appealing, especially for those who came from American Express, which was almost Byzantine in its political nature. If you were ambitious yourself, and you wanted to do something, why not do it with Sandy?”

(Early on, Dimon suggested a board candidate to Weill: Andrall Pearson, whom he’d met through Pearson’s daughter, a classmate of Dimon’s
at Harvard. Pearson, who was later the founding chairman of Pepsi’s spin-off Yum! Brands—owner of KFC, Pizza Hut, and Taco Bell—would be another mentor to Dimon over the next 20 years. Like Dimon, Pearson was a twin. But he one-upped Dimon on that front—he and his identical twin brother, Richard, actually married another set of identical twins.)

The New Yorkers flew to Baltimore every Monday on the 7:10
A.M
. flight on Piedmont Airlines out of La Guardia—a 35-minute flight—and stayed in Baltimore until Friday, when they returned home. Weill and Dimon took up residence in the luxury Harbor Court hotel, with Dimon occupying the room across the hallway from Weill’s suite. Fowler took a room next door, and the three men walked to work together each day. Dimon’s mornings usually began when he smelled Weill’s cigar smoke seeping underneath his door, and his days ended when he watched Weill smoke a final cigar after dinner.

Although a number of other executives stayed in an apartment close to Commercial Credit’s 18-story glass-and-aluminum edifice at 300 St. Paul Place, there was an unwritten rule that if you were in town and did not have some other business engagement, you ate dinner at 7:30
P.M
. with Weill in a private room in the Harbor Court’s restaurant. “Sandy has that kind of food fetish where he likes to order the appetizers,” recalls Calvano. “He’ll order your meal for you if you’re not careful—so it became good practice to have something to do at night. Otherwise, you’d have to go eat those damn crab cakes every day of the week.” On other nights, the “dirty dozen” as they called themselves, convened at the fancy Italian restaurant Marconi’s. On seeing Weill walk in, the staff would plunk a bottle of Tanqueray gin on the table. Weill liked his Gibson before dinner.

They worked long hours, sometimes 12 to 14 hours a day. Bob Willumstad, who was helping transform the company’s branch network with Lipp and Calvano, thinks they got done in six months what might have taken a year—and although it was exhausting, it was also exhilarating. “It was great fun,” recalls Bob Lipp. “I often look back at those few years, the likes of which I’ve never experienced again. It was like going to war without getting shot at.”

They made quick work of Commercial Credit’s balance sheet; Dimon took the lead when it came to making the numbers work. In early 1987, they sold the company’s car leasing business for $77 million plus assumption of $250 million in liabilities. They stopped making loans to kibbutzim in Israel—no one was ever sure why the company had made these loans in the first place—and curtailed all business loans. Slowly but surely, Weill and his team refocused the company on its core business of consumer finance. And the results showed. For the full year, the company earned $100 million and had an impressive 18 percent return on equity. The credit agencies had upgraded the company’s debt rating from BB+ at the time of the takeover to A- a year later, and Commercial Credit was able to tap the debt markets to the tune of $100 million. In 1988, they kept going. They sold American Credit Indemnity, which insured accounts receivable for corporate clients, to Dun & Brad-street for $140 million.

Weill did away with perks for most of the company’s management ranks. He canceled all newspaper subscriptions, sending out the message that if employees wanted to read the
Wall Street Journal
, they could pay for it themselves. He ordered all company cars to be returned or bought by those using them. And he canceled a contract with a plant service, telling employees to water their own plants.

The core lending business, too, needed an overhaul. Once Bob Lipp got proper reporting systems in place, Weill saw that the cost and incentive structures at the company’s lending branches were hampering profit growth. He announced that the poorest-performing 10 percent of the company’s branches would receive no bonus whatsoever, whereas the top-performing 10 percent might receive 100 percent of their salary as a bonus. Believing it the best way to motivate employees, both Weill and Dimon continued to utilize this carrot-or-stick method over the years.

After a while, the executives realized that with not a single one of them living in Baltimore, they were not connected to the company. Weill started a drumbeat of, “One of us has to move,” which the team properly understood as, “One of you has to move.” After some discussion, all eyes focused on Dimon, who as the youngest member of the team had the fewest roots to pull up.

Because Judy was then pregnant with the couple’s second child, it actually made sense for Dimon to bring his wife and daughter to Maryland with him—he didn’t like being away from them. So he was the “volunteer,” the only member of the executive team to do time as a Baltimorean. Judy, like many people who have lived in New York, was used to walking pretty much everywhere she needed to go, so the couple moved to Cross Keys, Baltimore’s first “planned” community. “It was really hard for me to picture myself living in a suburban environment,” she recalls. “So we found this ground floor apartment where Jules and I could walk wherever we needed to go. The only issue was that everybody else was twice my age.” Jamie Dimon wasn’t in Baltimore to make friends, though. He was there to whip Commercial Credit into shape. He didn’t much care where he lived.

• • •

Working with this group of veteran executives, Dimon soon earned the nickname “the kid.” But he was a notable kid, exceptional in his spongelike capacity to understand the intricacies of financial, accounting, and tax issues, while equally adept at analyzing the trade-offs between risks and returns in the company’s various businesses. Bob Lipp was impressed at Dimon’s ability to apply ethical standards in the gray areas of accounting rules. Dimon also managed to revive the company’s commercial paper funding program, which had faltered under Control Data, bringing costs down in the process.

He also seemed perennially a step ahead. (Fowler considered him as “quick as a hiccup.”) Dimon knew the company’s books better than anyone else. “Not long after you started talking, he’d interrupt you, saying, ‘I know, I know, I know,’” recalls his longtime colleague Marge Magner. “And he usually did.” His colleagues tolerated such impatience because of his obvious focus.

It was also at Commercial Credit that Dimon cemented his reputation as hothead, engaging in frequent screaming matches with Weill. The vitriol was not reserved just for his boss. Indeed, he challenged other executives as well. One executive remembers a senior committee meeting in which the 30-year-old Dimon stabbed his ballpoint pen in
the air toward Bob Lipp and said, “Bob, you’re wrong on this!” All present were dumbstruck. Here was a kid just a couple of years out of business school lecturing a former president of Chemical Bank. Weill said nothing, and just chewed away on his cigar. “From that point, we could tell how tough he was,” recalls the executive. “And how nobody but nobody stood up to him.” (Lipp doesn’t recall the specific incident, but says he had no problem with a young Jamie Dimon challenging him on anything.)

Part of what made Dimon’s temper tolerable, however, was that he treated everyone exactly the same way. “He was abrasive and could make you crazy,” recalls Magner. “But there was always something endearing about him.” Dimon, for example, had no compunction about voicing his Democratic political views in a boardroom full of Republicans—which included former President Gerald Ford. Compulsively chewing the ends of ballpoint pens, Dimon was a most unusual hybrid, the accounting nerd who had expansive views on public policy.

He was also capable of the occasional outright power play. Sandy Weill had sensed during the IPO road show that Dimon considered Greg Fitz-Gerald an obstacle, and it was not long before the obstacle was removed. In the earliest days of forming the company, the team had a white board in a conference room showing the company’s lines of reporting. One day, as a number of executives sat around the table, Dimon walked into the room, wiped out all the names under Fitz-Gerald, rewrote them all underneath his own name, and walked out. “Nobody dared change it, of course,” says one executive. “It was the kind of move I never would have believed if I hadn’t seen it with my own eyes.” Shortly thereafter, Fitz-Gerald left the company.

Young as he was, Dimon built his own coterie of disciples at Commercial Credit. One was Charlie Scharf, a graduate of Johns Hopkins with a cocky streak akin to Dimon’s. Scharf’s father had been a broker at Shearson under Weill, and sent his son articles about Weill’s continuing adventures in Baltimore. Scharf initially replied that he hated Baltimore, and that his father should get it out of his head that his son might actually work there after graduating; but he later asked if his father could line up an interview.

The two men hit it off. While still in college, Scharf began working for Dimon part-time, and by the end of the year he was Dimon’s assistant. Life with Dimon was anything but boring. After just a few weeks on the job, Scharf was in Dimon’s office when Sandy Weill walked in. Scharf stopped speaking—Weill made most employees a little nervous—but Weill insisted that Scharf continue. Before long, the young man was stammering, so Dimon took over answering Weill’s questions. Before long, he and Weill were at each other’s throat. Scharf was petrified. “Is Jamie going to get fired?” he thought to himself. “What the hell is going on here?” And then as quickly as it had started, the argument came to a close. Dimon had made one final point, to which Weill merely said, “Oh, OK, I get it,” and turned and left the office.

Dimon’s combustible relationship with Weill set the tone for how he dealt with colleagues in the early part of his career. Because he could be that way with Weill, he was that way with everyone. And this had both positive and negative effects. On the positive side, Dimon never felt the need to dance around an issue; he got straight to the point. On the negative side, he failed to hone his interpersonal office skills—because he didn’t have to.

(That’s not to say Dimon was unfair. In fact, to this day it is his obsession with fairness that is largely responsible for the loyalty he elicits from most people who work for him. He can and will fire people who don’t measure up, but it is rare for senior executives working for him to quit of their own accord.)

“Sandy and Jamie were in a constant state of battle over their intellectual capacities,” remembers Bob Lipp. “They also bet on little things. Sometimes we took the train to Baltimore, and they’d be standing on the platform, betting who would be closer to the door when the train stopped. They’d bet about anything.” Once, when Weill claimed that the sun rose 30 minutes later in Baltimore than it did in New York, Dimon countered that there was only a 10-minute difference. They bet on it, and in this case, Dimon won. Their hypercompetitiveness seemed to draw them together rather than push them apart, at least for a while. A decade later, the one-upsmanship became more hard-edged—especially from Dimon’s end—but in their early years together, the two
men fed off each other’s alpha-male energy. The dynamic paid dividends, as both worked harder as a result.

Dimon’s confidence could be contagious. When John Fowler complained one day that he was making a mere $190,000 a year and was fielding a job offer for $600,000, Dimon persuaded him not to jump ship. “Wow, that’s awfully attractive,” he told Fowler. “But stick around, stay with this. You’ll be making a million dollars a year in five years.” Fowler took the advice, and got his payday. Everyone who had chosen to take a bet on Sandy Weill would be handsomely rewarded.

Once the “platform” had been established in Baltimore, Weill wanted to prove that the Commercial Credit deal was more than a lucky break by making a splashy acquisition or two. It turned out to be much more than that. He and Dimon were about to embark on a decade of almost constant deal making. This suited Dimon just fine. “Jamie approached everything with total fury,” recalls Weill’s assistant Alison Falls McElvery. “Nothing was an idea that merely lingered. It was always ninety miles an hour. When I first met him, I used to call him ‘the lawn mower.’ He’d cut it all off before realizing that he might have made it a little short. Then he’d say, ‘It’ll grow back. Let’s move on.’”

The template was a simple one: run the business conservatively, building fortress balance sheets that gave the wherewithal to make acquisitions during downturns, when assets were cheap. A fortress balance sheet was just what it sounded like: it consisted of ample “high-quality” capital paired with a strong liquidity position that would protect the firm from the assault of an economic downturn while also providing the ability to launch an attack on weakened competitors. To be an acquirer during boom times was to be foolish, to commit the cardinal sin of overpaying. But to pick off distressed assets in a lousy economic climate—that was the stuff of the empire builder. It was also Weill’s playbook when he built Shearson from the ground up over two-plus decades beginning in 1960.