Tales from the Deal World

Peter Solomon has served on 21 boards in his life. He now sits on only one. New independence rules have forced a choice between serving on boards and advising clients, and the choice, he says, is an easy one to make. It is just one more development in the corporate arena and on Wall Street, which Solomon, 68, has studied during his 44-year career. In 1989, he left Lehman Brothers, where he had been chairman of merchant banking, to found his own firm. According to Dealogic, a M&A data firm, so far this year Peter J. Solomon Co. ranks sixth in U.S. M&A advisory for the retail sector. He has also worked two stints in government: first as New York deputy mayor of economic policy and development under Mayor Edward Koch, and then as counselor to the U.S. Treasury in the Carter administration. In a wide ranging interview, Solomon talked with Directorship about how the deal world really works, the private-equity sector, his early days at Lehman, and the sometimes chilling impact SOX has had on the boardroom.

Was there a lot of tension between traders and investment bankers at many firms in the early days?

In truth, of course. Goldman Sachs was built by traders to a large extent so they didn’t have that tension as much as Lehman. The absence of that dichotomy was very helpful to Goldman Sachs. They did have a lot of problems in the 70s, though. They almost went bankrupt because of Penn Central [which collapsed in 1970, embroiling Goldman in a commercial paper scandal.] But they never had the revolution that occurred at Lehman and some of the other firms because Gus Levy was a trader. He was the number-two person in the firm and in some ways the public persona of the firm. The reason Lew Glucksman [of Lehman] was viewed so badly by the investment bankers was not because he was a trader, but because he almost bankrupted the firm by trades that he didn’t tell the partners about in the late 60s and early 70s. He entered into a series of repos. One was IBM Credit Corp. I believe we were forced to take back those securities at a huge loss. I became a partner in 1971. I was net negative at Lehman by 1975. It was a difficult time.

What were those early years at Lehman like and what made them difficult?

We were unincorporated and we were a partnership that had no capital. Incorporation changed Wall Street and then the capital raised by Salomon in 1981 [in an initial public offering] changed it yet again. Those two things forever shifted the relationship between partners because they now were employees and their capital was not at risk. Before that, all the partners of Lehman would sit together in the same room on the third floor so they could keep an eye on each other, because if your partner caused you to lose money there was unlimited personal liability…that was incredible.

How did you end up working in the White House?

[Patrick] Moynihan [the Harvard professor turned senator from New York in the seat now held by Hillary Clinton] had pushed me very hard to go to Washington and I finally called him to turn down the job…and he said, “ You’re an idiot.” And I said, “I really like being called an idiot by the junior senator from New York.” He laughed, actually. Then he said, “I want you to go to the White House or to the Treasury...I want you to view this as your PhD in government. A guy like you needs to know how the Treasury and the White House works.” And he said there would never be another Democratic president. He saw this as an anomaly. It’s going to be very hard to elect a Democrat and you’re never going to get another chance to really go to Washington.

Let’s talk about the role boards played then, compared to the one boards play today.

I’ve been on 21 public boards. I’m now on one. There’s no question that boards were clubby, but they weren’t exclusively clubby, and it doesn’t mean that all boards were, either. Some boards were very unclubby, very tormented, very embattled, and very antagonistic. SOX has shined a light on boards. Even under SOX, though, we’ve had the options scandal so how can you argue that all SOX is appropriate when during this period you have boards committing acts that were totally avoidable?

The point is that boards have changed considerably. Now, I have a lot of opinions, both pro and con. First, I think the increased responsibility of boards is a good thing. Two, I think SOX, like anything, in its first three or four years created a horrendous situation—the time spent covering one’s fanny, looking officious, and the fees of the service firms were outrageous—but like all things, that has settled down.