Money and Power (35 page)

According to
Roy Smith, though, Levy’s secretary “
rummaging through his desk” found “an envelope addressed to the Management Committee,” which contained a letter stating that “if anything happened to him,” the Management Committee should “consider” replacing him with the “Two Johns”—John Whitehead, a patrician, silver-haired banker, then fifty-four years old, and John Weinberg, then fifty-one, one of Sidney’s sons and also a banker, who had supposedly managed the firm’s commercial paper business. Smith cited no source for the story about Levy’s secretary finding the letter.

For his part, Rubin said that although he never saw the letter—
“I’m
not saying there wasn’t one, I’m just saying nobody ever saw it,” he explained—if such a letter existed, then it was
George Doty who supposedly found it, not Levy’s secretary, and that the letter contained the news that Levy was going to name the Two Johns as Goldman’s
vice chairmen,
not as the next leaders of the firm. But the letter never materialized.
Peter Levy said he “
never was aware of the letter, although he certainly did appoint the Two Johns.” Doty told
Charles Ellis, “
Gus would
never
have retired,” adding some credence to the idea that Whitehead and Weinberg were to be named vice chairmen, although in his book Ellis ignored the controversy altogether and instead told a story of Levy’s secretary finding in his desk a drawing of Levy—“a stick figure with a big cigar”—that one of his partner’s sons had made on a Friday after Thanksgiving and given to Levy.

Doty, who is now in his nineties, said in an interview that there was never a letter, just Levy sharing with him his plans for the Two Johns in the weeks before his death. “Gus had spoken to me shortly before he had his stroke,” Doty said. “He was perplexed by a problem: how to deal with the Two Johns. His solution was to make them both a vice chairman. He couldn’t pick either one of them without creating a problem. It seemed logical enough to me. I don’t think he was asking me for my agreement. He was telling me the way it was.” In her Goldman book,
Lisa Endlich wrote that while Levy had indicated publicly he had “heirs apparent” in mind, he had never named them. “
Leaderless, the firm was left in turmoil,” she wrote.

Three years earlier, in his November 1973
Institutional Investor
interview,
Gilbert Kaplan asked Levy about the future leaders at the firm. “I think the firm would be equally strong if I wasn’t here,” he said. “Mr. Weinberg created an aura of leadership, and he was a great leader. I hasten to add that I’m not in his class.” He added that, under his leadership, Goldman had a Management Committee for the first time and worked in teams, with any number of senior people getting to know the firm’s clients. “[I]n case I’m out of the country, or drop dead or something, these people know whom to call at Goldman, Sachs. We’ve got some wonderful young fellows coming along, and some who’ve come around already who could step into my shoes in a minute.” When Kaplan asked directly if Levy had an heir apparent, Levy responded, “I wish you wouldn’t ask me that question. It would cause too much trouble around here. But yes, there are heirs apparent.” He said he would have considered it “a failure” to find a new leader for the firm from outside its own ranks.

When Whitehead heard the news about Levy’s stroke, he tried to go
see him at Mount Sinai but could not get in for a day or so. But when he did, Whitehead “
could tell he was obviously a very sick man—weak, frail and ghostly pale. Even if he survived, I couldn’t imagine he would ever come back to running Goldman Sachs. That was a terrible blow to the firm, as well as to me personally.” According to Doty, “
We had a partners meeting in which the subject of succession came up. And I told the partners what Gus had said to me. It wasn’t the word of God, you know, but it was a leader who had thought about the subject and it was an acceptable solution. There was no better solution on the horizon anyway.”

In Whitehead’s version of events, “while Gus lay dying at Mount Sinai,” he and John Weinberg “sat down together at the Goldman Sachs office to decide what to do.” Whitehead made no mention of any letter stuffed in a desk. Rather, he observed, Levy “had made no such decision” about succession “because he had no thought of retiring.” Whitehead decided, though, that since he and Weinberg were tied for second—behind Levy—for taking home the greatest percentage of the firm’s profits, “it was clearly up to us to take strong leadership in this sudden crisis and make a clear recommendation to the
management committee and all of the partners about who would succeed Gus.”

Although Whitehead was three years older than Weinberg and had been at Goldman three years longer, they had both become partners on the same day in 1956, “moved up in the firm in lockstep,” and received “identical increases in compensation at every stage.” Apparently, they were also good friends. “
We’d often have lunch together at Scotty’s Sandwich Shop,” Whitehead said. “Scotty’s made the largest egg salad sandwich I had ever seen, and I ate my share of them. John and I would complain to each other about all the things wrong with Goldman Sachs, and talk about how things would go if we ever had a chance to run the firm.”

Now that the opportunity was within their grasp, with Levy close to death, Whitehead “floated the idea” that he be the firm’s chairman and that Weinberg be vice chairman. “
John’s face fell,” Whitehead noted. “I could see he didn’t take that too well. As Sidney’s son, and a proud man in his own right, he was not inclined to settle for being my number two.” John Weinberg had graduated from Princeton and, in
World War II, joined the marines as a private and emerged from the war a second lieutenant. In the
Korean War, he went in a first lieutenant and came out a captain. “
My father was a very tough man,” he once said, “but I had a gentle upbringing. The Marines were good for me.” The Two Johns considered putting the matter to a vote of the Management Committee or to the entire partnership, but that “semipublic process” would have been
“messy,” Whitehead said, “with factions forming on each side” without producing the “united front the firm needed at such a difficult time.” Additionally, according to Whitehead, neither John wanted to risk losing and having one John being hailed as the winner while the other John was labeled a loser.

Out of the conundrum came the unprecedented idea—at least on Wall Street—of having the two men share power as co-chairmen.
“John and I were the logical choices,” Weinberg said. “Gus had brought us along together and our perceptions and goals for Goldman had evolved according to our own thinking, which was done together.” “
After we’d decided, we both felt relieved,” Whitehead wrote later. “Neither of us had to shoulder the entire responsibility of running Goldman Sachs alone, and neither of us had to settle for being number two. We’d each be free to travel without worrying too much about what was happening back at the office. The arrangement seemed ideal.” The Two Johns also saw the marketing potential in the arrangement as clients often wanted to meet “with the top man,” and now Goldman had two top men. “We could meet twice as many clients …,” Whitehead observed. “By pooling our abilities, we figured we would make the top of Goldman Sachs that much stronger.” They decided to make sure to speak every day and have adjoining offices, with a shared conference room. Whitehead’s former investment banking colleagues believed Whitehead made a major concession to John Weinberg. “
I thought that John Whitehead would clearly have been chosen as the sole leader,” recalled former partner
Alan Stein, “but I think he decided, and I thought intelligently, that there was something to hold on to here in the Weinberg name.” Over time, a revealing picture of Elizabeth Taylor appeared in the partners’ bathrooms. “Two are better than one,” read the caption.

After Levy’s death, Whitehead and Weinberg told the—now eight-member—Management Committee of their decision. “The idea met with its approval,” Whitehead said, “and so we informed the other partners.” Doty said the idea just made sense. “John Weinberg was a great business getter and Whitehead was a better organizer,” he said. “But Whitehead was not deeply loved by a great many people in the securities side of the business. And so it was a combination everyone could live with. Those two guys were sort of joined at the hip. It didn’t seem unusual.” Novotny also went to work, disseminating the news to the media. The
Times,
though, beat him to the punch and reported correctly two days after Levy’s death that Whitehead and Weinberg would succeed him. Novotny denied that any decision had been made but the paper reported that the two men would be co-chairmen of the Management
Committee and that they had “tremendous mutual respect for each other.” Whitehead was described as a “planner and an organizer” while Weinberg, then head of the firm’s fledgling fixed-income division, was known for “bringing in new business.” The
Times,
kindly, reported a number of famous Goldman tropes, including that the “transition” from Levy’s leadership to that of Whitehead and Weinberg would be a smooth one. “Among the 1,500 employees and at its 14 domestic and foreign offices, teamwork is a hallmark that built Goldman, Sachs to its present eminence in the competitive investment world.”

——

B
UT THE FACT
that neither Whitehead nor Weinberg was a trader, or had trading experience, evoked considerable concern from Goldman’s increasingly influential traders. Levy’s death was “
a tremendous shock,” Rubin said, “because … I think a lot of us—I’ll include myself in this—felt some degree of insecurity with respect, insecurity might be the wrong word, but uncertainty with respect to the question of would they”—Whitehead and Weinberg—“have the fortitude to live with what would inevitably be periodic downslides. But it turned out they were terrific.”

In many ways, Whitehead was right out of Goldman’s central casting department: although he was from a modest background, he was also bright, hardworking, tenacious, and ambitious. These, of course, were the very same qualities that made Sidney Weinberg and Gus Levy so successful. But unlike Weinberg and Levy, Whitehead was Episcopalian, not Jewish, and thus would be the first leader of Goldman—not counting the ill-fated tenure of
Waddill Catchings—who was not cut from the firm’s principal religious cloth. Not that any of Goldman’s previous leaders were particularly religious—far from it—nor, by 1976, were Wall Street firms as strictly delineated by their religious orientation as had been the case earlier in the twentieth century, but it was still a momentous change. “
To many people, Goldman Sachs was thought to be predominantly Jewish,” Whitehead observed, “but I never sensed that anyone ever minded my being an Episcopalian.” But he was not oblivious to the anomaly. Much was made around Wall Street of the news that Morgan Stanley had hired
Lewis Bernard in 1963, the first Jew to work at the firm. In 1973, Bernard became the first Jewish partner at Morgan Stanley. At one point before Bernard became a partner, Morgan Stanley’s senior partner,
Perry Hall, called Weinberg and told him about Bernard being Jewish and his increasingly important role at Morgan Stanley. “Oh, Perry,” Weinberg responded, “that’s
nothing
. We’ve had them here for
years
.” When Bernard became a partner at Morgan Stanley, Goldman
tried to hire him away. But a senior executive at Morgan Stanley admonished the Goldman partners to leave him alone: “We finally make a Jewish partner and you guys want to hire him away! Forget it.”

Whitehead was born April 2, 1922, in Evanston, Illinois, at four in the morning, he recalled with precision, “because my mother used to joke that she held me back for four hours so I’d avoid the embarrassment of being born on April Fools’ Day.” Whitehead’s father,
Eugene Cunningham Whitehead—born, bred, and reared in rural Georgia—had moved his family north so that he could learn how to climb telephone poles as a lineman for Western Electric. “Our stay in Evanston was brief,” Whitehead explained, and the family soon moved to a second-floor apartment in Montclair, New Jersey, so that Eugene could take a job—and a promotion—as a junior manager at a Western Electric manufacturing plant in Kearny, near the Meadowlands. He would leave for work in his gray Dodge every morning at seven and returned home every night at six o’clock. Eventually the Whiteheads left the apartment for a small house near the center of Montclair, with a “little backyard” and a separate garage.

When the market crashed in October 1929, the Whiteheads were vacationing on the eastern edge of Nantucket. “It was remote enough that the city papers took several days to get there, so my father would listen to the radio every day to keep up with the news, and that’s how he found out about the stock market collapse,” Whitehead explained. Most of the family’s savings were “carefully” invested in the stock market, with
AT&T—the parent company of Western Electric—being his largest holding. Whitehead estimated his father had invested about $50,000 in the market—“perhaps the equivalent of $500,000 today”—and the loss of much of the family’s savings hurt. They cut short the Nantucket vacation and returned home so that his father could “see to his investments.” Compounding the stock market losses was the news that Western Electric had fired Eugene, who nevertheless still went off in his Dodge every day as if nothing had changed. Eugene never told his son that he had lost his job at Western Electric, and before long he landed a new job selling porch furniture on commission, door to door. Since there were monthly quotas to meet, the Whiteheads ended up with more than their fair share of the furniture. “I always thought that ours was the best-furnished porch in Montclair,” Whitehead quipped.

During the Depression, the Whiteheads survived on macaroni and cheese and codfish cakes, recycled clothing,
Amos ’n’ Andy, Jack Armstrong, The All-American Boy,
and Roosevelt’s fireside chats. The family was able to spring for a new 1934 Model A Ford—cost: five hundred dollars.
Like so many of his generation, living through the Depression seared in Whitehead an aversion to risk and borrowing money. “I don’t even like credit cards!” he proclaimed. But he did not think of his family as poor “probably because we were no worse off than anyone else I knew.”