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.The partners made appeals to several prestigious bro-kerages with clearing operations big enough to absorb CBWL sbusiness, but were turned away.The firm had little choice but tobuild its own clearing operation from scratch.This serendipi-tous decision largely protected it from the back office chaos ex-perienced by other firms.In what would prove one of the firm s smartest hires, CBWLrecruited back-office guru Frank Zarb, who went on to become energy czar under President Ford and then Chairman of theNasdaq stock exchange.Zarb grew up in Flatbush, Brooklyn, theson of a refrigerator repairman, and like Weill was known for histoughness and savvy.Before joining CBWL, he was second incommand in the back office of the brokerage firm Goodbody,which after Zarb left suffered its own back-office troubles andhad to be rescued by Merrill Lynch.At CBWL, Zarb set up astate-of-the-art clearing operation.The firm spent nearly $3 mil-lion to cover the salaries of 150 new employees and the costs ofcomputer services.20With his eye for detail and penchant for staying in the back-ground where the real work was getting done Weill workedside by side with Zarb in building the new clearinghouse. Inthose days, most people thought the back office was for people ston_c02.qxd 4/16/02 8:47 AM Page 6868KING OF CAPITALin green eyeshades, Roger Berlind told Forbes in 1993. ButSandy was fearful of anything going wrong down there.He be-came familiar with it. 21The significance of the move was lost on the rest of the invest-ment world.In a January 1970 article, the New York Times re-ferred to the clearing operation with a note of condescension. After 10 years in the razzle-dazzle side of Wall Street, the firmalso is getting involved in more of the nitty-gritty part of thebusiness, namely, back-office operations, the paper noted.22The clearinghouse became Weill s baby for another reason: Itcould handle the gigantic volume of trades he anticipated com-ing from hundreds of thousands of investors, both institutionaland individual traders.Despite the slump in the retail side of thebusiness, Weill believed the future of the firm was in providingbrokerage services, not the investment banking deals that Coganwas so enamored of.Toward this end, in 1969, the firm acquiredits first branch outside of New York, taking over the Beverly Hillsoffice of disintegrating brokerage McDonnell & Co.Weill later recalled that acquisition as a learning experience:We made a ton of mistakes with that one branch that wewouldn t repeat with 30.We d left them too much on theirown as to how they ran their business.We learned about theneed for controls, for audit, for discipline, for communicatingyour philosophy as well as your research and other productsand yet how to still keep people motivated.23Despite the problems with that branch, CBWL saw that oneway to generate more profits was to open more branches.Berlindannounced at the time that the long-range plan was to open of-fices in other major financial centers, such as Boston, Houston,Atlanta, Chicago, and Detroit.Besides the newly minted back-office operation, CBWL could also afford to think big because it ston_c02.qxd 4/16/02 8:47 AM Page 6969The Best and Brightesthad successfully diversified into investment management.At thispoint, it managed more than $500 million in investment funds,most of which came from Bernstein-Macaulay.Suddenly, as old-line firms began to totter under their ownweight, it didn t matter whom you knew, what club you belongedto, or who your ancestors were.No one cared if Weill put ketchupon his steak, wore rumpled suits off the rack, or wasn t the fea-tured speaker at industry events.CBWL had its house in order,which was more than many Our Crowd firms could say.Beating old entrenched Wall Street firms at their own gamewould soon be child s play for Weill.The opportunity to snatchup ailing firms at a bargain price was about to emerge, andCBWL was ready. ston_c02.qxd 4/16/02 8:47 AM Page 70 ston_c03.qxd 4/16/02 8:48 AM Page 71Hayden Stone:The Prototype Deal3f all the unofficial titles Sandy Weill has earned in his longcareer, Master of the Deal would probably come at the topOof the list.But it is not just any deal that Weill has mastered.He has built his empire, fortune, and personal reputation by per-fecting one very particular type of deal and doing it over andover again.Most dealmakers operate in a similar manner, specializing in aparticular transaction Donald Trump develops luxury real es-tate, Don King arranges boxing matches, Sandy Weill buys finan-cial services companies most often ones that are struggling in atough market and available at a cheap price. I wouldn t exactlycall him a one-trick pony, says Roy Smith, the former GoldmanSachs partner. But he doesn t need many notes to his piano. A year after he left Citigroup, John Reed described a funda-mental difference between him and Weill: I m a builder.He san acquirer.Just totally different. 1 Reed, even if unwittingly,was paying Weill a huge compliment.Many top CEOs slip up onthe rocky shoals of mergers: Jack Welch failed in his 2001 bid for71 ston_c03.qxd 4/16/02 8:48 AM Page 7272KING OF CAPITALHoneywell; Hewlett Packard s Carly Fiorina waged a bitter strug-gle with her board and the founders families over her proposalto merge with Compaq; and DaimlerChrysler s 1999 merger ofequals eventually sent Chrysler CEO Robert Eaton packing and,ultimately, proved a bad match.In fact, almost every historicalstudy shows that most large mergers destroy more shareholdervalue than they create.Yet, nearly every acquisition Weill executed has increasedvalue for his company s shareholders.The process is neitherpretty nor pleasant involving long hours, bitter negotiations,bruised egos, and, ultimately, firing redundant workers andexecutives who don t fit in.Weill s laserlike focus on the make-or-break transaction details is the main skill that accounts for hissuccess at the merger game.But a look at his long career showsother skills he used to successfully orchestrate a deal.Weill keeps a lean, smooth-running operation so he is preparedto take advantage of opportunities that come his way.At CBWL,that meant having a back office that functioned well enough to in-tegrate other firms without disrupting business.Weill is also aconsummate opportunist.For example, he gained control of bothCommercial Credit (1986) and Salomon Brothers (1997) wheneach was struggling to a degree.Not surprisingly, Weill negotiates favorable prices.But per-haps even more important, he is always careful to eliminate asmuch risk as possible from the transaction.For example, he typ-ically demands that a company settle any outstanding liabilities. One of Sandy s strengths is that he is very insecure, says JeffLane, who worked on deals with Weill throughout the 1970s andearly 1980s. He questions everybody, he questions himself.Inthis business that really is an enormous strength. Once a deal goes through, Weill often takes the more presti-gious name for the new company.Through this strategy, Weill ston_c03.qxd 4/16/02 8:48 AM Page 7373Hayden Stone: The Prototype Dealturned what was Commercial Credit into Primerica, then Travel-ers, then Citigroup.When integrating two companies, Weill homes in on detailsothers might find niggling, but he recognizes them as vital to thesuccess of the merger
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