Bernstein heard running water and saw, floors below, a veritable river. Clearly something had hit—and burst—a water main. He crossed to the northeast corner of the building, near the fourth floor, to reach an alternate stairwell. He had been in the stairwell for 20 minutes, but it felt like seconds—and hours.
He went down another couple of flights of stairs and got to the mezzanine, where he was able to leave the building. Outside, the ground was covered with fallen debris, and people were yelling, screaming, and looking up with terror in their eyes. “Get out! Get out!” they cried to friends, co-workers, and strangers who couldn’t hear them.
Across the street, on the 10th floor of the World Financial Center, Tom Russo, Gregory, Freidheim, and Jeff Vanderbeek gathered in Fuld ‘s office. (Bradley Jack was in San Francisco that morning.) Gregory led the conversation, with Fuld on speakerphone. They debated whether they should evacuate their floors immediately—Gregory said they didn’t have all the facts and he was concerned that employees could be hit by falling debris outside. He suspected that a commuter plane had accidentally hit the tower. Gregory decided that they should stay.
Freidheim walked back to his office. He could see on a TV screen that large crowds were evacuating lower Manhattan. Before he returned to Fuld’s office, he found his assistant of 10 years, Ringel. She recalls Freidheim telling her to leave. She objected, but Freidheim cut her off. “If you stay, I will fire you.” Ringel left.
Two minutes later—at 9:03 A.M.—United Airlines flight 175, heading from Boston to Los Angeles, hit the South Tower. The same group of senior Lehman officials gathered again in Dick ‘s office, which faced the building, and as they looked up they could see the fireball as the plane exploded.
Jeff Vanderbeek’s voice cracked. “Oh my god!” he said, and buried his face in his hands and started to quietly weep.
They called Fuld back. Gregory said, “Dick, something just happened. We’ re not sure. We’ re going to look into it. We’ re going to get the facts.” Freidheim looked at the TV in Fuld’s office, and saw again that everyone was fleeing from the towers and the surrounding buildings. He looked around the room and saw that Tom Russo, too, looked very concerned.
Freidheim pulled Russo into his office and argued that they were taking a huge risk by staying. Russo then called Fuld, who told him to call another meeting in Gregory’s office. This time, Fuld told Gregory to “get everyone out. Now.”
Gregory relayed the order. He, Lessing, Vanderbeek, Goldfarb, Russo, Anthony “Tony” Zehnder, Fran Kittredge—the head of philanthropy—and a few others swept the building, floor by floor, to make sure all their people had evacuated. Fuld’s assistant, Marianne Burke, was still frozen at her desk. Gregory leaned over her and shook her.
“Marianne, we are going—now!” She got up and went with them.
Lehman’s 7,000 employees in the World Financial Center building quickly took the stairs to the lobby and then left. The last group, the 15 sweepers, ran for the street, now covered in dust. They then headed west, for the Battery docks, where they got on a ferry that would take them across the Hudson River to Hoboken, New Jersey, where Lehman had a backup facility.
They were halfway across the river when suddenly there seemed to be an extra blast of light. It was like an eclipse had just lifted. Then came a grating roar, as a cloud of smoke and dust slowly bellowed up from lower Manhattan.
Gregory said, “One of the towers is gone.”
Someone pointed and said, “No, it’s right there.”
“That’s the other tower,” said Gregory. “One tower’s down.”
No one spoke for the rest of their trip across the Hudson.
Freidheim got separated from the others, Marna Ringel says her boss later told her.
“He stayed on the 10th floor, in the office of PR chief Bill Ahearn after I left,” she says.
“I was walking up the West Side Highway and I stopped to speak to the Channel Four news team on the corner of Vesey Street. They had a zoom lens so what they could see was horrendous. It was people jumping from the top floors and the crowd below screaming: ‘ Don’t jump!’
“I was explaining to the crew who I was and where I worked. I didn’t know at the time, but Scott was watching me on TV.
“I was midsentence—that’s when the North Tower fell. The ground shook, there was this rumble, and then a huge plume of smoke that went south. I screamed ‘Omigod!’ I only learned later that that ‘s when Scott rushed for the fire exit. He told me he had to vault down the stairwell to make it out in time.
“I was still standing at the corner of Vesey Street when I saw him suddenly sprinting past me—in his Gucci loafers—on the West Side Highway. He stopped to tell me he was fine. He was on his way to see Dick.”
Freidheim knew Fuld would be at Lehman’s broker’s offices at 48th Street and Park Avenue.
When Freidhem got there, Fuld was watching the horrible scene unfold on the television. He pelted Freidheim with questions about personnel, equipment, the buildings—everything and anything he could think of. He was worried sick. Freidheim told him: “Dick, there’s no going back there. We have to find our people. We ‘ve got to rebuild the company, like
now
. We have to find our people. We have to start from scratch.”
Fuld told him to “get everyone together and meet at the backup facility in New Jersey.”
That night, over dinner with a friend, Freidheim pulled out a notepad and started to create an agenda for Lehman.
One: Find people.
Two: Real estate.
Three . . .
Four . . .
On and on it went.
He was not the only person thinking ahead. That night Ian Lowitt, a South African-born Rhodes scholar and then the treasurer of Lehman, did something incredibly brave that probably saved the firm. He slipped behind the police lines and secretly reentered the Lehman building. He knew he needed certain computer files to be sure the firm could fund itself again the next day from Hoboken.
The next afternoon, Lehman’s senior executives met in New Jersey. They had been unbelievably lucky—they had lost only one person: Ira Zaslow, a financial analyst who had been stuck in an elevator in the North Tower. A former colleague remembers that Zaslow, who worked on the 38th floor, preferred the coffee on the 40th floor and had been on his way to get it when the plane struck.
Lehman’s technical staff had carried computer servers down 29 flights and brought them across the river to Hoboken, where a facility that accommodated 800 people was adapted to serve 3,000—i ncluding 1,400 traders and support staff. Jonathan Beyman and Bridget O’Connor, then in charge of information technology, had also organized for the sufficient technical equipment to be trucked in within 48 hours.
On the afternoon of September 12, there were dozens of tractor-trailers parked outside the facility, hauling servers and equipment from as far away as Denver.
When the debt markets opened on Thursday, September 13, Lehman was prepared to trade every asset class.
Anyone who could get any kind of phone service got in touch with Lehman’s clients and told them, “It’s business as usual.”
The firm’s relationship with Barry Sternlicht of Starwood Hotels would now pay huge dividends. Lehman Brothers arranged temporary office space for hundreds of employees in the Sheraton Hotel in midtown. They got 1,000 laptops from
IBM
and 10,000 phone lines from
SBC
.
The rest of Lehman’s 6,200 employees were scattered to 39 locations throughout New York and New Jersey.
If ever there was a time for the people of Lehman to pull together—to be “one firm”—it was now. And they did.
Peter Thal Larsen later told the
Financial Times
that the hotel rooms in the Sheraton—two people to a room—”resembled a campaign headquarters on election night or an elite university during final exams. The sense of purpose was tangible.”
Four weeks after 9/11, Lehman purchased a new 38-story building at 745 Seventh Avenue, where the company would move as soon as possible. It would also lease space at 399 Park Avenue. This time Joe Gregory would make sure the company was invincible in the face of terrorism. The new Lehman buildings were the first in New York to have nuclear fallout sensors and training programs in the event of bioterrorism. If there were a bioterrorist threat, the buildings would become hermetically sealed at the push of a button.
Worldwide, all Lehman windows were shatterproof. Gregory even commissioned iris scanners--before the airports did. Lehman also bought disaster recovery sites in Jersey City and deeper into New Jersey. And 745 Seventh Avenue had four policemen on duty and two bomb-sniffing Labradors, each with their own ID tags. Lehman led the first post -9/11 initial public offering (IPO), for Given Imaging Ltd, and the first multibillion-dollar debt deal, for General Electric Capital. Its return on equity jumped to 26 percent from 15 percent the prior year.
It also committed $10 million to humanitarian causes related to 9/11.
That year it was the only securities firm not to lay anyone off. In fact, its head count rose 16 percent worldwide—to 11,326 employees by the year’s end. It was also voted investment bank of the year by Thomson Financial. Lehman had not only survived, it thrived.
The media stopped portraying Lehman as a small bank waiting to be acquired; it now was clear the firm could carry its own weight. In 2002,
BusinessWeek
magazine voted it the 23rd best company in the S&P 500.
Several years later, Roy Smith—a professor at New York University’s business school, Stern, and a former Goldman Sachs partner—said this about Lehman and the firm’s response to 9/11: “An awful lot of people are surprised that Lehman is still alive. These guys are survivors. They have defied the world, spit in its face.”
After surviving 9/11, two things consumed Dick Fuld and Lehman: Getting the stock price to 150 and beating Goldman Sachs.
The Goldman and Lehman battle was not restricted to their respective offices. One former Goldman executive committee member recalls that if he saw a Lehman employee at a cocktail party, he’d ignore him. “It was childish,” he says, “but it was also war.” (Lehman was just as petulant when it came to mixing social life and the competition. Elton John sang at a concert hosted by Lehman for the World Economic Forum in 2002 when it was held in New York. Joe Perella, at the time working for Morgan Stanley, arrived at the venue, the Four Seasons Restaurant, uninvited. Fuld politely escorted him out.)
Fuld started to shake up his management, adding three members to the executive committee: Rob Shafir, the head of equities; Bart McDade who headed fixed income; and David Goldfarb, the
CFO
. Most significantly, Fuld overcame his paranoia and appointed Brad Jack and Joe Gregory co-COOs. “Cocoa puff,” Gregory liked to joke in the office.
A colleague recalls that Fuld made those appointments because of pressure from the board to implement a succession plan—but Fuld held off naming a president. He was still not ready for anyone below him to have that much power.
He felt safe appointing Gregory
COO
because no one thought he was a future
CEO
, in part because he kept saying he was about to retire. Brad Jack, in contrast, was
CEO
material. Tall and charismatic, he was similar to Chris Pettit—except that most people did not think he had Pettit’s intellectual breadth. Jack confessed that he found business trips with Fuld exhausting, whereas Pettit had had the stamina of an infantryman.
In fact, in 1998, Jack, then head of training, had been diagnosed with cancer and had to take some time off. When he returned, there was a massive scar on his torso, from his back to his front, as if a shark had bitten him. People would see it when he worked out in the Lehman gym and be shocked. Because of the surgery, he was on strong pain medication for months. Jack says he came back to work much sooner than he was supposed to for fear that Gregory would somehow impede his job. “I even had the staples in my stomach when I went back to the office,” he says. “But I was so afraid that if I stayed at home to recuperate Joe would somehow find a way to unseat me.”
Gregory meanwhile set to work on his new passion—building a culture for Lehman that was groundbreaking in its emphasis on diversity and inclusion. As Lehman opened in two new locations it was undergoing an internal makeover. Fuld used the relocation as an excuse to reinstate his “no casual Friday” policy.
An in-house memo from 2002 noted that there was no female or minority representation on the executive committee. No one doubted that Gregory would change the situation as soon as he could, and he immediately put himself in charge of the in-house group, the Gay, Lesbian, Bisexual, and Transgender (
GLBT
) Network. There was also an Asian League, a Women’s Initiatives Leading Lehman (
WILL
) organization, and others. Gregory then hired a group of executives—as many as 30—to run inclusion and diversity programs and to make sure that recruitment extended to minorities.
At Gregory’s behest, all senior employees took the Myers-Briggs typology test, a personality assessment that sorts people into psychological types. (Enron had also used Myers-Briggs to help evaluate senior personnel.) Gregory wanted to do this so that people could understand their own strengths and weaknesses and learn to work better with their colleagues. Some executives complained that the test—part of a larger “cultural induction course” that was held over the course of a few days—was a “waste of time.”
Gregory’s diversity program was derided in part because it was as big and expensive to run as some of the revenue-producing divisions. It was more expensive and had more employees than all of risk management. Behind his back, senior executives called the program “Joe’s social science project.” Someone nicknamed him “the Oprah Winfrey of Wall Street.”
Gregory wasn’t dissuaded by such grumblings; he knew the attention and money that Lehman spent on diversity made for good public relations. Indeed, Harvard Business School would even publish a paper on Gregory’s diversity program and its accomplishments.