Mack builds a new CSFB
June 2004
JOHN MACK FORGOT one of the basic lessons of business: if you don't have a power base, a title means nothing. The former president of Morgan Stanley was brought in to run CSFB in July 2001 after Lukas Mühlemann, then Credit Suisse Group CEO, fired Allen Wheat just days after reassuring him that his job was safe. By the end of 2002 Mühlemann himself was out as well, and Mack joined Oswald Grübel as co-CEO of the group while retaining his title of CEO at CSFB.
The two worked well together to get the group back on an even keel after all the problems caused by the investment bank and the insurance businesses. But when it came down to what to do next, Mack pushed too hard and got knifed in the back.
At a group board meeting in New York on the morning of June 24, chairman Walter Kielholz told Mack that his contract, which was due to run out in mid-July, would not be renewed. Just the evening before, they had both been at a dinner for CSFB executives and the group board members. One of those present describes the atmosphere as "all lovey-dovey – everyone enjoying themselves, slapping each other on the back and making toasts to the future".
The similarity of Mack's departure to Wheat's is uncanny, and proves that one thing the Swiss bank excels at is unceremonious dismissals of chief executives. Succession planning is not its forte.
"Mack was whacked, Sopranos-style," says a senior banker at CSFB. "It was a real shock to him."
It was a shock to almost everyone. There had been constant speculation about Mack's future, but it was always couched in terms of whether and when he would choose to leave. All the speculation had him wanting to take a job in the next Bush administration, or leaving once he had pulled off a merger. He would constantly try to rebuff such talk: "I like what I'm doing, and there's more to be done," he said in Euromoney's June cover story. Few, if any, considered that he would be fired.
'A coup, for sure'
The bank is trying to dress up Mack's dismissal as little more than a reorganization. As of mid-July, when the changes take effect, Credit Suisse will revert to having just one group CEO, Oswald Grübel, and will have three distinct businesses: CSFB, Credit Suisse Financial Services (CSFS), and insurance arm Winterthur, formerly part of CSFS.
In reality, though, it was a mixture of personal and professional differences that led to Mack being ousted, and it all came to a head very quickly. "There was a coup, that's for sure," says a senior executive. "And it only materialized in the 15 to 30 days before John was fired."
The reorganization is little more than a smoke screen, formalizing what most had already taken for granted: that the bank wants to distance itself from the insurance business it bought in the late 1990s, and possibly sell it. Separating it from the rest of the group did not require Mack's dismissal. His co-CEO role would have disappeared at some point but there was no urgency to scrap it now.
It was the deteriorating relationship between the two CEOs that brought about the split. Sources close to Grübel say that it was all the board's decision to get rid of Mack. But, says one senior insider: "Kielholz might have delivered the news, but nothing happens without Ossie. He's the all-powerful one." And he and Mack had not been getting on well for some months, with some insiders claiming that they weren't even on speaking terms.
Mack's imperious style was not going down well with Zurich. First, he had alienated Brady Dougan, co-president of institutional securities. Earlier this year Mack had insisted that Dougan relocate to London to help develop the international franchise. Dougan took it as a demotion, a view reinforced when Mack doled out more responsibility to co-president Brian Finn.
Insiders say he initially turned down the position until Mack insisted. "I found it personally very difficult," Dougan said in Euromoney's June story. "Relocating my family was not going to happen." Rumours were swirling around CSFB that he was unhappy, and that he was going to leave by July 1.
It was the second time that Dougan had felt slighted, say insiders. A couple of years earlier Mack had offered him the post of CFO of CSFB, not an attractive proposal for a man who was once regarded as the natural successor to Wheat. Dougan, a 15-year veteran at CSFB, was well known and liked in Zurich – he had worked under Grübel in the late 1990s in London, and the two got on well.
Second, there were disagreements over strategy. In the days after Mack's dismissal, Grübel and Kielholz have been saying that the rumours Mack was pushing for a merger are untrue. But others maintain that discussions about potential mergers had contributed to a rift developing between Mack on the one hand and the board, Grübel and his Swiss-based colleagues on the other. The firm remains scarred by the failure of its merger with Donaldson, Lufkin & Jenrette in 2000 and there is considerable resistance to the idea of attempting another. "A lot of us can rationalize why John wanted to go in a different strategic direction to the others," says one senior executive. "But he can be stubborn."
Insiders say Mack also tended to wear his ego on his sleeve. As the Wall Street Journal reported last month, when certain members of the board questioned the size of stock compensation he was asking for to keep bankers from leaving, he told them: "I'm not doing this for the money. I don't need money. I'm wealthier than any of you."
He would try similar tactics on bankers when they told him they were going to leave. When one went to explain to him reasons for moving, his first comment was: "If you're resigning because you think I am going to leave to take a job in the Bush administration after the next election, let me put your mind at rest." It was a strange way to try to win back a banker who had decided to quit. and it didn't go down particularly well. "The first thing you do when trying to keep someone from leaving is to talk about them, about how good they are," says a former employee who knows the person involved. "You certainly don't talk about yourself like that."