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Will Samuel
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Richard Broadbent was sitting in a half
furnished apartment in New York. All around him was the chaos of
half-unpacked suitcases, the remains of endless cups of coffee and
scrawled-over letters and faxes from headquarters in London. He had
been working for three and a half months, 18 hours a day, every day
between late 1998 and March 1999, and he was dog tired.
He began to ask himself the same question as he had done each
day for the last 100 days or so, and as he was repeatedly asking
his wife. Why was he doing this, when his bosses in London at best
didn't care, and at worst didn't like what he was trying to do? But
on this occasion in March 1999, he decided that, instead of just
thinking these gloomy thoughts, he would put them down on paper and
not mince his words. More than that, he would tell his superiors
that if they did not like what he was doing, they should tell him
straight out, and he would go, and leave the mess to somebody else.
The letter that Broadbent sent to the desks of Schroders'
chairman Win Bischoff and deputy chairman Peter Sedgwick sent a
shockwave through the entire organization. It said that unless the
company gave him the power to shake up the New York managers of
Schroders Inc, the former Schroder Wertheim, he would never be able
to achieve his aim of building a real trans-Atlantic corporate
finance department. And if he was not allowed to do that, his
entire strategy for corporate finance in the company was doomed and
he may as well call it a day. Was he left with no other option in
achieving his goals for the firm, or was this drastic action a sign
that he had let work burdens get on top of him?
Bischoff says he was never concerned about Broadbent's mental
state. "Richard is a very intense fellow. That is part of his
strength. He has very strong opinions. I have worked with Richard
for 14 years and I was never concerned about his mental state."
But Broadbent probably contributed to his own distress
through his focus on the minutiae of corporate life in London far
beyond necessity. Even while he was working in New York, he wanted
to be consulted about trivia such as the offices London colleagues
were using and the names of lunch guests.
While in the US Broadbent had retained control over the
entire global corporate finance operation. This meant he had some
25 directors reporting to him from Europe, Asia and the US. It was,
say many, an impossible task to handle. But the fiercely
independent operation continued to evade him. The leading player
and the man he had fought with from the day he took over New York
as head of global corporate finance, Steve Kotler, was a director
of Schroders group in London and untouchable without the main
board's backing.
Kotler, for his part, saw Broadbent as a cuckoo in the
American nest, and was determined to hold onto his position at all
costs. Broadbent was not used to meeting such determined opposition
and he was prepared to play the highest stakes to win his way.
"Broadbent thought he had become so powerful that he could take on
the main board. You have got to be very sure of your ground before
you fire off that kind of missile," says a former colleague.
When the letter arrived on Peter Sedgwick's desk, he was not
impressed. Broadbent had made many threats before and fallen out
with some senior executives. More than that, Sedgwick had known
Kotler ever since Schroders had bought Wertheim (Kotler was one of
the original partners) and he could see no reason to sacrifice him
for this young and aggressive executive. Sedgwick wanted Kotler to
make the needed changes.
The problem Schroders faced in New York was quite simply one
of profile and scale. The London team wanted to compete in their
expert field of corporate advice with the US bulge bracket firms.
Indeed they thought they could do it better than the wholesale
banks, but their New York business did not fit the group's overall
profile. In London, they had a blue chip client base, the envy of
any bulge bracket, but in New York they were only known to mid-size
American businesses. Worse than that, the executives who ran the
old Wertheim were still running the company and were resistant to
change and wanted to keep their independence.
Sorting out these difficulties was the challenge Broadbent
faced and which led him to deliver his ultimatum. His letter went
backwards and forwards between Sedgwick and Bischoff for the next
five weeks. At the back of both their minds, and they told it
straight to Broadbent, was that they were worried that if he was
allowed to remove Kotler the American operation would go into
freefall. Clients would go, the old partners would be in uproar and
their major investment would lose value. But Broadbent kept on
hammering home the point that the risks of waiting to see what
happened in America were much graver than acting now and sharply.
The events perplexed and troubled Bischoff, the distinguished
chairman of the company. He is renowned for dealing with clients,
and is particularly good at encouraging them and giving them good
news, but conflict is not his forte. He had been talked about as a
chairman and statesman for UK banks National Westminster and
Barclays in the past. Broadbent's passions unnerved him and he was
unsure how to handle the situation. But no longer could he shut his
eyes to Broadbent's excesses: he was forced to confront them.
In mid-April 1999 Sedgwick and Bischoff were agreed that they
would not back Broadbent and would accept his resignation. They
would support the American management. It was a controversial
decision but even they must have been surprised at the reaction of
the rest of the firm. Few Schroders executives have ever created
such argument and managers were divided between those who thought
the Broadbent approach was the only way to ensure the firm's
survival and those who considered his tough style fatal in a city
firm that relied on consensus.
Schroders' problem, which it still has today, is of being a
mid-size player in a world increasingly dominated by the bulge
bracket on one side and corporate finance boutiques on the other.
Schroders is neither one nor the other and is finding it
increasingly difficult to occupy this middle ground. Schroders is
an institution born in the old world, blue-blooded and
conservative, trying to come to grips with an aggressive, global
new world. By trying to shake Schroders out of its slumbers
Broadbent was bound to stir up some ill-will but clearly his vision
was interpreted by many as the correct one even if they had doubts
about his style.
The near hysteria in the corporate finance department that
accompanied Broadbent's resignation was let rip at his leaving
party, held coincidentally on his 46th birthday. Unusually for such
an occasion, it was packed out. There was hardly room to breathe in
the Schroders' boardroom and emotions were running high. Indeed,
the sober and low key head of investment banking Will Samuel, could
hardly be heard when he noted in his farewell speech that it took
this sad occasion to fill up the room. When Panfilo Tarantelli,
joint group managing director, got up to express his regret at
Broadbent's move, he could hardly hold back his tears. While
sadness was not an emotion city bankers usually express, at
Schroders that day, it was unmistakeable and remarkable.
Broadbent's departure would have its consequences. For a
period after that, the firm's corporate finance department was in a
rumpus. The man who had masterminded its bold and successful move
into Europe only two years before was being thrown to the dogs for
some deeply entrenched American corporate financiers who, many in
the firm felt, were mediocre compared to the quality operators in
London. A four-strong staff delegation went to see Bischoff to
demand that he either reverse his decision or else remove Kotler.
Several executives threatened to leave as well if he did not change
his mind. The usual murmurings in the corridors of any highly
gossipy organization reached a crescendo, and in a major backdown
on their previous position, Bischoff and Sedgwick asked Kotler to
step back from day to day operations.
Broadbent's case had been won but long after it would do him
or the firm any good. The management may have thought they had
taken the steam out of the situation with this tit-for-tat move. In
fact, the troubles were only just beginning. A few months later in
September, Karen Cook, the co-head of UK corporate finance, and
reportedly one of those most vocal over Broadbent, went to Bischoff
and told him she had been offered a job by Goldman Sachs and was
resigning. It was a body blow, both in terms of group morale and in
confidence. Cook, the mother of six children, and the wife of
former Schroders man, Patrick Drayton who is now head of the UK's
Takeover Panel, had run some of the highest profile client
accounts. Schroders' managers worried about the fate of these
accounts following her departure, although to date, it is not
thought that any of these has moved from the firm.
Then, shortly after Cook went, four young directors with
industry specializations announced they were moving to other firms,
and suddenly the Schroders business looked vulnerable. Who would
poach next from a business where dissent was so rife?
The departures have slowed but many of the entrenched
problems remain. The American company is rudderless and the British
company is without a US partner which can give it that break into
the top echelon of US business. Attempts to buy additional US
assets have also failed. Schroders was rebuffed first by
Wasserstein Perella and secondly by Geoff Boisi's Beacon Group in
1999. Without this acquisition its strategy of building a global
business is in ruins.
Schroders' critics also argue that while clients trust and
value its neutral advice, this is increasingly unpredictable as a
source of revenues. They point out that the company has such a
limited product range - it is particularly lacking in debt
instruments - that its corporate financiers are restricted in the
opportunities to sell to top companies. Clients are not yet walking
away from Schroders, say city observers, but the bank increasingly
finds it has to share formerly sole clients with the wholesale
American bulge bracket firms. For example, the once loyal client
National Power has taken on Salomon Smith Barney as co-advisor.
The bank's much vaunted independence is underwritten by the
Schroder family which owns a controlling stake. Bruno Schroder, his
sister Charmaine and family trusts own a total of 54% of the shares
and the family has steadfastly refused to substantially dilute its
holding. Bruno Schroder is thought to take great pride in being the
fourth generation of his family to own the bank, and would never
let down the family tradition and sell out. "They prefer to have
money in a bank, rather than in the bank," says a former employee.
Schroder, whose primary hobby is tending his Scottish estate
and collecting silver chalices, is said to take little interest in
daily operations, but he insists on the final say in any strategic
decision. Two directors watch over the family interests on a
day-to-day basis - the present chairman Bischoff who joined the
bank in 1966, and the former chairman, now Schroders' president,
Sir George Mallinckrodt who joined in 1954, having married into the
Schroder family. Mallinckrodt is independently wealthy, as his
family owns a large part of the German sugar industry.
Supporters of the management say family control has allowed
Schroders to ride through fallow years and recessions and bounce
back. The bank excelled in the 1960s and 1970s under Gordon
Richardson who went on to become UK Bank of England governor, but
went into steep decline in the early 1980s, when it lost many top
British clients, and incidentally also its star corporate
financier, Jim Wolfensohn, now president of the World Bank, whose
bid to be chairman was rebuffed. It appointed instead David Airlie,
who went on to be Lord Chamberlain to the Queen. A recovery was
engineered by corporate financier Adam Broadbent (no relation to
Richard Broadbent) who picked up the pieces in the 1980s and put
Schroders back on the map as a leading advisory house, alongside
Warburg and Morgan Grenfell.
But the recovery in the mid-1980s was heavily dependent on
the success of Schroder Investment Management (SIM), its asset
management company. This regularly contributes more than half the
pre-tax profits, £147 million ($235 million) out of £275 million in
1998. SIM had £119 billion under management in 1998. There remains
some speculation that this business may be sold off, in a bid to
repeat Warburg's success with the flotation of Mercury Asset
Management. Investment banking, which comprises corporate finance
and a securities business, made £128 million during 1998. Despite
the need to set aside a £43 million provision due to a number of
bad loans to a Singapore finance house, 1998 profits were only
marginally down on the 1997 results.
The Schroders numbers sound good but the management's
capacity to deal with its people has been severely damaged by the
Broadbent affair. Whatever they think about his fights in America,
and many are sympathetic to his position, former insiders say he
did not have the temperament to be a Schroders manager, and should
never have been promoted. They point to his transparent ambition,
above everything else.
"He desperately thought he was the right person to run the
bank, he made that clear from an early stage. A lot of people
thought they could do a better job than those in charge but he was
slightly dangerous because he was clever," says one. But that
cleverness had its limitations, says another former colleague,
because it was immune to the shadings found in daily life. "He is a
very clear rational thinker but sees things in absolutely black and
white rational terms. He makes no allowance for human weakness or
psychology. He was absolutely driven by his view of the world."
His former boss, Win Bischoff, still makes apologies for him.
"He is very smart but he is also intellectually honest. He had
strong opinions but that is what actually made him a good manager."
Broadbent was a successful corporate financier in the late
1980s and maybe he should have stayed that way. But he had long
pushed for a management role and even threatened to leave for a job
at BZW. So in 1995, the management gave him the job of head of
European corporate finance. The promotion shocked many colleagues.
Says one: "He was completely the wrong choice to put into a
position of responsibility. The implant of culture there is huge
and to put somebody in who is aggressive and as personally
ambitious and who is not a team player was a gross misjudgement."
Broadbent celebrated his appointment by taking a number of
colleagues to a restaurant, where he was seen dancing on the
tables.
In the early 1990s it was becoming clear, belatedly in the
eyes of many, that the corporate finance department needed to
change its strategy, and the management turned to Broadbent for
direction. Schroders needed to counter the Bulge Bracket banks
which were arriving from the US and threatening Schroders
long-standing client base in the UK. The bank also lacked a
substantial advisory or securities business on the European
continent which meant it would miss out on a growing mergers and
acquisitions opportunity. Broadbent with his stock of ideas and
determination was chosen for the task.
Once in power, Broadbent started shaking up a team which was
widely seen as full of extremely intelligent individuals, but much
too gentlemanly and relaxed for the good of the firm. The changes
were timely but excessive, says one former employee. "Schroders had
become too loose, and the pendulum had to swing back a bit. The
managers in those days ran it like a workers cooperative, where
everybody's views were as good as anybody else's. The heads of
corporate finance were delightful people, like vicars' sons, and
members of the academic tendency. But we knew the management had to
be tightened up. Richard was the vehicle for this, but he tightened
it up so much that the thumbs fell off."
Brusque style
There was nothing unusual about the strategies he introduced,
which were standard for most well-run corporations, although the
Schroders bankers baulked at them and many rebelled. That in turn
may have fed on Broadbent's own feelings of insecurity and forced
him to be tougher than was actually required. Yet he was brave,
extending the scope for profit incentives and ultimately
challenging the consensual basis on which the business had been
previously run. Broadbent applied these incentives to a wide range
of executives giving many staff the opportunity to earn more than
those in higher positions.
Broadbent also narrowed down the business units on which
performance was based. Allocation of bonuses was previously based
on the performance of the group but, after the changes, bonuses
were benchmarked against business units or an individual product
performance. Bonuses and salaries jumped as a result.
One former banker thought they were very ill-judged. "It is
fine to have Goldman as a model if you deliver Goldman-style profit
margins and have Goldman-size resources. But to impose that on a
relationship-driven culture in a UK bank was bound to change the
character of the firm." he says.
Whatever the validity of his strategy, Broadbent's brusque
style upset many of his former colleagues. "He was a very fine
manager of an investment bank," says one, "but his psychological
understanding of people left a lot to be desired." Another
comments: "He is authoritarian - quite happy to ride roughshod over
people - very tough. He was a bit like a mad monk who suddenly
becomes obsessed with a dogma or a doctrine - that is the received
wisdom and you take him on at your peril.... He would have made a
good vicar in a Norfolk parish. But he was out of place in a bank."
Broadbent who has recently started work outside of investment
banking declined to comment on any of the issues raised by this
article.
Bischoff now acknowledges: "He was not the easiest person to
get on with". The pressure to make American investment bank levels
of profits was reflected in the qualities Schroders began to value
in its staff. Transaction-orientated skills were particularly
encouraged. One former employee went so far as to say that
"[Broadbent] wanted to make industry groups transaction led. He
didn't think industry knowledge mattered and the execution culture
was everything."
Win Bischoff had a steady queue of bankers at his door
protesting about Broadbent's style. But on each occasion he said
that the bank had put its money behind Broadbent and was backing
him in his plans. While some floundered under the new regime,
others flourished. European managers who could advance Broadbent's
plans for a continental network were promoted and supported. The
appointments to the senior management committee of the Italian,
Panfilo Tarantelli, the German, Frank Muller and the Frenchman Marc
Vincent, indicate this.
This European strategy was adopted rather late in the day,
says Tarantelli, but it would subsequently bear considerable fruit.
He points to the success of the bank's financial services group,
which was selected by Crédit Lyonnais to handle its privatization,
and by Banca di Roma to help it fight a e7.6 billion hostile bid
from SanPaolo IMI. The group also has a significant presence in the
energy sector where it advised Southern Company of Atlanta and
SWEB, and in the media specialization where it has as clients EMAP
and Fininvest/Mediaset. The company also has a strong position in
telecoms, where it advised Telewest on a rights issue and its
exploratory discussions with Flextech. In November 1999, Schroders
acted as sole global coordinator for the equity offer launched by
Telekomunikacja Polska (TPSA). The company stresses its capacity to
compete with the bulge bracket firms saying it won the Southern
Company business against competition from Warburg Dillon Read, and
the Banca di Roma job even though Goldman had advised the bank on
previous transactions.
The development of a European network is likely to be seen as
Broadbent's greatest success at the firm, says one former
colleague, sacked by Broadbent but still a supporter. "Richard had
enormous power and mostly used it to transform Schroders for the
good. He built up a serious presence in France, Germany, Spain and
Italy. He was also instrumental in picking the people to run what
is one of the best financial institutions groups in the city.
Richard's hands are all over it. He is not a comfortable bed fellow
for anybody, but he is actually hugely effective."
Evidence for this is provided by the performance of his
division. Since Broadbent's European management team took over in
1995, UK revenues more than doubled and continental European
revenues have grown by on average 50% per year since 1994. Schroder
Securities also performed well in 1998, with Extel ranking it top
for "change in quality". Schroders Securities also led in terms of
a qualitative assessment of sales and execution in the same league
table.
Bitter rows
On the basis of his performance, colleagues lauded
Broadbent's achievements, although some privately questioned his
style. But when he sought to take control of a strategy for the
American operation proposed by another senior executive and
colleague Gerry Grimstone, the rows got increasingly bitter. The
uncompromising, back-me-or-sack me Broadbent reared his head, and
Grimstone was the loser. He had his final falling out with
Broadbent in late 1998, and left full-time employment at the firm
in early 1999. The confrontation relates as much to the two men's
similarities as their differences.
They were not only personal friends but also come from
similar backgrounds. Both had high-flying academic careers, and
both spent around 10 years at the UK Treasury before joining
Schroders. A friend of both says: "They are very similar, both very
bright, both think in the same way, both very ambitious. They would
have made a good combination if they could ever have worked
together."
The Oxford-educated Grimstone - Broadbent went to London
University - was a popular and gregarious salesman for the
corporate finance products who, in six years in the department,
reportedly beat all fee-earning records. "He is a bit of a
maverick," says one former collage, "and I am not sure whether he
had the quality to lead the company, but he is a formidable
talent."
Grimstone, unlike Broadbent, also had a good relationship
with the family that controls the Schroders business. Says one
observer: "The family found Grimstone jolly and likeable. They
thought Broadbent was a hatchet man. They didn't like him. He was
never asked to go and spend the weekend with Bruno at their estate
in Scotland.'"
Broadbent's sense of being an outsider deepened when he was
denied a board position in 1998. "It played on his mind and made
him feel like an outsider," comments one former colleague.
In 1994 Grimstone seemed destined for a fast track to the top
when Bischoff gave him the brief to manage the Schroders Asian
operations in Hong Kong as head of Asia-Pacific investment banking.
Grimstone pulled together Schroders' 10 disparate country
operations into a single unit run out of Hong Kong. The posting had
particular resonance for Bischoff, as control over the firm's Asian
operations had been his own stepping stone to power in London in
1982. But the job may not have helped Grimstone's chances of
winning power in the company, as he was largely absent from the
corridors of power on London's Cheapside, where Broadbent was
stamping his iron will.
"It's not like an American bank where you can be off-shore
and be part of it all. In a British bank you are either there or
you are not there," says one former employee. When the American
business blew up in 1997 for the first time, Bischoff asked
Grimstone to take over as Schroders head of US corporate finance.
The previous incumbent in New York had left suddenly and there was
havoc in the office.
Grimstone was given the title of head of US investment
banking and moved to New York. Grimstone's foreign postings had
largely kept him out of Broadbent's way, and the two had co-existed
in some harmony. But once in America, the two were on a collision
course. Grimstone's strategy for the American operation would
involve the European business, Broadbent's bailiwick. Schroder Inc
was a valuable business that needed to be retained, but Grimstone
argued that if the British group was to get an American operation
which could both serve the largest US corporates with cross-border
expertise in Europe, and serve European corporates doing
cross-border into the States, Broadbent's European business must be
involved. Grimstone wanted Europe to share its clients, assets and
staff with New York.
Broadbent's cooperation was required but that was not the
European leader's style. From the start there were fights, and in
the end it boiled down to the simple issue of who would be in
charge. A bitter row in August 1998 resulted in Bischoff affirming
his support for Broadbent, forcing Grimstone to quit as head of US
investment banking. He was given the title of vice chairman of
global investment banking, only to find himself marginalized.
Grimstone quit his full-time job with the bank in January 1999,
accepting the title of senior adviser, which was no more than a
sinecure and an answerphone at Schroders' offices to take his
messages. The turf wars with Broadbent have taken their toll on
Grimstone, who now has a number of part-time positions advising
governments and sitting on a number of boards of directors.
Sole survivor
The departure of Broadbent and Grimstone has cut back what
looked like a triumvirate of possible future leaders for Schroders
down to one. The sole survivor is Will Samuel, the head of global
investment banking and a main board director, but noted more for
technical expertise than management or the ability to handle
people. Bischoff, who is 58, says he does not plan to retire until
he is 63 in any case, is clearly reluctant to nominate Samuel as
chief executive and his automatic successor as chairman. The cynics
say this strategy is already wearing thin. "He has been over-used
as a caretaker," says one former employee. Another comments: "He
listens to everybody and agonizes over things without getting a
grip. He is slightly disorganized when it comes to management. I
would think that Win has probably got some misgivings about Will
being one of the relatively few internal potential successors."
Samuel admitted there were problems but maintains that "the firm
has a great story".
With Broadbent gone, the consensual style he so despised has
partly returned to Schroders' European corporate finance. An early
decision by Broadbent's likeable successor, Tarantelli, was to
create a Corporate Finance Management Committee, composed of
himself, JJ McNeil, Marc Vincent and Frank Muller. Tarantelli says
the committee's key job is "internationalizing the business and
enhancing our sector specializations. We believe that what clients
value above everything is consistent, good quality advice. This is
what Schroders is all about. Our development of new and significant
businesses internationally ensures that our advice remains
competitive."
The shockwaves from the Broadbent affair will continue to
rumble for quite some time, and the weakened management is under
growing pressure to ensure stability with some high profile
appointments. Failure to put a line under the crisis of 1999 could
produce a further erosion of top employees', and ultimately of
clients' confidence.
"What will happen when people pick up their bonuses and then
become available?" asks one employee. "People in corporate finance
in a shop like Schroders don't move for money - but if they lose
faith in the destiny of the company they are working with, money
becomes more of an issue. As long as Richard and Gerry were there,
and they felt they were conquering the world, everything was fine.
But with them gone, one could imagine the American investment banks
will be making some juicy offers."
Searching for a CEO buy-in
Even while Richard Broadbent strove to turn around Schroder
Inc in 1998 and early 1999, Schroders chairman Win Bischoff was
himself spending much time in New York, trying to acquire an
American boutique and use that as its launch point for tackling the
blue chip US corporates. This nagged away at Broadbent, of course,
as he knew that a hot shot American financier would put him in the
shade, but he would be unwise to show his insecurity and make that
point to Bischoff.
In any case, Bischoff was not finding it so easy to nail
someone down. He started at the boutique everyone knows, knocking
at the door of Bruce Wasserstein of Wasserstein Perella. But the
negotiations remained very informal and went nowhere. Then he got
back to his headhunters. Could they give him some more names? They
pulled out of the hat the name of Beacon Group and its chairman,
the former Goldman Sachs number three, Geoff Boisi. Boisi told them
he was quite happy with the nice little partnership he had already.
They kept on calling, and in due course he was prevailed upon to go
and have dinner with Bischoff in New York.
The two men got along over the summer of 1999 - by which time
Broadbent had left Schroders - and they talked in detail about the
deal which would have cost Schroders some $400 million, equivalent
to 6% of its market capitalisation. But Boisi was worried about how
he and his partners could be fully remunerated when the Schroder
family controlled so much of the equity (some 54% when you include
their family trusts).
The negotiations dragged on into November with the odd leak
appearing in local New York papers, although the two men had agreed
nothing should be breathed about the talks in the press, as neither
wanted to upset their shareholders or partners. By this stage,
speculation was growing that Schroders was keen to acquire more
than a US boutique and that it wanted Boisi as a potential future
chief executive for the whole group.
But when two articles appeared in the Financial Times, in
quick succession, one saying that the deal was about to be
announced, and the second saying that it was foundering partly
because the Americans at Schroders in New York thought Boisi was
being groomed as a new head of the whole firm, the hot shot
financier had had enough. He told Bischoff that he could not
continue with the talks. A disappointed Bischoff prevailed upon him
to keep talking, and he said he would find who was leaking. But
Boisi was immoveable. The deal was off. Questions of the future
leadership of Schroders remain unanswered.
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