Authors: William D. Cohan
After the war, he returned to Goldman, where the partners were glad to see him but had no job for him. “
Unless you can make one,” they told him. Put to this new challenge, Weinberg convinced the Goldman partners to make him a trader in the firm’s fledgling bond department for the same twenty-eight dollars per week he had been making before he enlisted. “Within a matter of months, he was doing most of the work on one corporate-financing job after another,” the
Times
reported later. “He was so astute in his pricing recommendations that he was given participation in the profits” of the firm equal to one-eighth of 1 percent. In 1920, Weinberg married Helen Livingston, a talented amateur pianist and the daughter of a dress manufacturer. They rented a small house in Woodmere, Long Island, and in 1923 bought the same not-quite-so-small house in Scarsdale, New York, that they lived in for the rest of their lives. He was then making around five thousand dollars a year. The Weinbergs had two sons, John L. and Sidney Jr., both of whom went to Deerfield, Princeton, and
Harvard Business School, bearing full witness to the ability of hard work and ambition to make a powerful difference in the space of a single generation to the lives of one poor family from Brooklyn.
Around this time, Goldman Sachs left the
New York Stock Exchange—after
Harry Sachs sold his seat—and a joint stock association was formed. Weinberg then bought his own seat on the exchange and formed his own, new firm. In April 1925, after he bought himself a seat on the New York Stock Exchange for $104,000, Weinberg then proposed forming
Weinberg & Co. as part of the New York Stock Exchange with himself, Catchings, the five Sachses, Henry Bowers, and
Clarence Dauphinot as partners. But this did not happen, and in December 1926 he rejoined Goldman Sachs as a partner and the firm rejoined the New York Stock Exchange—after a four-year absence—using Weinberg’s seat. “He will be the youngest member of an international banking firm
in the Wall Street district,” the
Times
observed. The $100,000 he invested as his capital contribution came entirely from his own pocket. “
It was my own money, which I earned,” he said. Such was his good fortune at the time that he famously won
five
automobiles in a single night, in May 1928, at the annual Wall Street bond club dinner.
Despite his partnership status and his growing importance at the firm, Weinberg, of course, did nothing to stop Waddill Catchings, whose assistant he had once been, from creating and promoting
Goldman Sachs Trading Corporation. He could poke fun at it, though. “
I just wasn’t very bright,” Weinberg told
Fortune
of his role in inflating the Trading Corporation bubble; “[let] it go at that.” One day while Weinberg was playing golf at the Greenbrier, in White Sulphur Springs, West Virginia, he asked his caddy, who appeared to him to be particularly weathered, how old he was. When the caddy responded that he was only thirty-six, he replied, “
I guess you must have run an investment trust.”
Although he got his start at Goldman trading bonds, Weinberg never considered himself even remotely a trader. Instead he was, proudly, an investment banker. Of course, in the context of the era, his preference for investment banking—financing and advising growing American businesses—rather than trading securities—with undercapitalized counterparties in an undeveloped marketplace—made tremendous sense. Like any ambitious young man in New York City, he wanted to be where the action was. “
I’m an investment banker,” he said in 1967. “I don’t shoot craps. If I had been a speculator and taken advantage of what I knew, I could have had five times as much as I have today.” Despite not slowing Catchings in any way, Weinberg’s career at Goldman benefited directly from Catchings’s self-destruction. Not only did he become the senior partner at Goldman in the wake of Catchings’s firing, he also inherited nine of Catchings’s eighteen corporate board seats and then proceeded to use his position as an insider to—naturally—generate investment banking business for Goldman Sachs.
Once upon a time on Wall Street, a widely shared aspiration for investment bankers was to be asked to serve on the
boards of directors of public corporations. While there was some potential liability to serving as a board member—they could be sued, of course, for perceived grievances, although it was exceedingly rare for any negative judgment to be visited upon an individual director personally—the potential benefits far outweighed them. Sure there were the stipends directors were paid to attend board meetings—in the years before 1933, when America went off the
gold standard, directors would often be paid in twenty-dollar gold coins; their stipends now consist of cash or stock totaling hundreds of
thousands of dollars a year. But the real payoff came—and still comes—because corporations were ongoing sources of fees for investment bankers, whether from raising debt or equity capital for them, for advising on their mergers and acquisitions, or for managing their
pension assets. A board member becomes privy to the internal machinations of a corporation and when and whether it intends to raise capital, seek a merger, or sell a division or some other asset. A board member who was also an investment banker would be in the best possible position year after year to capture the vast majority of this business; hence the role was much coveted. (And remained so until the passage of the Sarbanes-Oxley Act of 2002, which acknowledged the conflicts inherent in such a role.)
No investment banker—not Bobbie Lehman, not
André Meyer, not
Felix Rohatyn, not
Bob Greenhill—was more expert than Sidney Weinberg at winning the confidence of corporate management throughout his long—sixty-two years—career on Wall Street. In short order he became known as “Mr. Wall Street,” and at his most fecund, he served on the almost incomprehensible number of thirty-one boards at one time, and some thirty-five different corporate boards in total. “Let’s ask Sidney Weinberg” became the mantra not only of his Goldman partners but also of many a corporate executive and government leader. The fees that flowed through Goldman Sachs as a result and into the pockets
of the firm’s partners account in large part for why Weinberg was not only the senior partner but its biggest beneficiary, helping himself to one-third of the annual profits.
It didn’t take long for Weinberg to make an impact at the companies on whose boards he served. For instance, at B. F. Goodrich Company, the tire maker in
Akron, Ohio, where Weinberg took over as a director from Catchings, he was at a meeting in 1931 when he became aware of a run on the local Akron banks. The failure of these banks would not have been good news for the town, for Goodrich, or for its thousands of employees. Taking a page from J. P. Morgan’s playbook, Weinberg decided to hunker down in Akron, to study the banks’ books for ten days, and then to craft rescue financing for them. He called back to New York frequently and “on his say-so alone,” a group of friendly financiers arranged for and sent to Akron the money needed to help the banks stay open. “[T]he funds of Goodrich and its employees remained intact, and Weinberg came back to New York, another little job out of the way,” Kahn wrote.
Weinberg was not only a ubiquitous presence in corporate boardrooms. Goldman’s resurrection was not hurt by Weinberg’s considerable political connections in Washington—setting firmly in place another one of the firm’s DNA strands. Weinberg had been a “
clubhouse Democrat,” according to
Fortune,
from when he was a boy in Brooklyn, and he had the prescience—or just the good common sense—to befriend the governor of New York, Franklin Delano Roosevelt, during his one term in that office. As a “practical liberal,” Weinberg was one of a “handful of Wall Streeters” who worked for Roosevelt during the
1932 presidential campaign. “
The Street was against Roosevelt,” he told Terkel. “Only me and
Joe Kennedy, of those I know, were for Roosevelt in 1932.” He served as a member of the
Democratic National Campaign Executive Finance Committee, assistant treasurer to be precise. “
I cannot tell you how delighted I am about the sweeping victory that you had at the polls yesterday,” Weinberg wrote to the president-elect, in Albany, one day after the November 1932 election, “and I hasten to offer you my most sincere congratulations.” He wrote that he was “very glad to do my small part in promoting your election” and signed off on his Goldman, Sachs & Co. letterhead, “With kind regards, believe me.”
Roosevelt replied to Weinberg on January 12, 1933. “My dear Mr. Weinberg,” the president-elect wrote, “I have been overlong in thanking you for your fine message of congratulation and good wishes for the future. However, my delay now gives me an opportunity to add to this expression of appreciation my heartiest greetings for the New Year.” A week or so later but before Inauguration Day, Weinberg sent Roosevelt a copy of a photograph “
you might wish to have” that had been taken at a recent dinner honoring three top Roosevelt campaign aides, including
Louis Howe, who went on to become Roosevelt’s powerful first chief of staff. When the answer to Weinberg came—more than a month later—it was Howe who replied. “
He was pleased to have this,” Howe wrote on the president’s behalf. Weinberg had previously been corresponding with Howe about the possibility of introducing Howe to
Charles McCain, Weinberg’s “
intimate friend” and “also a good Democrat” who happened also to be the chairman of the board of
Chase National Bank. “He happened to mention that he had not had the pleasure of meeting you and would like to do so,” Weinberg wrote to Howe. “I wonder whether it would be possible for you to come down”—to Goldman’s office at 30 Pine Street—“some day and have luncheon with me and meet him.”
In addition to this political hobnobbing, Weinberg was also working on a set of principles that he believed corporate directors should study and observe throughout their service on boards. He considered being a corporate director akin to public service and, unlike almost every other director out there, seemed determined to professionalize the job. In June 1933, Weinberg descended the mountain with his eleven commandments.
“The problem comes down to the question of the extent and quantity of information which a corporation ought to provide each director regularly and in a satisfactory manner in order to enable him to exercise the reasonable care of a prudent man in the discharge of his duties,” he wrote. His prescription ranged from the utterly mundane—how many times a corporate board should meet annually and what a meeting agenda should contain—to how much information a director should have (Weinberg preferred more to less) and to such sensitive matters as whether a corporation should make a loan to a director or officer (no) and the amount of management
bonuses. “Questions of bonuses and
profit sharing should be discussed and approved by the board with only those directors voting who do not share in such bonuses or profit sharing,” he wrote.
Occasionally, Weinberg would get hoisted on his own petard. For instance, he was a director of the
McKesson & Robbins Corporation during the years it was run by a man Weinberg knew as
F. Donald Coster, M.D.
and
PhD. In fact, Coster was actually
Philip Musica, a clever swindler who was twice convicted of fraud before his thirtieth birthday. Using an alias, in 1919, Musica founded
Adelphia Pharmaceutical Manufacturing Company to create high-alcohol liquid hair and grooming products to sell to bootleggers eager to distribute booze during
Prohibition. (The bootleggers would extract the alcohol from the hair products and resell it.)
In 1925, according to
Paul Clikeman, a University of Richmond professor who has studied con men, Musica—claiming to be Coster—used his profits from Adelphia to buy McKesson & Robbins, a publicly traded and respectable drug distribution company that sold
milk of magnesia,
cough syrup, and
quinine. Musica’s con this time was to inflate McKesson’s assets by creating phony invoices, purchase orders, and shipping statements and making it look like a newly created dummy company—W. W. Smith & Co.—was buying various products from McKesson. To make the scam work, Musica enlisted the help of his three brothers, and together they took a 0.75 percent commission on all the sales—of around $21 million (a tidy sum in those days)—to W. W. Smith & Co., enabling them to benefit personally from the scam while inflating McKesson’s stock price from the phony revenue. The con worked brilliantly for thirteen years. In the logbook on Coster’s yacht, Weinberg had written, “
I’m for McKesson & Robbins and Coster, that’s all.” The company’s directors and auditors had completely missed the fraud.
The deceit began to be revealed in 1938, thanks to the curiosity of
Julian Thompson, McKesson’s treasurer. He became suspicious about
why McKesson was paying all this money on a regular basis to W. W. Smith & Co. To satisfy the auditors about the viability of W. W. Smith & Co., the Musica brothers had concocted
Dun & Bradstreet credit reports. Thompson showed the dummy reports to a D&B representative, who told Thompson he did not know where they had come from but that they surely had not been the work of D&B. On December 6, 1938, the SEC started an investigation into McKesson’s relationship with W. W. Smith & Co. and suspended the trading in McKesson’s shares. One week later, Coster was arrested. He was fingerprinted and released on bail. From the fingerprints, the FBI figured out that Coster was really Musica, the convicted felon. The authorities ordered Musica rearrested. But before that could happen, he put a gun in his mouth and pulled the trigger. That same day, the McKesson & Robbins board was meeting to fire Coster when it received word of the man’s suicide. After a “moment of grim silence,” Weinberg piped up: “
Well, come on, gentlemen, let’s fire him for his sins anyway.”
To avoid potential costly litigation against the directors for their obvious negligence, the men decided to chip in some $600,000 to the McKesson & Robbins coffers, including $75,000 from Weinberg alone. He remained on McKesson’s board for years after the scandal. During the SEC’s investigation, Weinberg testified, and his correspondence with Coster/Musica combined with his previously published polemic about the responsibilities of directors and officers “
gave Sidney some uncomfortable moments in the witness chair,”
Fortune
reported. When the SEC’s attorney wondered why he had failed to act in accordance with his treatise, Weinberg “
pointed out to him that Moses had brought down the Ten Commandments from Mount Sinai, that we all believed in them, but that unfortunately few of us live in accordance with all of them.”