My original blogs were meant for young people starting their careers. Negotiation among people is a complex matter. Most of us, when we are young, know next to nothing about the strategic and emotional concepts of negotiating contracts.
This little vignette is dedicated to protect you from predators (including yourself), in the give and take of contract signing.
The original contracts at the founding of Sanford Bernstein and Company were endlessly thorough. I was able to have included many protections against partners who could turn out to be devious. At that age, I did not grasp the full extent of the causes of human aggression and deception.
Bernstein was smarter than I was and had included in the contract, a minimum ownership under all future possibilities. I was naive enough to cave into pressure from two of my partners and accept a lesser form of ownership rights after 72 hours of intense negotiation.
In the end there was a loophole that enabled Bernstein, Hertog and Sanders to vote to diminish my responsibilities. I should never have agreed to that loophole and it was a serious learning experience which I vowed to never do again.
Along the way while I was President at Bernstein, I was discussing with Martin Sosnoff his joining of the firm as Chief Investment Officer and significant shareholder. He decided to stay with his own company where he was in partnership with someone else.
Finding my situation at Bernstein not to my liking I left the firm. I had six other offers of significance to join new firms but decided because of close friendship with Martin (a brilliant and unique man) that I would help him build his company, Atalanta. Several people would join me from Bernstein including their Chief Financial Officer Harvey Siegel, an extraordinarily bright operations executive.
Not wanting to repeat the same contractual errors I made in the Bernstein negotiation, I insisted on a much stronger contract with Atalanta and was given a substantial portion of the firm, for which to this day I am grateful.
Through the efforts of several people we were able to build Atalanta from about $150 million in assets to almost $6 Billion from 1980 to 1986. The firm was extremely profitable and I estimate had the highest assets under management per major owner in the industry. Along the way we went public. That is really the episode that I suggest caused the firm to go from $6 billion in assets when I left to only $2 billion a few years after my departure.
The point is, although I had a much stronger contract in many respects than my preceding contract with the Bernstein organization (which in my opinion would not have existed had I not joined the firm), as it turns out the new contract with Atalanta was not strong enough.
Although Atalanta was one of the largest money managers for the Catholic Church, Mr. Sosnoff decided to become a major shareholder in Caesars World. Most of his shares were held in margin accounts. During the market decline of 1987, Caesars went from about $30 to $10 which caused huge margin liquidation, wiped out a fortune and resulted in a depletion of the Atalanta assets. Unfortunately these assets didn't recover to the 1986 highs for many, many years later. I don't believe the firm was ever as close to as profitable as it was when it was a private entity. There are three major ways to become wealthy, build a profitable business, take the business public, and make concentrated investments using as much margin and leverage as you can.
But today's kind of long vignette is really about Green Mountain Coffee and how ego traps even brilliant people. Recent history is replete with the effect of leverage on the downside, the most recent of which is Green Mountain Coffee. Caesars World recovered in price. Although I don't know the Green Mountain story, it may also recover. Even Chesapeake Energy, which is a similar leverage in reverse catastrophe, may live to see another day.
In my next blog about Atalanta I will tell you what happened.
This little vignette is dedicated to protect you from predators (including yourself), in the give and take of contract signing.
The original contracts at the founding of Sanford Bernstein and Company were endlessly thorough. I was able to have included many protections against partners who could turn out to be devious. At that age, I did not grasp the full extent of the causes of human aggression and deception.
Bernstein was smarter than I was and had included in the contract, a minimum ownership under all future possibilities. I was naive enough to cave into pressure from two of my partners and accept a lesser form of ownership rights after 72 hours of intense negotiation.
In the end there was a loophole that enabled Bernstein, Hertog and Sanders to vote to diminish my responsibilities. I should never have agreed to that loophole and it was a serious learning experience which I vowed to never do again.
Along the way while I was President at Bernstein, I was discussing with Martin Sosnoff his joining of the firm as Chief Investment Officer and significant shareholder. He decided to stay with his own company where he was in partnership with someone else.
Finding my situation at Bernstein not to my liking I left the firm. I had six other offers of significance to join new firms but decided because of close friendship with Martin (a brilliant and unique man) that I would help him build his company, Atalanta. Several people would join me from Bernstein including their Chief Financial Officer Harvey Siegel, an extraordinarily bright operations executive.
Not wanting to repeat the same contractual errors I made in the Bernstein negotiation, I insisted on a much stronger contract with Atalanta and was given a substantial portion of the firm, for which to this day I am grateful.
Through the efforts of several people we were able to build Atalanta from about $150 million in assets to almost $6 Billion from 1980 to 1986. The firm was extremely profitable and I estimate had the highest assets under management per major owner in the industry. Along the way we went public. That is really the episode that I suggest caused the firm to go from $6 billion in assets when I left to only $2 billion a few years after my departure.
The point is, although I had a much stronger contract in many respects than my preceding contract with the Bernstein organization (which in my opinion would not have existed had I not joined the firm), as it turns out the new contract with Atalanta was not strong enough.
Although Atalanta was one of the largest money managers for the Catholic Church, Mr. Sosnoff decided to become a major shareholder in Caesars World. Most of his shares were held in margin accounts. During the market decline of 1987, Caesars went from about $30 to $10 which caused huge margin liquidation, wiped out a fortune and resulted in a depletion of the Atalanta assets. Unfortunately these assets didn't recover to the 1986 highs for many, many years later. I don't believe the firm was ever as close to as profitable as it was when it was a private entity. There are three major ways to become wealthy, build a profitable business, take the business public, and make concentrated investments using as much margin and leverage as you can.
But today's kind of long vignette is really about Green Mountain Coffee and how ego traps even brilliant people. Recent history is replete with the effect of leverage on the downside, the most recent of which is Green Mountain Coffee. Caesars World recovered in price. Although I don't know the Green Mountain story, it may also recover. Even Chesapeake Energy, which is a similar leverage in reverse catastrophe, may live to see another day.
In my next blog about Atalanta I will tell you what happened.
We will be waiting for next segment.
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