Greed still rules for Wall Street’s barbarians

Share

JR Nabisco Inc. is long gone. Its Camel, Winston and other cigarette brands were spun off into a separate company now known as Reynolds American Inc.; snacks such as Oreo cookies and Ritz crackers were acquired by Philip Morris Cos., folded into Kraft Foods Inc. and then hived off as part of Mondelez International, Inc. But the book that told the story of RJR Nabisco's first step toward disintegration continues to dazzle readers 25 years after its publication.

Barbarians at the Gate: The Fall of RJR Nabisco, by Bryan Burrough and John Helyar, turned the company's $25-billion (U.S.) sale in 1988 — then the largest-ever takeover in the United States — into a gripping page-turner that captured the LBO frenzy of the 1980s, along with Wall Street's culture of ego, aggression and greed. (1)

"While it was a very specific story, it was a venue in which some very common human failings were aired, very publicly and very loudly," says Burrough. "That was probably not Wall Street's finest hour, and yet when Wall Street displays that type of behaviour, it tends to reinforce what the rest of America and the rest of the world want to believe about Wall Street."

At the time, Burrough was only in his twenties, employed as a reporter with The Wall Street Journal, and had never written a book before. Afterward, he was very eager to do it again. He left the Journal in 1992 to become a special correspondent with Vanity Fair, which gave him more flexibility with his time. "I was under no illusion that I was the next Norman Mailer or Scott Turow," he says. "What I wanted more than anything was longevity, because I wanted to stay in the business. To me, success was, could I be doing this in 25 years?"

A couple of books in the 1990s fizzled. But Public Enemies, published in 2004, was made into a Michael Mann-directed movie starring Johnny Depp as John Dillinger. Narrative history is Burrough's first love. Days of Rage: America's Radical Underground, the FBI, and the Forgotten Age of Revolutionary Violence will be published in 2015. Yet he's still happy to talk about Barbarians at the Gate, which jogs his memory whenever he sees a corporate personality attacked for some transgression.

The decision to sell RJR began with a listless share price and a restless CEO, Canadian-born Ross Johnson. (2) A sale, he believed, would drive up the stock and reward shareholders. A management-led LBO — a takeover funded by vast amounts of debt, often junk bonds — would ensure he maintained his position, perks that included a fleet of jets and billions of dollars in personal wealth. But a bidding war broke out among dealmakers and investment bankers. Johnson ultimately lost out to Kohlberg Kravis Roberts & Co. (now KKR & Co.). (3)

Although the LBO frenzy faded soon after, Wall Street hasn't exactly chilled since the 1980s. "It never changes," Burrough says. "It is a big playing area with enormous amounts of money — that tends to draw the most aggressive of our people, often men. And young, aggressive men with millions of dollars at stake sometimes misbehave."

Not that Burrough and Helyar cast judgment on Wall Street, which is why the book still appeals to readers who love and loathe the brash personalities in finance. "It is easy for us to sit here and take potshots at CEOs who put their stock price and their shareholders before their employees," Burrough says. "But that's their fiduciary duty. They have a duty to their shareholders, legally, before almost anyone else, and certainly before the employees. The employees are just assets."

Barbarians at the Gate marked a turning point in the public's understanding of whom CEOs served. But as the details of the takeover battle emerged, much of the media coverage of Johnson was unflattering. He became a symbol of greed, and RJR's directors no longer saw him as a suitable leader. He lost his job and has spent the past 25 years living in semi-retirement — rich, though nowhere close to his initial goal.

"I think for the last 25 years, any time CEOs go into a large merger, LBO or transaction, they are much more sensitized to public relations," Burrough says. "A generation of corporate CEOs has grown up going: 'I don't want to end up like Ross Johnson.' "

Footnotes

1 Hollywood turned Barbarians at the Gate into a 1993 comedy TV movie, starring James Garner, that invited America to "have the last laugh" at Wall Street's expense.

2 An accountant from Winnipeg, Johnson rose through various finance and marketing jobs at Canadian General Electric in the 1950s, and was vice-president of merchandising at Eaton's in the 1960s.

3 Drexel Burnham Lambert, run by junk-bond king Michael Milken, thought it might raise $3-billion for KKR's takeover of RJR Nabisco. It ended up raising $6-billion.