Jimmy Lee, 62, died last week of a heart attack after working out, at his home in Darien.
If that name doesn’t ring a bell, he was a vice chairman of JPMorgan Chase, where he had spent his entire 40-year career. He started right out of Williams College at Chemical Bank (later merged into JPMC) when its investment banking operations were so weak it was widely nicknamed “Comical.” (Faithful readers will recall I spent many years on, in, and around Wall Street, and this was one of the stickier derisive monikers in the day.)
Here are some things said about him on the news of his sudden death:
- “A pioneering deal maker and among the most influential Wall Street investment bankers of his era,” (Andrew Ross Sorkin, the NYT’s DealBook);
- “Wall Street has lost one of its most quintessential figures—an archetypal investment banker who for four decades weathered booms, busts and changes in regulations by harnessing the art of deal making,” (the WSJ); and
- “He was really a giant of investment banking and he was the first person to turn to for financing a difficult transaction,” Marty Lipton, the longtime corporate-deal lawyer, said in an interview. “When you had something that was really difficult, someone would say ‘why don’t you call Jimmy Lee and get this done.’” (quoted in the WSJ).
Nor did Jimmy fit the stereotype of the egocentric Master of the Universe focused on this year’s bonus and “what have you done for me lately?”
In 2001 his close friend Stephen Schwarzman, chairman and CEO of Blackstone, offered Jimmy the #2 job there. This was shortly before Blackstone went public and without doubt Jimmy would have become a billionaire. They got all the way down to papering the transition, preparing mutual press releases, and were ready to pull the gun on the announcement in the morning. But Jimmy said he had to talk to JPMorgan’s CEO at the time, Bill Harrison, and after he did he called Schwarzman back to say he couldn’t do it. According to the NYT, Schwarzman “told him, ‘Don’t feel badly. You’re following your heart. He had so much loyalty to the bank and the people there.”
Jimmy kept the one-page term sheet of the offer in his top desk drawer at JP Morgan thereafter, showing it to friends and colleagues periodically to demonstrate his loyalty.
But that’s not why I’m writing about him.
I’m writing about Jimmy Lee because he was—if your measure is in terms of having an impact on the economy, business, and finance—one of the leading innovators of the past few decades. What he invented is something we take as commonplace today: Syndicated loans.
Syndicated loans, in turn, have become the rocket fuel for the private equity and hedge fund industries. Private equity and hedge funds have, you may or may not have noticed, virtually supplanted the traditional regulated banking industry as a source of capital for the economy. Estimates vary, but it’s believed private equity now provides twice to four times the amount of capital as bank-banks. Just last year (2014), according to Bain & Co., over $450-billion was distributed from funds (funds exiting investments, that is, and returning capital to shareholders) yet the industry still has an all-time record $1.2-trillion in freshly committed “dry powder.”
No, Jimmy scarcely did this single-handedly, but before syndicated lending as a common practice on Wall Street, only the clubbiest groups of banks would get together to ante up capital together for a loan. As Jimmy was quoted in Forbes in 2000, “We’re trying to get in the club, and they keep posting No Vacancy signs.” He worked around that, with a vengeance.
What Jimmy invented was not the notion of more than one lender pooling assets to offer a loan otherwise beyond their reach, single-handedly, but on-the-fly syndications, where some phone calls and a high degree of trust could assemble massive amounts of capital from a wide and diverse array of sources, within 24 or 48 hours, some contributing substantial proportions and some chipping in what they could, no club membership required. This is standard operating Wall Street practice today, but consider the vision it took to get there.
Glenn Hutchins, co-founder of Silver Lake Partners: “I would say that he took the private equity industry to scale globally.”
Jes Staley, former head of investment banking at JPMorgan: “He was probably the investment banker that most captured early the power of the buyout.”
What has this to do with law? In my opinion, plenty.
Jimmy didn’t innovate by “disrupting”—in the sense of supplanting or obsoleting—investment banking. He innovated by coming up with a way (syndicated loans fueling buyouts and private equity) that was a new way of doing what Wall Street had done all along, namely provide capital.
It seems increasingly the case to me that that’s also how innovation works in Law Land.
Shall we start with the observation that capital formation is not going away, nor is the rule of law?
One of my favorite managing partners is fond of observing that “law is a language art.” Our swords and shields are words; we invent with language. We create with subjects, verbs, and objects. We write on the blank canvas of the page, now the screen, to bring to life legal forms, agreements, and structures that never existed before.
When people talk loosely of “innovation” in Law Land, I suspect they often have an unconscious image in their minds of The Machine.
It’s a new and very different machine they are (in inchoate fashion) envisioning: word-processing, FedEx, and iPhones aren’t “The Machine” these people have vaguely in mind. Nor are predictive coding, e-discovery, project management, financial dashboards, or for that matter completely different staffing, pricing, and strategic models for law firms.
All these things, which have actually quite revolutionized the day to day life of lawyers compared with even 10 years ago, are at bottom superior (more productive, more efficient, cheaper, faster) ways of doing what lawyers have always done. Think of them as the Law Land equivalent of Tesla. It’s a great car, without doubt, perhaps the greatest car ever produced for its designated function, and it even has the promise of contributing to ameliorating global warming. But it’s still, uh, a car. Get in, press “Start,” etc.
No, The Machine they’re imagining is coming to do things very differently. It’s coming (our friend the managing partner again, musing) “to write Adam Smith, Esq.”
That, I will be the first to admit, would be a disruptive innovation of the highest order. (As Woody Allen famously said when asked if the prospect of death bothered him, “Death is OK with me, I just don’t want to be there when it happens.”)
Could it happen? Everything’s possible, and I’ve noted that inventions like IBM Watson have Moore’s Law on their side, and humanity does not. But is that really what’s going to happen, stated that baldly?
I think that if we’re holding our breath for innovation in the form of The Machine, we may have a very long wait indeed. Surely more than long enough that the skeptics with their “I told you so” mindset will prevail. And we will return to our natural resting state of complacency.
I recently gave a talk to the Executive Committee of a high-profile and enormously successful boutique in London, in which I touched, among other things, on the perils of complacency. One of the senior partners harrumphed when I finished, “Well, I heard the accountants were coming for us 20 years ago, and they’re still not here, so I’m not worried.” You take my point.
Let me close with a somewhat more nuanced observation on what Jimmy Lee accomplished.
He began his career out of college with “Comical” bank, recall. A few weeks ago at a gala here in New York the president of Goldman Sachs toasted Jimmy: “Any time you want me to host your retirement party, just say the word; the sooner the better.”
From Comical Bank to the president of the 800-pound gorilla of Wall Street acknowledging Jimmy had made JPMorgan a force to be reckoned with.
That may not be “disruptive” innovation to the industry of Wall Street, but it’s disruptive in spades to players in the industry. This is the type of innovation we should all be pursuing.
