FRANK SAVAGE, Chairman Emeritus of Howard University, served as chairman of Howard University from 1997 until 2004 and is credited with spearheading the widely successful Campaign for Howard. He is CEO of Savage Holdings LLC, a global financial services company. Prior to forming Savage Holdings, he was chairman of Alliance Capital Management International, a division of Alliance Capital Management, a $700 billion asset management subsidiary of AXA Equitable Life Insurance Company. Mr. Savage has had a distinguished career in international banking, corporate finance, and global investment management. He serves on the boards of several corporations and nonprofit organizations, including Bloomberg LP and the New York Academy of Medicine, having previously served on the boards of Lockheed Martin, Qualcomm, and the New York Philharmonic. Savage earned a BA from Howard University and an MA from the Johns Hopkins’ Paul H. Nitze School of Advanced International Studies. He was awarded an Honorary Doctorate in Humane Letters from Hofstra University and an Honorary Doctorate of Humanities from Howard University. Perhaps the award he is proudest of is the prestigious Lord Nelson Trophy as 2003 overall winner of the annual Antigua Race Week Regatta.

The Savage Way

Successfully Navigating the Waves of Business and LifeBy Frank Savage

John Wiley & Sons

Copyright © 2013 John Wiley & Sons, Ltd
All right reserved.
ISBN: 978-1-1184-9460-8

Chapter One

Too Much Money

The most dangerous thing is illusion. —Ralph Waldo Emerson

It was late summer 2001. I was 63 years old and on top of the world; and I very much liked the view. It felt like the zenith of my life as a man of business and investment, as a husband and father who had lived his life exceedingly well. And yet, I was convinced that there was more successes ahead for me.

I wasn’t interested in taking it easy any time soon.

I had recently retired from Alliance Capital where I began as its chairman of the international division in 1993. That post, in the heady and rarefied universe of global finance, came after rising through the upper ranks of its parent company, Equitable Life Assurance Society of the United States, the third largest life insurance company in America and its wholly owned investment subsidiary, Equitable Capital Management Corporation. I was also thrilled to be launching the Africa Millennium Fund, my own operation. With it, I was seeking to realize my life’s dream of creating a Western-style investment fund to drive much needed capital to a continent practically starving for development capital.

After all, I had created investment funds to invest in India, South Africa, and Egypt while at Alliance, so I was confident that I could accomplish this most ambitious continent-wide achievement.

Africa was important to me. Africa is me. I am Africa. I am an African man. That is one of the things that defines Frank Savage. Everyone will tell you that. I’m a lover of Africa. One way or the other, that’s where we all come from; that’s where humanity began. In terms of my heart and my soul, I have been in Africa since I was a kid. My mother planted that seed of the international deep within my imagination long, long ago. It never stopped growing.

In that late summer in 2001, I was serving on several prestigious boards overseeing major corporations and institutions of higher education. I believed, and still do, that part of the obligation of business leaders, men and women who have amassed a lifetime of skills, insights, and influential relationships, should share all what and who they know by sitting on the boards of various corporations and institutions. I must admit that I took pride in this, especially being, for instance, an active member of the board of trustees at Johns Hopkins University and the chairman of the board of trustees at Howard University, institutions that had helped to prepare me for my career.

I cannot tell you how pleased I was to be able to pledge $5 million to Howard; and at Johns Hopkins I set up one of the largest scholarships of its kind for African-American and African students in need of financial assistance to attend that university’s premiere Nitze School of Advanced International Studies. My career in international finance owes a great debt to that school. And through the Frank and Lolita Savage Boost Fellowship, 50 other well-deserving students of color have gotten the same chance I did when I attended this incredible institution in the 1960s.

During that late summer, I sat on the boards of Lockheed Martin, Qualcomm, and Bloomberg LLC. I was also a member of the board of directors of Enron Corporation in what I had imagined would be a sort of crowning glory on an outstanding and fulfilling career.

These were good times. Or so I thought. I had experienced half a century of unrelenting success. And believe me, I never for one moment took that for granted. I remember cruising in Martha’s Vineyard during the summer of 2001. It was so beautiful. I was below deck in my custom-crafted, air-conditioned skipper’s cabin. I just sat there and took it all in. Jesus Christ, I thought, I’m so lucky.

I was making a lot of money. I was very successful in business, very successful when I was at Equitable where my job was to bring in what this multibillion-dollar concern did not have—international clients. I was able to attract more than $3 billion to Equitable Capital, which was unheard of. My early success there also marked the first time I was paid $1 million in a single year. And that was just a bonus. I went on to have tremendous success, tremendous. I could do whatever I wanted.

But one of the faults of that period was that people like me had so much success; we had too much money. We used it to buy things. I never thought that I would get into a period where I would ever have to ask questions like, should I buy this or should I buy that? Should I want to? For so long, I could always get whatever I wanted. And I had amassed enough wealth to guarantee a comfortable retirement, although actually retiring never really dawned on me.

Personally, life with my wife, Lolita, could not have been better. We always supported each other. I had my global financial work; she had her international career as a fine painter; together, we had our family, our lovely homes in Italy and another overlooking New York’s Central Park. My family was proud of me, too. Many of my six children had settled into families of their own. Every year I made time to steal away with them and their children to the Vineyard when autumn and summer begin to blend like cool cream in hot coffee.

Lolita and I traveled the world on Alliance business. We’d fly off to South Africa, for instance; we jetted throughout Europe and Asia, all over. We attended some of the most prestigious business conferences in the world, like Davos in Switzerland, World Bank and the Institute of International Finance. It was a deeply enriching experience for us. And it certainly didn’t hurt that Lolita is fluent in six languages and remarkably comfortable in the dizzying whirl of high finance in high places. There were times during these trips in which I happily felt much the way a young President John F. Kennedy said he felt when he was the man “who accompanied Jacqueline Kennedy to Paris.”

Together, my wife and I cultivated friends from all parts of the world, of many cultures and religions. We were at ease in this environment and luxuriated in the silent solace of setting suns while living lives as bright and vibrant as high noon.

And there were my plans of adventure, sailing Lolita and racing her competitively, which posed just enough dash of danger to make it all the more enticing. And rewarding. My newest sailboat was showing great potential, having won virtually every race she had completed in the early summer races on Long Island Sound, New York.

Lolita had been delivered to me only months earlier. I had her built by the Swan factory in Pietarsaari, Finland, one of the finest shipyards in the world. I was planning to sail her around the world. And why not? This vessel, made by the ancestors of Vikings, practically arrived winning races. Call it a victory lap.

* * *

Then months seemed to pass like hours, and it was September 11, 2001. I was in South Africa at my partner’s office with the Africa Millennium Fund team on business when terrorists infamously crashed jet airliners into the World Trade Center towers in Lower Manhattan, then shortly later, another passenger jet into the Pentagon; and finally, another one crashed into a Pennsylvania field, killing all aboard. I was devastated by the sheer idea of it, the awful loss of 2,977 victims, innocent lives, the insult to morality and to my country. I worried about my family and was relieved to finally learn by phone that they were unharmed.

I tried to leave the next day, but the U.S. air space was totally shut down. I was stuck in Johannesburg for three days. I’ll tell you one thing. That period made me better appreciate how refugees separated from their families feel. I felt so helpless. Luckily, my business partner in South Africa, Leonard Fine, moved me into his house. He and his wife, Zel, took care of me, and, for that, I will always love them.

In the early aftermath of that horrible time for Americans everywhere, I didn’t immediately realize that the attack would have tremendous impact on the viability of my Africa fund. I struggled mightily for three years to keep the fund alive but eventually, it toppled, too, into a pile of unfulfilled opportunities and broken promises, and millions of my own dollars lost in its dust. But more about that later.

Suddenly, the year was practically over, and there was a headline in the New York Times: Enron Admits to Overstating Profits by About $600 Million.

The 1,565-word article by Richard A. Oppel Jr. and Andrew Ross Sorkin appeared on November 9, 2001, and for me, it was the beginning of the single greatest crisis of my life, one that all these years later still reverberates in waves of disbelief, loss, and, yes, some lingering hurt.

* * *

Enron Corporation, if you don’t remember, was a Houston-based energy, commodities, and services company with operations as far-flung as India. The company was co-founded in Omaha, Nebraska, in 1985 by Kenneth Lay, a conservative man by nature who held a doctorate in economics from the University of Houston. Initially, Enron was a natural gas pipeline company, selling, just what you might expect—natural gas. But Ken Lay had more in mind. He was driven by a vision of an unregulated energy industry.

When that day finally came in the 1990s, Lay’s Enron quickly rose from a modest conservative concern into one of the world’s most powerful companies. Lay transformed Enron into an energy and commodity trading company, buying and selling energy and power like stocks and bonds. He aspired to produce returns rivaling the Wall Street investment bank, Goldman Sachs, his model. He was not satisfied with producing only the stable, while less risky, pipeline returns. This opened the way for Enron to become heavily involved in electricity, natural gas, communications, and even pulp and paper products. Before the New York Times article appeared, Enron’s balance sheet indicated that it had revenues of almost $101 billion and was employing some 22,000 people.

For years, Enron’s reputation was stellar. Fortune magazine named Enron “America’s Most Innovative Company” for six consecutive years. At one time, the company’s stock price stood around $90 a share. Its gleaming headquarters, the Enron Complex in downtown Houston, was a postmodernist cathedral of commerce. And its cross was the giant black “E”—tilted, for no reason I knew of, to the left, and lit in red, green, and blue neon. It was planted near the building’s entrance.

In December 2001, Enron, with $25 billion in assets, filed for bankruptcy and subsequently disappeared in one of the single, largest flameouts in U.S. corporate history. Its bankruptcy shook the foundations and confidence of U.S. capitalism itself. (WorldCom’s bankruptcy would eclipse Enron’s, to be followed in even more recent history by the bankruptcies of Lehman Brothers and Washington Mutual.)

So many lost so much. Retirement funds were lost. Life savings were lost. Careers were lost. Lives, and reputations—including my own—were lost, too. I still get chills when people mention the name Enron. Yes, to this day. I still look at people and wonder if they are looking at me through the lens of that failed company. Deep inside, and it hacks at me like a butcher’s cleaver, I hurt over this. To put this pain in perspective, I also understand that the people most damaged, those with vastly fewer resources than I have had, can look at me and say that in Enron’s wake you’ve still done all the things that you have always done. They can look at me and say that you’ve still sailed, still traveled the world; you still were able to send your children to the finest schools and universities. You did not lose any of your beautiful homes.

Even though I say to them that I am sorry, I know it doesn’t mean anything to people because on a relative basis they have suffered more than I have. How can I express my sorrow for the damage that has been done to lives? Nothing I can say will ever be adequate. That hurt and damage to so many people as the result of Enron’s demise is what troubles and pains me the most. I acknowledge that as a director of that company, I have to take some responsibility for that—not a legal responsibility, but a moral, an ethical, responsibility.

The pain that Enron inflicted on people is something I wish I could correct. Unfortunately, I can’t correct it. As people go through life, I’ve noticed, they often take a more balanced view of things. That is what I would like people to do regarding my role as a director of Enron, take a more balanced view.

The collapse began with a loss of confidence among Enron’s investors. That largely began with Jeff Skilling, Enron’s chief executive officer, losing his composure on an analyst conference call in June 2001. Yes, this was the one in which he famously called Richard Grubman, an analyst with Highfields Capital who was pressing for more details regarding Enron’s finances, an “asshole.” As a director, I called Skilling about this. I asked, “Jeff, is this correct, did you call a guy an asshole?” He said he did and immediately realized that it was the worst thing he could have done. The call had been recorded and was soon widely disseminated.

One day in mid-August, Ken called to inform me that Skilling had tendered his resignation.

Skilling said he was, at the time, having a terrible time with a son who was suffering from a severe handicap and he felt he had to resign to give his son the attention he required. I was shocked. But my concerns were greatly alleviated when Ken told me that although he never intended to do so, he was willing to step back in as CEO because these were extraordinary times and he was committed to restoring confidence in the company. Boy, was I relieved to hear that because Ken was the reason I had joined the Enron board and I had full confidence in his ability to navigate us through any crisis. That said, I was greatly disappointed in Skilling.

As to be expected, when Ken announced to the world that he was resuming the CEO position in light of Skilling stepping away, all hell broke loose. Wall Street did not buy Skilling’s explanation. Skilling was perceived as the consummate Type-A, fiercely ambitious man who often talked about where he was going to take Enron and how he was going to make it the best company in the world. The financial world could not believe that such a driven CEO would leave for “personal reasons.” Enron’s critics became even more suspicious, and the problems at Enron swirled like insatiable flies at a picnic.

At the time, Ken told the Houston Business Journal that, “We regret Jeff’s decision to resign, as he has been a big part of our success for over 11 years. But, we have the strongest and deepest talent we have ever had in the organization, our business is extremely strong, and our growth prospects have never been better.”

I agreed with Ken. From my perspective as a director, Enron appeared to be in a strong position and I had confidence in its future. Quite frankly, as damaging as Skilling’s abrupt departure was, I always had confidence in Ken, too, and was pleased by his return to the CEO position. At the very least, it would calm market fears that Enron would be rudderless during these challenging times. Unfortunately, despite all that Ken did to restore confidence in Enron’s future his efforts did not stop the continuing decline of Enron stock, nor the rumors of its pending acquisition or even bankruptcy.

Skilling’s faux pas and sudden departure was followed by the CFO, Andy Fastow, showing a side of him that I had not previously seen. It emerged in the wake of the 9/11 terrorists attacks on New York and Washington, DC.

The impact on the financial markets was swift and devastating. The stock market closed—the third prolonged shutdown of the New York Stock Exchange in its history (the first was the stock market crash in March 1933, and the second, months after the United States entered World War II in December 1941). As the market plunged after 9/11, investors fled to U.S. Treasury securities. Virtually all lending declined sharply, cutting off liquidity to big companies, a choking off of cash that was just as life-threatening to corporate America as cutting off the escape for the poor souls who had been trapped in the burning World Trade towers. The Bush administration tried to restore confidence and the Federal Reserve Board felt it was necessary to pump more funds into the banking system to restore liquidity.

Enron, along with all financial institutions, including investment and merchant banks, was directly impacted by this crisis. The company was heavily involved in taking trading positions in various commodities, letters of credit and other financial instruments that were critical to its trading and market-making operations. All of that was thrown into jeopardy. Without adequate liquidity, in other words access to great sums of money, Enron would go out of business.

(Continues…)

Excerpted from The Savage Wayby Frank Savage Copyright © 2013 by John Wiley & Sons, Ltd. Excerpted by permission of John Wiley & Sons. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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