Bear Sterns Strategic Flexibility

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THEBEARSTEARNSCOMPANIESINC.

A C A S E S T U D Y O F

S T R A T E G I C F L E X I B I L I T Y

O R G A N I Z E D C H A O S

P O S I T I V E P O L I T I C S

S T R O N G L E A D E R S H I P



F O R E W O R D

As President and Chief Executive Officer of Bear Stearns, I

continually reinforce the importance of periodically stepping back

and identifying organizational strengths and weaknesses. Monitoring

the firm’s strategy, its structure, the style of its leaders and its culture is

essential to continued success.

Desiring an independent perspective, in 1989 I retained an outside consulting firm to

identify our organizational strengths and weaknesses and to identify initiatives that wouldposition us to prosper during the 1990s. Since then, these consultants have conducted more

than 2,000 confidential interviews within Bear Stearns and have surveyed a number of

business areas. They also conducted surveys of all our officers in 1989, 1992, and 1995. As a

result, these consultants are in an excellent position to answer the question, What is it about

Bear Stearns’ way of doing business that contributes to its success?

Their answer can be found in the following pages. It is an enlightening profile that

depicts the reasons many are referring to Bear Stearns as “the place to be.” I am proud to bepart of a 73-year old firm that has the vitality, the energy, and the momentum to warrant this

reputation.

I first published this case study in 1993 in recognition of our vigorous and uninterrupted

pursuit of excellence. Now, two years later, I distribute this updated edit ion to illustrate how we

have retained our historic organizational strengths while fine-tuning our approach in response

to shifts in the marketplace.

James E. Cayne

President and Chief Executive Officer



C O N T E N T S

Bear Stearns: “The Place to Be” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Strategic Flexibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

The Structure: Organized Chaos . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

The Culture: A Critical Asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

Bear Stearns’ Leaders: Guardians of the Culture . . . . . . . . . . . . . . . . . . . . . . . . . 51

Bear Stearns: Why It Works and How It Works . . . . . . . . . . . . . . . . . . . . . . . . . . . 54



Bear Stearns: “The Place to Be” • 1

Bear Stearns:“The Place to Be”

Bear Stearns is, in our opinion, one of the very best managed firms in

the country. It will take a highly unlikely series of poor managerial

decisions, extending over many years, to unravel the magnificent

organization that has been created at this first-class company.

Neuberger & Berman, August 3, 1993

The above was written by an institutional investor whose staunch belief in Bear Stearnsis reflected in a significant equity position. We share his enthusiasm for Bear Stearns.

In fact, the story of Bear Stearns’ ascent is one of the more exciting accounts

Dialectics Inc. has encountered in over twenty years of advising key decision makers

on their organizational and leadership practices.

We are in a superb position to tell Bear Stearns’ story. We know Bear Stearns. And, the

diversity of our client base gives us a number of points of comparison.

In 1989, the now President and Chief Executive Officer, James Cayne, askedDialectics Inc. to conduct an in-depth organization and management analysis. That marked

the first of several studies we conducted on behalf of the firm and its distinct business areas. To

date, we have held more than two thousand in-depth discussions with members of the firm,

surveyed the entire employee population three times, and worked closely with its key decision

makers through periods marked by very different market conditions.

Regardless of market conditions, Bear Stearns continues to prosper. It has retained its

independence while many securities firms have lost theirs. Its reputation for integrity grewduring a time when scandal compromised many once formidable competitors. The excesses,

self-indulgences and political intrigues that ripped apart other brokerage and investment

banking firms did not affl ict Bear Stearns. As a result of its continued growth, its indepen-

dence, its integrity and its remarkably strong culture, Bear Stearns is gaining the reputation as

“ the place to be.”

Bear Stearns’ culture, with its emphasis on entrepreneurial drive, teamwork, and a client

focus, ensures that the firm retains clients and attracts new ones. It also ensures that the firmattracts and retains top talent. In the voluntary comments made by the firm’s officers in a recent

survey, many wrote, “Bear Stearns is the up and coming firm; the place to be.”



2 • Bear Stearns: “ The Place to Be”

The increase in the book value of i ts stock has mirrored Bear Stearns’ enhanced reputation.

The book value has risen steadily from $3.00 per common share in 1985 to $15.24 at the end

of Q1 1996. Total capital rose from $517 mil lion in 1985 to $6.6 bil lion at fiscal year end 1995.

T O T A L C A P I T A L 1 9 8 5 – 1 9 9 5 1

1 Total capital information for each year isasof fi scal year ending June.

By the end of fiscal 1995, Bear Stearns claimed one of the highest returns on equity amongthe industry’s publicly-t raded companies. In fiscal 1995, the firm yielded an after-tax return on

equity of 13.5% (versus the competitors’ average of 6.6%).

A F T E R - T A X R E T U R N O N E Q U I T Y 1 9 8 9 – 1 9 9 5

89 90 91 92 93 94 950

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30%

Bear Stearns Competitors

85 86 87 88 89 90 91 92 93 94 950.0

1.0

2.0

3.0

4.0

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6.0

$7.0

IN $ B ILL IONS



Bear Stearns: “The Place to Be” • 3

Bear Stearns’ growth is the result of enlightened, free market capitalism: “the uniform,

constant and uninterrupted effort of every man to better hi s own condit ion” (A dam Smith,

1776). This spirit has led to Bear Stearns’ tremendous growth. Bear Stearns is 73 years old,

and yet it has the dynamism of a young company. It has avoided the natural tendency tobecome conservative and sluggish. Structural rigidity and complacency have not been

allowed to set in.

The decision-making process is effective and it is efficient. Recommendations are consid-

ered immediately. Those that are accepted are implemented quickly. As a result, during the

seven years we have worked with the firm, we have witnessed the successful implementation

of strategic and cultural changes that would have taken many other companies a decade or

more to introduce.Bear Stearns is remarkable in its ability to channel political and entrepreneurial energies

and to manage with a flexible and even chaotic structure. It has demonstrated an ability to

balance some very tough organizational dilemmas; dilemmas that confound the leaders of

many corporations in today’s turbulent business environment:

• How to retain the flexibility and responsiveness of a small organization

while benefiting from the clout and deep pockets that come with size;

• How to promote an entrepreneurial spirit while still maintaining control and

managing risk;

• How to foster healthy competition among the organization’s entrepreneurs

while maintaining the sense of interdependence and teamwork that is

crucial to fully and effectively serving its clients;

• How to promote autonomy while providing support and a sense of

membership in the larger community;

• How to maintain a sense of organizational order while at the same time

encouraging employees to act on opportunities as they occur ;

• How to foster pride without becoming arrogant;

• How to channel constructively the energy that stems from the politicking

that is an inescapable part of organizational life.

In writing this article, Dialectics’ goal is to reinforce Bear Stearns’ strengths by describing howthe firm works. Because our purpose is to reinforce the strengths of the firm, we focus on what





Strategic Flexibility • 5

Strategic Flexibility

Bear Stearns has an uncanny ability to be at the right place at the right t ime; to make the right

moves as it seizes opportunities and resolves problems. It does so by adhering closely to a few

fundamental strategic tenets.

B E A R S T E A R N S ’ S T R A T E G I C T E N E T S

• Monitor Trends; Anticipate Opportunities

• Target Key Opportunities

• Grow Businesses Purposefully and Steadily; “The Hot House Approach”

• Be Contrarian; Avoid the Fads and Keep Businesses in Hibernation

• Hire Smart People and Give Them Room to Maneuver

• Allow Entrepreneurs the Freedom to Fail

• Control Risk

Monitor Trends; Anticipate Opportunities

The firm’s top executive team is adept at monitoring and identifying trends in the

marketplace and anticipating opportunities. In the l950s, Bear Stearns realized that

the country’s major corporations were being forced to change the way they financedtheir operations. Corporations were having to move larger blocks of stock than could



6 • Strategic Flexibility

be absorbed by individual investors. A t a time when most other securit ies firms were

concentrating on the individual investor, Bear Stearns moved into block trading. In 1965,

sensing the advent of negotiated commissions on the institutional side, the firm moved into

the retail business. By 1985, the retail business accounted for nearly 60% of the firm’s com-mission business.

During the early 1980s, Alan Greenberg closely followed the economic trends occurring

in Latin America. In 1983, as the Latin American debt crisis rose to international proportions,

he recommended that the firm pursue the secondary trading of Latin American bank loans.

A year later, a banker and a trader joined forces, united by their desire to expand the effort

beyond equity and debt trading into corporate finance. They sought to further leverage the

trading of bank loans in these countries since at that time, these loans could be used as acurrency for the purchase of companies. Today, more than 75 experts are devoted to the Latin

American franchise, which as of August 1995 represented over 37% of all equity underwri tings

in Latin America.

The Emerging Markets Group frequently has been selected as lead manager for substantial

transactions in Latin America during both good and difficult market condit ions.

To get any transaction done in the negative market conditionsthat prevailed throughout most of the year was a feat in itself. To

get one away in size and have it trade up, deserves special mention.

Bear Stearns managed just that with Brazilian steel company

Usinas Siderúrgicas de Minas Gerais (USIMI NAS) .

International Financing Review , December 1994

In September 1994, Bear Stearns was the global coordinator and lead manager forUsinas Siderúrgicas de Minas Gerais (USIMINAS), Brazil’s largest steel manufacturer. At

$480 mil lion, USIMINA S was the largest equity deal sold out of Latin America. Both

International Financing Review and Euroweek named it “The Latin A merican Deal of the Year.”

Following the USIMINA S transaction, Bear Stearns again demonstrated its abil ities to

place Brazilian equity offerings in volatile markets and to manage complex corporate situations.

On December 19, 1994, Bear Stearns lead-managed a $180 million global equity offering for

Rhodia-Ster S.A., the dominant South American manufacturer of purified terephthalic acid(PTA), the basic raw material of polyester products. The success of this transaction was a result




of the joint efforts of Emerging Markets, Equity Research, Equity Capital Markets, Equity

Syndicate and Institutional Sales.

Bear Stearns’ prowess in Latin A merica extends to the publication of award-winning

research. In Latin Finance ’s 1995 Research Survey, the firm ranked in second place overall,receiving high marks for i ts research on Argentina, Chile and Mexico.

After becoming firmly established in Latin A merica, the emerging markets bankers

expanded their horizons to other parts of the globe. Bear Stearns’ entry into the global deriva-

tives business provides yet another illustration of the firm’s ability to anticipate and respond to

opportunities.

In 1992, Bear Stearns approached a young woman who had built the derivatives business

at a competitive firm. Attracted by Bear Stearns’ reputation and vitality, she acceptedthe invitation to meet with a new member of the Executive Committee. Certain that

she would be a significant asset to the firm, this person arranged for her to meet with several

other members of the Committee. Within a matter of weeks, she became convinced that

Bear Stearns would be willing to make the kind of long-term commitment required to launch

a full-scale global derivatives business.

She believed that Bear Stearns’ decision-makers understood that there was no way to get

partially involved in the business. Jimmy Cayne had told her, “ We don’t go into businessesquickly. However, when we do decide to go into a business, we stay with it .” Today, she

remainsconvinced that she made the right decision.

I am happy here, and the people I brought with me are happy. I like

the fact that the leaders of the firm operate in such a tight-knit

manner. They make up their minds, and focus resources. Once they

make a decision, they act on it. This firm delivers.

Bear Stearns’ abilities to anticipate opportunities and to “deliver” are clearly evident in its

participation in the Asian marketplace. In a remarkably short t ime, Bear Stearns has become

an important participant both in Thailand and Greater China.

Aware that the direct approach would not be the most effective way to prospect business

opportunities in China, Jimmy Cayne used his talents at the bridge table to garner an invita-

tion to play bridge there with key Chinese officials.Moving with characteristic speed and effectiveness, Bear Stearns secured a license to open




an office in Shanghai from the People’s Bank of China, making Bear Stearns the second

United States securities firm to be represented in Shanghai. As the license was being secured,

Jimmy Cayne established relationships with key Asian business figures.

So positioned, Bear Stearns’ bankers were able to secure opportunities to partici-pate in several landmark deals, such as the $102 million initial public offering (IPO) for

Ek Chor China Motorcycle. (The red motorcycle that sits in the corner of Jimmy Cayne’s

office serves as a dramatic reminder of the importance of monitoring global trends and of

establishing mutually productive relationships with key people in far-reaching networks.)

Bear Stearns’ successful management of that IPO led the leaders of CP Pokphand to name

the firm co-lead manager for the IPO of Telecom Asia, a private-sector telecommunications

franchise majority-owned by the CP Pokphand Group. These cornerstone deals establishedBear Stearns’ reputation as underwriter of choice for Asian equity deals. There have been

numerous significant transactions since.

Rivals Stunned as Bear Stearns Wins Telecom Asia Co-lead M andate

Investment banking rivals reacted bitterly to Bear Stearns’

appointment, arguing that the firm has little experience under-

writing major Asian equity deals . . . “Ever since the Ek Chor deal,the CP Group seems to think that Bear Stearns walks on water,”

said one aggrieved U.S. investment banker.

Euroweek, August 12, 1 993

Bear Stearns Unit Expands in Asia Despite Slower Start Than Rivals

Bear Stearns Asia Ltd. doesn’t worry about arriving late to the dance.

The firm has been able to expand steadily in Asia at a time whenmany Wall Street firms have been trimming their staffs. Bear Stearns

was the lead underwriter for the most recent listing of a Chinese

company in New York, underwriting the $75 million float of diesel

engine-maker China Yuchai International Ltd. The firm was also the

financial adviser on one of the biggest mergers and acquisitions in

Southeast Asia, when it advised Indonesian satellite company




PT Satelit Palapa Indonesia in selling a 25% stake to

Deutsche Telekom AG for about $586 mil lion.

The Wall Street Journal , May 5, 1995

Bear Stearns positions itself to respond to opportunities by concentrating on learning.

Everyone, regardless of title or role, is expected to remain constantly on the alert for emerging

business opportunities and to learn fast enough to take advantage of those opportunities.

Illustrative of this dynamic is Bear Stearns’ entry into the arbitrage business. In 1940,

the man who would become the firm’s last Senior Partner had an instinct that something

was about to happen in railroads. He deduced that the City of New York was about to “take

over” the Interborough Rapid Transit Company (IRT) and the Brooklyn-Manhattan TransitCorporation (BMT). In exchange for their stock, stockholders were to receive unwanted New

York City bonds. Anticipating an opportunity, he bought both IRT and BMT stock and then

made a market in New York City bonds. Bear Stearns’ arbitrage business had begun.

The downside of opportunism is that energies can become scattered and diffused. Most

organizations try to ensure that resources are effectively leveraged by engaging in extensive

strategic planning; establishing clear goals and benchmarks to measure progress against those

goals. The planning process can become an end in itself, consuming and then constrainingorganizational resources. When this happens, opportunities not previously envisioned go

unnoticed. For this reason, Bear Stearns has historically refused to get bogged down in

formal planning.

Target Key Opportunities

In the past, the firm’s bankers behaved like lone rangers in search of opportunities with any

account, in any industry. Three years ago, the leaders of the investment banking franchisebegan to stress the importance of targeting opportunities, of developing in-depth expertise

in a key discipline or industry, and of selectively pursuing new accounts. The heads of each

newly created speciality or industry group were told to create and adhere to business plans. The

objective was to generate more revenues through proactive marketing, the effective allocation

of resources, and the providing of superior client service. Focused and targeted marketing

coupled with the development of in-depth expertise in key areas has paid off.

Bear Stearns has carved out a niche as the leading advisor to the defense/aerospace




industry. The firm was selected to advise Martin Marietta Corporation in its $10 billion

“merger of equals” with Lockheed Corporation. This watershed transaction created the world’s

largest defense/aerospace company (with sales in excess of $23 billion). It was recognized

by Institutional Investor as a “Deal of the Year” for calendar 1994. The firm also advised

Unisys Corporation in the sale of its defense business to Loral Corporation.

In an unusual role, Bear Stearns represented both sides of the $2.3 billion merger of

Raytheon Company and E-Systems Inc. throughout most of the negotiations, prompting

T he Wall Street Journal to recognize Bear Stearns as “Wall Street’s hottest hand in defense-

industry acquisitions.” Its bankers have earned this reputation through diligent work and

in-depth expertise.

They’re really impressive in their knowledge of the defense business.

The bottom line is that they did their homework.

Dennis Picard, Chairman and CEO

Raytheon Company

Having helped to reshape the face of the United States aerospace industry, Bear Stearns

bankers were invited to give testimony to the U.S. Joint Chiefs of Staff to explain the new

industrial landscape to Congress.Bear Stearns has also been an active participant in the consolidation of the media and

entertainment industry. The firm was retained by The Walt Disney Company as one of only

two advisors in connection with their $19 billion acquisition of Capital Cities/ABC,

and by Time Warner with their $7.5 billion buyout of Turner Broadcasting Systems.

Bear Stearns also managed the $1 billion senior note offering by Viacom Inc., which was the

largest industrial competi tive bid in history.

Bear Stearns understands the ingredients of long-term growth and

competitiveness in the media and entertainment business. They are a

most trusted strategic partner in our M&A activities.

Sumner M. Redstone, Chairman of the Board

Viacom Inc.

Proactive, targeted marketing has also been the key to the success of the municipal

bond/public finance business at Bear Stearns. In order to capitalize on a sales and trading






Bear Stearns’ Chairman took a different approach. Alan Greenberg placed many calls that

day to the smaller “Main Street” brokerages that cleared through Bear Stearns. But his calls

weren’t margin calls. He simply asked, “Do you need any help?” Six of the 250 broker-dealers

said that they had indeed developed serious crash-related capital or transaction problems.

Bear Stearns worked through the problems with them and, as a result, only two of the broker-

dealers defaulted.

Today, the correspondent clearing business services more than 1,900 clients. The success

of this business is the result of the growth of ideas that were first planted back in 1976:

• The generation of account specific P& Ls and the use of relative pricing to focuson accounts that generate collateral income;

• Expansion into the stock loan business;• Offering small securit ies firms and professional traders the same services the firm

provides its own employees;

• Regional clearing, with centralized accounting and funds management.

Another apt example of the “hot house” approach is provided by the growth of the

institutional equities effort. Seven years ago, the individual in charge of equity research

was determined to turn around the institutional effort. At that time, it was lackluster, unprof-itable, unfocused and fragmented. He told Jimmy Cayne what he wanted to do. Jimmy was

skeptical. The entrepreneur remained determined, declaring that he would grow the

business without any significant infusion of capital. His determination earned him the

go-ahead.

Over time, the manager shifted the business from selling research to doing deals. He got

the right people in place, and transferred the unproductive people. Strategic alliances were

built with A rbitrage, Corporate Finance, Private Client Services and other areas of the firm.As companies began crawling out from under the legacy of the 1980s by exchanging debt

for equity, his group was ready. Today, Bear Stearns has a very successful institutional equities

business.

The “hot house” approach to growing businesses is a clear manifestation of the role that

the combination of commitment and judgment play at Bear Stearns. Commitment flows from

the aggressiveness, dedication and enthusiasm for the idea on the part of its original advocate.




Judgment is apparent in the careful use of the firm’s capital and in its avoidance of Wall

Street fads.

Be Contrarian; Avoid the Fads; Keep Businesses in “Hibernation”

Bear Stearns is contrarian. It mistrusts the fads of the day. As competitors enter and exit

businesses, Bear Stearns, in the words of its Chairman, “ waits for this year’s starlet to become

next year’s dog, and this year’s dog to become next year’s starlet.”

In the volatile 1980s, when other firms rushed into merchant banking and bridge financ-

ing and lost considerable amounts of money, Bear Stearns patiently sat out the frenzy. During

this period, the firm avoided getting into the junk bond business to any significant degree. Its

leaders viewed the business as suspect and excessively risky for securities firms, debt issuers and

buyers. As the heyday ended and the default rate rose to a staggering 35%, the wisdom of avoid-

ing the fad became apparent. The junk that once smelled so sweet had turned sour. Life savings

were threatened as savings and loan institutions closed, and as some large insurance firms

defaulted on their promise of protection.

Once the high yield business stabilized, Bear Stearns became a significant participant.

Today, the business meets the needs of both the issuer and the buyer and contributes to the

profitability of the firm. The High Yield Department is made up of some of the most experi-enced professionals on Wall Street and is the largest dedicated sales effort of any firm involved

in that market.

Bear Stearns approached the mutual funds business with similar prudence, entering the

business only when it had something unique to offer. The turning point was in April 1995

when it introduced a highly innovative idea: a fund linked to Standard & Poor’s five-star list.

As one of six funds offered by Bear Stearns, the S&P STARS Portfolio invests only in stocks

that make the list of Standard & Poor’s widely fol lowed rating system.True to its contrarian nature, Bear Stearns enters markets others find unappealing. In

1992, the firm established Max Recovery, Inc., a subsidiary of Bear Stearns and an arm of the

Bear Stearns Bankruptcy Group. Bear Stearns saw a trend in the bankruptcy market and seized

the opportunity. Today, Max Recovery is the largest creditor of Chapter 13 receivables,

placing Bear Stearns three years ahead of the competition in a growing market.

S




Further evidence of Bear Stearns’ contrarian nature is its belief in maintaining businesses

through inevitable down cycles and in hiring when other firms are downsizing. The firm does

not exit a line of business to which it has made a commitment. For much of 1994–1995, the

mortgage-backed securities business was in a freefall. While other major players were exiting

that business, severely affected by the interest rate plunge and liquidity crisis of 1994,

Bear Stearns refused to abandon this market sector. This decision was based on the firm’s belief

that the mortgage-backed securities business was fundamentally sound. Predicting that new

customers would emerge, the head of the mortgage department remained confident. “This is

the time to recommit . . . we are looking to upgrade and hire. Our customer relationships are

paramount to our business plan.”

Bear Stearns’ commitment to its businesses and its clients was reiterated in a memo from

its Chairman in late 1987, as the securities business moved past Black Monday:

We are not having a hiring freeze. Our experience has been that the

best time to hire productive people is when conditions are difficult.

Some areas of Wall Street are having problems and that means

opportunity is once again knocking at our door. Let us be alert and

continue to build!

Hire Smart People and Then Give Them Room to Maneuver

When competitors fire, Bear Stearns hires. It hires people with innate talent, and then

gives them a chance to perform. Credentials are viewed as less important than good ideas, and

the energy and drive to execute those ideas. A t Bear Stearns, all employees are encouraged to

create their own opportunities. There are no detailed job descriptions or territorial boundaries.

People are expected to view the business as a field of opportunities.In the early 1980s, institutional investors considered all Government National Mortgage

Association (GNMA) securit ies similar if they carried the same coupon. At that time, a senior

trader at Bear Stearns realized that prepayment rates, cash flow, and total return characteristics

of GNMA securities varied significantly from one pool to another due to economic and

demographic influences. He identified a pattern that led him to believe that some GNMA

pools would be worth more than others in the secondary market—that prepayment timing and

the strength of the prepayments would be the determining factors.

St t i Fl ibilit 15




He asked his assistant to analyze the mortgage-backed portfolio of their largest

institutional client; to first calculate the historical prepayment speed of each of the pools in the

portfolio, and then to rank each of those pools based on prepayment speed. The assistant was

an enterprising young man who had learned how to be a jack-of-all-trades: analyst, trader,

salesman and “gofer.” Using the most advanced tools of the time —microfiche and a hand-held

calculator—it took him three weeks to complete the task.

The two then presented their findings to the client. Focusing on the discount sector of the

client’s portfolio (pools trading below par but prepaying at par), they demonstrated that the

fastest paying pools had not only the highest yields, but also the highest total returns. The

client was impressed. He traded out of all his slower paying pools into faster paying ones. It was

the largest transaction the mortgage desk had ever done.

The assistant realized that this type of “value-added” analysis could be provided to other

Bear Stearns clients with mortgage-backed securities. But first, he needed to develop a more

efficient way to analyze mortgage pools. As a result, he was the first entrepreneur on Wall

Street—in the days prior to personal computers—to hire a computer programmer to develop

this type of program. As he improved his analytical model, he was able to value mortgage-

backed securities with greater accuracy. This innovator then began to buy, sell, make markets,

and provide clients with the sort of advice that has made Bear Stearns the foremost authority

on mortgage-backed securities.

B E A R S T E A R N S A G E N C Y - B A C K E D C M O R A N K I N G S 1 9 8 7 - 1 9 9 5

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16 Strategic Flexibility




Bear Stearns is also widely recognized as a leader in the sales, trading and research

of non-investment grade securities. Bear Stearns offers its clients a wide array of high yield and

bankruptcy products. A primary component of Bear Stearns capabilities is its high yield sales-

force, which covers approximately 400 major accounts and is ranked #2 among the top ten

on the Street. The salesforce benefits from the pricing expertise of one of Wall Street’s largest

trading staffs.

Bear Stearns’ reputation in fixed income sales and trading is well established; it has one of

the largest and most experienced groups in the industry. Bear Stearns’ overall fixed income

research effort has become one of the most highly regarded on Wall Street, achieving a #1

ranking by Institutional Investor for 1995.

The firm’s emphasis on attracting keen, entrepreneurial minds is exemplified by the hiring

of a young man from China who became a multi-million dollar retail producer before his 26th

birthday. In his teens, determined to go to the United States, this young man began hanging

around the kind of people who could get him there. His perseverance and natural sales ability

paid off.

E M P L O Y M E N T G R O W T H 1 9 8 5 – 1 9 9 5

When Jimmy Cayne met this young entrepreneur, he knew immediately that his spirit and

potential were well suited to the firm’s culture and its field of opportunities. Today, at the age of

32, the young man is in a significant leadership position in Bear Stearns’ Asian franchise.

85 86 87 88 89 90 91 92 93 94 950

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Allow Entrepreneurs the Freedom to Fail

At Bear Stearns, entrepreneurs act on their instincts. They take risks. Some result in gain;

others do not. Bear Stearns equates failure with opportunities that were not pursued (as opposed

to dollars lost in pursuit of opportunities). Betting on the wrong horse is forgivable, failing to

bet at all is not.

An example of the firm’s belief in taking a “calculated risk” occurred during the 1975 New

York Ci ty fiscal crisis, when President Ford announced he would let the City go broke. During

that time, Bear Stearns was the only firm to maintain a market in New York City bonds.

In 1968, Bear Stearns hired Jimmy Cayne, an account executive, who was to become its

President and, later, its Chief Executive Officer. Early on, he saw that New York City was

about to confront a very serious crisis. Relying on his instincts and judgment, he called the

deputy comptroller and explained that if the City wanted a better return than they were

getting from the banks, they should simply buy their own notes. But buy them from whom?

Banks would no longer allow the small bond houses to borrow against the bonds at the rate of

99 cents to the dollar. As a result , they could not afford to inventory New York Ci ty paper.

Sensing the opportunity, Bear Stearns made an initial $3 million commitment to buy

the City’s notes. A t that time, this represented a sizable investment given the fact that

no one (including the Federal Government) had any faith in the ability of the City to resolve

its fiscal crisis. The results were highly successful, boosting Bear Stearns’ image as a smart,

enterprising firm.

In 1991, Bear Stearns hired another enterprising individual: the person who had intro-

duced the first asset-backed transaction in the industry. Prior to being hired by Bear Stearns,

she was at a staid, money-center commercial bank. By the time she met with Bear Stearns,

she had become frustrated with the bank’s bureaucratic approach. Bear Stearns offered the

perfect environment.

Within two months of joining the firm, she launched the asset-backed business at Bear

Stearns by positioning the firm to sole manage a $500 million asset-backed securitization for

a major automobile manufacturer. Under her leadership, the business grew rapidly. In fiscal

1992, the firm managed approximately $8 billion of asset-backed public offerings and private

placements.




18 Strategic Flexibility

G R O W T H O F A S S E T - B A C K E D S E C U R I T I E S 1 9 8 8 – 1 9 9 5

During fiscal 1995, Bear Stearns lead-managed or co-managed over $17 billion of asset-

backed securitizations, which represented 20% of the $85 billion market. Over $1.1 billion of

these transactions were private placements.

Control Risk

Bear Stearns is remarkably effective at maintaining entrepreneurial fervor while

simultaneously controlling risk. The control of risk constitutes one of the few ground rules

that cannot be challenged. The modus operandi isDon’t risk what you can’t afford to lose.

No one is permitted to bet the ranch!

The Chairman personally runs the Risk Committee, which has been described by some as

a “cold sweat” meeting tightly focused on profit and loss. Each Monday afternoon, all members

of the firm who are in a position to risk the firm’s capital meet to declare publicly the positions

they are holding, and the rationale for those positions. As a result of this relatively simple

procedure, traders are disciplined to sell any losing position on Friday, before the next Monday

meeting. This ensures that no losing positions will be held over the weekend. The practice

has come to be known as “The Friday Rule.” As a result of this rule, all traders continually

re-evaluate their positions. Infatuation with a securi ty takes a back seat to risk control.

88 89 90 91 92 93 94 950

4

8

12

16

$20




g y

At a conference of investors and analysts, Jimmy Cayne was confronted with a

challenging question from an investor about Bear Stearns’ participation in derivatives: “The

derivatives business could bring the whole industry down l ike a house of cards. Aren’t you

afraid that Bear Stearns will tumble along with the rest?”

Jimmy’s response was immediate and confident: “ If the industry goes, so will Bear Stearns.

However, we will be the last standing. Our deliberate approach to growing such businesses,

and our controls, ensure our continued stability.”

The firm’s attitude toward risk management benefits both the firm and its clients. Bear

Stearns strongly discourages its account executives from recommending products that might

be too high risk for the portfolios of unsophisticated individual investors. This is in striking

contrast to the “Buyer Beware” attitude that prevails in some other securities firms.

Bear Stearns manages risk; it does not avoid risk. The strategic underpinning of the firm

is risk management, not risk aversion. The key to the management of risk is the art of

balancing instinct and judgment. The leadership of the firm savors the challenge of risk

management in both their business lives and personal lives. This is especially true of the

Chairman and the Chief Executive Officer, who are both avid bridge players. In a recent inter-

view, Jimmy Cayne explained:

The difference between a great bridge player and one who has merely

mastered all the rules is JUDGMENT . . . the ability to internalize the

nuances at the table and visualize in advance the results of one’s

actions. Judgment is the ability to generalize and improvise on

“the rules.”

20 • The Structure: Organized Chaos



The Structure:Organized Chaos

I

mplementing a strategy that emphasizes innovation and opportunism requires that

the organization be structured in a way that is flexible, fluid and even chaotic. Such a

structure defies traditional management theory, which equates order with efficiency,

efficiency with productivity, and productivity with profitability.

Leaders in a number of industries are discovering that there is a logic flaw in this equation.

The key to profitability is the combination of efficiency and freedom; the freedom to learn, to

act and to take timely and calculated risks. This is particularly true in industries that are at once

dynamic, complex and unpredictable. In these industries, survival depends on the abil ity to be

fast, flexible and, above all, entrepreneurial.

Increasingly, the once staid world of corporate America has begun to look and feel l ike the

chaotic and intensely competitive world of Wall Street. In delivering the commencement

address at St. John’s University in May of 1993, Jimmy Cayne told the graduates that, regard-

less of their career goals, they would have to learn to function as entrepreneurs in a chaotic

work environment.

In today’s world, the only given is that there are no givens.

Promotions, titles, even degrees do not bring with them a set of

clear and undeniable privileges. Title or rank no longer confer power.

The Structure: Organized Chaos • 21



Neatly drawn organization charts, clear and unchanging hierarchies,

policy manuals and rule books, and predictable career paths are

becoming a thing of the past. Gone are the days when an eager

college graduate can plot in advance the path to success. People are

expected to create their own opportunities. Those who wait for some-

one to tell them what to do quickly find themselves on the sidelines

or out of work.

As Jimmy Cayne pointed out, employees must learn how to manage the tensions inherent

in a chaotic work environment. Ambiguity creates anxiety and frustration. He spoke of his

experience at Bear Stearns. People want to know if their new idea will be funded, and for how

long. They want to know who is in charge, and who has the power to make it happen, or to

block it from happening. Competition for resources and rewards can be intense. Because job

definitions or boundaries are often indefinite or non-existent, people tend to erect political

battle lines and invest a lot of energy in protecting their turf.

The chaotic organization is difficult to establish and even more difficult to sustain over the

long term. When it aborts, it aborts completely. Bear Stearns has a long track record in the

management of chaos, and in the promotion of freedom and innovation over order. This was

true when the firm had 50 employees housed only in New York; it continues to be true today

when the firm has almost 7,500 employees located in offices throughout the United States,

Latin A merica, Europe and Asia.

Bear Stearns has always maintained a fluid structure. It does not have, and has never

had, organization charts. However, the key structural guidelines are modified periodically

in the interest of responding to changes in the industry, in the marketplace, and in the

nature of the business.

For many years, Bear Stearns was structured as a confederation —an assembly of

independent boutiques that each operated as a fundamentally autonomous profit center.

The sole measure of success was net revenue, or contribution to profitability. Every decision

was evaluated in terms of its immediate impact on the bottom line. Every deal, trade and

transaction was expected to be profitable. The individual, not the team, was viewed as the key

unit of production. The heroes were the producers, the top salespeople or the most profitable

traders. Competition was intense. The terms “teamwork,” “collaboration,” and “synergy” were

rarely uttered.




Today, Bear Stearns has become a federation of interdependent businesses. Success is

viewed as the direct result of the interaction among the parts, rather than simply the sum of

the parts. Joint ventures that cross traditional lines of business are proliferating. Contributions

to the overall revenue of the firm (as distinct from the individual or departmental P& L) are

tracked and emphasized. Teamwork is rewarded. Committees with memberships representing

all areas of the firm ensure that decisions benefit the firm as a whole. Systems and procedures

have been introduced to monitor and manage overall client activity with all areas of the firm.

The firm’s relationships with cl ients are key to its ongoing viabil ity.

This evolution is in direct response to the demands of a changing marketplace, and a

change in the field of opportunities. Bear Stearns, the powerful proprietary trading house and

brokerage firm, has become a significant, full-service investment bank.

Today, there are seven structural guidelines in place that enable Bear Stearns to function as

a full-service investment bank while remaining fast, flexible, and responsive to opportunities.

B E A R S T E A R N S ’ S T R U C T U R A L T E N E T S

• Ensure Succession While Avoiding Unnecessary Hierarchy

• Emphasize Informal Power; De-emphasize Formal Power

• Use Rewards to Support a Meritocracy and to Enforce Accountability

• Stimulate Joint Ventures

• Encourage Synergy and Teamwork

• Use Committees to Protect the Balance of Power and to Ensure that

Decisions are Sound

• Don’t Pre-plan Career Paths; Enable People to Create Their Own Jobs

Ensure Succession While Avoiding Unnecessary Hierarchy

Bear Stearns does not believe in hierarchy. It does not believe in creating layers of

management, or in delineating who reports to whom and who is likely to succeed whom.

Neatly drawn organization charts, clear and unchanging hierarchies, policy manuals,

rule books, and clear reporting relationships are appropriate in a world where there are givens,

certainties, and predictabil ity. They are dysfunctional in a world characterized by a continually

changing field of opportunities; a world in which there are no givens.




Bear Stearns’ avoidance of organization charts and a formal hierarchy ensures that anyone

with an idea can get a hearing for that idea. In 1986, a new Communications Director in

charge of the firm’s “information highway” envisioned how he could help the firm simultane-

ously streamline its internal telecommunications and create additional revenue:

I had an idea of how we should be operating in terms of information

flow. But I recognized that I was a young nobody. Why should anyone

listen to me? But I knew right off that the best way to make some-

thing happen in this firm is to “sell something”; to prove to them you

can be more than just overhead. I asked for and got a meeting with

the Executive Committee. You couldn’t do that in many companies.

That’s what’s so great about this firm. There is no bureaucracy

between a plausible idea and the top of the firm. You don’t have to

wait for memos to be approved. You just better know what you’re

talking about. Anyway, they let me push the afterburner, go with

my idea and operationalize it.

The absence of hierarchy helps to ensure access to the decision-makers. The risk inherent

in having no hierarchy and no names in little boxes on charts is that there will be no clear

successor when one of the decision-makers leaves the firm or chooses to follow a different path

of opportunity within the firm.

Bear Stearns enjoys the advantages and avoids the downside of the absence of hierarchy.

It does so by avoiding micro-management, and by giving people at all levels a chance to assume

as much responsibility as they want. Individuals are expected to continually develop and

mature given exposure to the firm’s changing field of opportunities. As a result , talented

people can be found when the need occurs.

In our opinion, if something were to unexpectedly happen to either

Alan Greenberg or Jimmy Cayne, the firm would continue to prosper.

The management capability that exists directly beneath each of them

is of very substantial strength and depth.

Neuberger and Berman, August 3, 1993




At Bear Stearns, positions of leadership are held by those who demonstrate competence

and expertise. Leaders are not leaders because of title; they are influential only because they are

credible and respected.

Emphasize Informal Power; De-Emphasize Formal Power

At Bear Stearns, people make things happen as a result of their proven abilities. They can-

not lean on formal authority granted by the organization to issue mandates or enforce directives.

The firm does not believe in granting formal power. This is apparent in its disdain of

organization charts. It is also apparent in the fact that titles confer few perks, and almost no

formal or official power. Becoming a manager at Bear Stearns represents more of an increase

in responsibility than an increase in authority. In fact, effective managers know that to retain

the power of trust and expertise that propelled them into that role in the first place, they must

continue to perform and to lead by example.

Titles do not protect an individual from criticism. The “chain of command” is not sacred.

The right to challenge an idea belongs to every individual in the firm, regardless of status. “ End

runs” are not only tolerated, they are encouraged. Alan Greenberg expressed this forcefully

in a memo to Senior Managing Directors, Managing Directors and Associate Directors:

Forget the chain of command! That is not the way Bear Stearns was

built. If you think somebody is doing something off the wall or his/her

decision making stinks, go around the person and that includes me.

P O W E R

Formal

Conferred

Informal

Earned

• Reward

• Coercive

• Positional

• Trust

• Expert

• Presence








income traders, the Latin A merican group is able to offer a full range of investment banking

services to their clients. Revenue splits and cost allocations have been negotiated with other

areas, making it possible to both encourage continued collaboration and to stimulate teamwork

within the group itself. The group benefits from the necessary infusion of capital from trading

revenue and sales commissions. The clients benefit from the full-service operation. The firm

benefits from an ever expanding franchise.

I N V E S T M E N T B A N K I N G R E V E N U E S 1 9 9 0 – 1 9 9 5

Joint ventures between Corporate Finance and High Grade Capital Markets, High Yield

Capital Markets and Equity Capital Markets have been of distinct benefit to both the firm and

its clients. By way of illustration, in 1995 the Corporate Finance/High Yield joint venture

managed 20 high yield transactions that raised over $3.6 billion for clients.

The joint venture approach puts Bear Stearns in the position of being able to deliver

current market knowledge, enhancing its ability to secure business and to leverage the

considerable strengths of i ts product distribution capabil ity. A key decision-maker in banking

explained it in this way:

We need to design products for the market. Those selling securities know

what clients need. The traders know what the market is buying. By putting

the two perspectives together, we are better able to structure instruments

that are at once leading edge and attractive to the marketplace.

90 91 92 93 94 950

100

200

300

400

$500

IN $ M ILL IONS




The joint ventures between Corporate Finance and these other areas of the firm have been

successful in part because of both the Debt and Equity Subcommittees process. This process

requires participation from all areas of the firm including trading, sales, banking and capital

markets. As a result , all participants are involved in and committed to the decisions that are

made. Deals are never forced on anyone. And, all benefit from a process that ensures that

everyone understands the total picture.

The involvement of sales and trading diminishes the intensity of the conflict that is

endemic to the industry. The traders’ primary motivation is to make money for the “house”

(and therefore, for themselves). The salesforce’s primary motivation is to make money for their

customers (and therefore, for themselves).

The conflict is intensified by the nature of the people who are drawn to the securities

industry. They tend to be extremely ambitious and motivated by the desire to make a great deal

of money quickly. Money can become the primary measure of personal worth, the barometer

of relative success, and the source of self-esteem (or lack thereof). The fight for the P& L can

become a matter of psychological—as well as financial—life and death, triggering an intense

preoccupation with the question, “What’s in it for me?”

During the past few years, Bear Stearns has actively discouraged excessive self-interest.

Its leaders believe that success is dependent on the ability to manage the sales/trader/banker

interface. As one highly profitable salesman put it:

To be an effective salesman at Bear Stearns, you need to have a high

trust environment, like the one I have with the trading desk. Trust in

terms of the product; they let you know what they own and the price

at which they own it. Sometimes even the cost. Trust in terms of the

firm; they trust me to maximize my opportunity with my customer.

And, trust in terms of the customer; the customers believe that I have

their interests at heart and am looking forward to a long-term client

relationship with them.

The wide acceptance of this salesperson’s point of view stems in part from the introduction

of structures designed to stimulate teamwork and to realize the benefits of synergy.






In f iscal 1995, more than 92% of t he firm’s Senior Managing Directors part icipated

in the Capital Accumulation Plan, deferring a significant portion of their annual

compensation in exchange for Bear Stearns’ common stock.

Another initiative stimulated by the survey process was the establishment of the

President’s Advisory Council in 1990. The Council i s composed of approximately 30 people

from all major areas of the firm. Its primary purposes are to recognize and involve the firm’s

future leaders in decision-making, to encourage cross-area production, and to better serve the

overall client base of the firm.

Committees of the Council assume responsibility and accountability for overall issues

affecting the firm. The charters of several of these committees highlight the emphasis the firm

is now placing on synergy.

• The Communications Committee: To stimulate and enable the flow of

information within the firm; to encourage the open and informal sharing

of information by creating opportunities for people to get to know and

talk with each other.

• The Corporate Culture Committee: To monitor and stimulate the firm’s

entrepreneurial spirit while promoting teamwork between and among the

various parts of the firm.

• The External Marketing Committee: To help evaluate and implement

initiatives to project a unified, positive corporate image; to reinforce a

cohesive corporate identity; and to ensure that people who deal with

Bear Stearns have a “continuous experience.”

• The Firm-wide Contributions Committee: To approve requests by

employees of the firm who wish either to solicit other employees forcharitable contributions or to hold charitable events at the firm.

• The Global Committee: To monitor, anticipate, and communicate t rends

emerging globally which could create opportunities; to recommend ways to

leverage those opportunities.

• The Institutional Relationships Committee: To foster and nurture a

coordinated approach to account management on a firm-wide basis, and

to thereby better leverage client contacts within the firm.




• The Legislation/Regulation Committee: To monitor, anticipate and

communicate government or government-related initiatives which will

impact upon the securities and investment banking industry; to recommend

appropriate interventions.

• The Technology Committee: To enable all business areas to take

advantage of technology in order to build and manage client relat ionships,

create products, differentiate Bear Stearns from its competitors, manage

resources and communicate internally.

A number of important initiatives have been implemented by these commit tees. Steps are

underway to develop a firm-wide account tracking system. The publication Bear Flash enables

the rapid dissemination of urgent information to the appropriate audience. The Internal

Marketing Brochure, which explains the focus of each business area, is already in its third

printing. Technical issues that have prevented the entire firm from communicating

electronically have been resolved. The firm is applying a coordinated multi-business area

approach to managing the opportunities represented by the Internet. International initiatives

are being managed in a more coordinated and efficient fashion. Potential image enhancement

initiatives are being reviewed and evaluated to ensure that those which reach the implemen-

tation stage are both effective and cost efficient.

While the accomplishments of the commit tees of the President’s Advisory Council are

important, the process they represent is even more important. The committees are actually

networks that cut across the firm. As a result of the dialogue that occurs in their meetings,

new levels of trust and understanding are developed. The web of relationships serves as a

replacement for the cohesiveness provided in pre-public days by the partnership structure.

Use Decision-Making Committees to Protect the Balance of Power

and to Ensure that Decisions are Sound

Bear Stearns uses committees or “networks” to encourage synergy. It also uses committees

to avoid the emergence of hierarchical rigidity, to expand the envelope of knowledge through-

out the firm, and to provide guidance to decision-makers at all levels. Bear Stearns relies upon

both permanent and short-lived ad hoc committees to deal with problems and opportunities.

It is not unusual for someone to pick up the telephone, call people together from the different

business areas, and form a temporary work group within hours.






Don’t Pre-plan Career Paths; Enable People to Create their Own Jobs

Bear Stearns attempts to give all of its people the freedom to create the parameters of

their own jobs. They are encouraged to put their energies and resources wherever they think

they should in order to create the biggest impact.

The firm hires people with good minds even though there is no clear role for them. They

are encouraged to float, to learn and then to create their own opportunities. One such

individual had been working for the then SEC Chairman, William Casey. While Casey

enjoyed having the young man assist him and even wanted him to move to the Department of

the Treasury, he did not believe that young men with great ambition could survive in

Washington without money. So, he recommended that the young man join Bear Stearns.

The firm spotted his potential immediately and gave him the chance to see if he could

create a niche for himself within the company. He proceeded to launch the highly profitable

business of installment sales of restricted stock. The business generated several billion dollars

in transactions during the years preceding the change in the tax law.

More recently, an eager young man telephoned Jimmy Cayne and with great enthusiasm

said that it was his dream to work for Bear Stearns. He told Jimmy he had talked to friends on

the Street and they all told him it was the only place to be these days. Jimmy was impressed by

his enthusiasm and apparent drive. Then, the caller made a big mistake. He asked, “Are there

any good job openings?” That is absolutely the wrong question to ask at Bear Stearns. Jimmy

told him so in no uncertain terms: “ Of course there are no good job openings. This is a very

well -managed firm. I f there were such an opening, we would have fi lled it !”

Fortunately for himself and for Bear Stearns, the caller persisted. Impressed with the

caller’s persistence and ingenuity, Jimmy opened the door for discussions with other members

of the firm. Today, that individual is a productive member of the Bear Stearns team.

By enabling people to create their own jobs in accordance with their own talents and

ambitions, Bear Stearns leverages people’s strengths and minimizes their weaknesses. The firm

spots talent and then allows the meritocracy and the staunchly entrepreneurial culture to

distill and then direct that talent.

34 • The Culture: A Critical Asset

The Culture: A Critical Asset



The Culture: A Critical Asset

An organization’s culture is its system of values and beliefs. It is the most elusive

and most important dimension of a successful organization. It is the sum of

achievements of individual men and women, built up over many years. These

achievements influence the way people in a firm manage internally and

compete externally. Since every organization is a complex arena of competing ideas and

influences, to define the firm’s culture is to speak of its dominant beliefs, ideas, values

and norms of behavior. At Bear Stearns, there is always room for the existence of dissenters

and exceptions. Overall, however, the firm enjoys a remarkably cohesive and productive

culture.

A cohesive culture is an especially important asset in a securities firm. Given that product

and service innovations cannot be patented, the culture ultimately must differentiate a firm

from its competitors. It is the culture that draws the talent, keeps the talent and attracts

the client.

Over the years, Bear Stearns’ cohesive culture has enabled the firm to adapt as

the industry’s environment and opportunities have shifted. Much of its strength resides in its

ability to incorporate a number of contradictions. The firm is at once tough and humanistic;

entrepreneurial and controlled; self-interested and client-oriented; aggressive and humble;

political and straightforward; competitive and collegial.

The Culture: A Critical Asset • 35



B E A R S T E A R N S ’ C U L T U R A L M O T T O E S

• Be Entrepreneurial and Courageous; Hit a Home Run

• Suffer Defeat Well; Don’t be Afraid of Losing

• No Surprises; No Excuses

• Say It Like It I s; Be Straightforward

• Stay Calm and Cool; Be Unflappable

• Act Immediately; Seize the Moment

• Stay in the Flow; Be Accessible

• Focus on the Client

• Run for Mayor

• Stay Humble; No One Individual Is Bigger

than the Firm Itself

• Be Humanistic

• Protect the Money Machine

• Keep Politics Positive

Be Entrepreneurial and Courageous; Hit a Home Run

Bear Stearns expects all of its members to behave like entrepreneurs:

• To be proactive and courageous;

• To be wil ling to make the rapid-fire decisions required to act on opportunit iesas they occur;

• To be masters at managing crises and at turning problems into opportunities;• To admit fail ings and weaknesses and yet maintain a strong sense of

self-confidence;

• To maintain a strong sense of “can do.”

At Bear Stearns, if you display insecurity, you lose credibility. People are expected to have

the balance and the confidence required to walk a tightrope without a net. Here, there are no

nets—no long-term guarantees or assurances of unconditional support.




Suffer Defeat Well; Don’t Be Afraid of Losing



Suffer Defeat Well; Don t Be Afraid of Losing

Bear Stearns values stamina, perseverance and the courage to risk losing. Jimmy Cayne

learned the importance of suffering defeat well and of not being afraid of losing at the bridge

table. The better he got at the game, the tougher his opponents became. As they got tougher,

the likelihood of defeat increased. He points out that the irony of competitive endeavors of any

kind is: “The better you get, the tougher it gets to avoid losing. Defeat must be viewed as part

of life and not as a personal setback or personal failure.”

The only people who always avoid losing are those who refuse to play the game.

You can’t win if you don’t compete. And you can’t compete if you don’t “ask for the order.”

Jimmy Cayne believes that the primary reason people fail to ask for the order is fear of

rejection. Fear of rejection can lead to loss of business opportunities. Fear of loss, or refusal

to accept loss, can lead to even greater loss.

Alan Greenberg’s father was a retailer who taught him that: “If something isn’t moving,

sell it today, because tomorrow it wil l be worth less.” Alan has made the acceptance of loss a

fundamental ground-rule regarding the retention of positions. He is a firm believer that it is

better to take a loss than to continue to hold a losing position. Losing, while undesirable, is part

of doing business. The only unforgivable act is not losing, but attempting to cover up a loss.

We were recently forced to fire a trader for mismarking positions

in his trading account to conceal a loss. Let there be no misunder-

standing: this is stealing and will not be tolerated. Absolution can

be granted for losing money but never for lying about it.

Memo from the Chairman to all traders, November 1991

No Surprises; No Excuses

It is forgivable at Bear Stearns to make a mistake. What is unforgivable is the failure

to admit those mistakes. The prevailing motto is No Surprises. One of the ways the firm

minimizes surprises is by encouraging the consideration of worst case scenarios. The Chief

Executive, in particular, is well known for his insistence that people openly discuss worst

possible outcomes. Only if they are willing to do so is he confident that they have exercised

the judgment necessary to minimize unwelcome surprises down the road.

Even the best judgment occasionally backfires. When this happens and a mistake occurs


(or “accident ” in the lexicon of the firm) the full resources of the firm are brought to bear to



(or accident, in the lexicon of the firm), the full resources of the firm are brought to bear to

correct the situation. The responsible party needs fear only if he or she attempts to make excuses

and fails to take the steps necessary to ensure that it will not happen again.

Say It Like It Is; Be Straightforward

The open admission of mistakes and weaknesses is a very assertive thing to do. A ssertiveness

is valued at Bear Stearns both in the interest of avoiding surprises and in the interest of

effective collaboration. Confrontation and the willingness to stand up for one’s point of view

are highly valued behaviors. People are expected to vigorously defend their position even with

(or especially with) people who are more senior.

The open expression of disagreement is expected; anger is quite acceptable. However, the

cultural expectation is that, once expressed, the anger will dissipate. The slate is then clean and

the opportunity for the frank exploration of other issues is renewed.

At Bear Stearns, there is no false consensus, or pretense of unanimity. People understand

that they are expected to challenge others’ views and to stay alert. Through the persistent

challenging of assumptions, Bear Stearns avoids falling prey to intellectual blindness and

impaired judgment. Sound judgment can prevail only when the distortions stemming from

complacency, weakness or hysteria are avoided.

Stay Calm and Cool; Be Unflappable

While people are expected to fight vigorously for their position, they are strongly discour-

aged from losing perspective. To lose one’s objectivity (and therefore judgment) in the heat of

the moment is not acceptable.

Stories abound about the ability of both a founder of the firm and its current Chairman to

remain calm, cool and collected under even the most stressful circumstances. An order taker

who observed one of the founders on the day the stock market crashed in 1929 is reputed to

have said:

He just stood there and remarked that “it looks like we’re going to

have more stocks than we started with!” Amidst the madness, which

consumed the Street, there was a sense of security at our firm.

Fifty-eight years later, Alan Greenberg broke the tension of Black Monday (October 1987)


when he got up from his chair on the trading floor, practiced his golf swing, and then



g p s a a g , p a s g s g, a

announced loudly that he was taking the next day off. While no one was certain whether or

not he was kidding, the sense of alarm dissipated.

Act Immediately; Seize the Moment

The ability to remain calm is key to exercising good judgment. Similarly, the readiness to

seize the opportunity and to act quickly is key to the adept trading of stocks and bonds.

Typically, a trader who delays, loses.

The trader’s sense of urgency has spread within Bear Stearns beyond the trading floor. An

action orientation prevails throughout the firm. Delay and dawdling are simply unacceptable.

Meetings are expected to start on time and to end quickly. Even the festivities honoring Alan

Greenberg’s 40-year anniversary with the firm were over in 14 minutes!

People in management positions believe that their role is to help employees seize the

moment. We have never heard employees say that they were precluded from implementing an

idea because they could not get an answer from management.

Management at Bear Stearns is able to be decisive because it is well informed. The

communication channels at the firm are at once free-form and effective. This is the direct

result of the cultural emphasis on accessibility.

Stay in the Flow; Be Easily Accessible at All Times

Professionals are expected to be easily accessible at all times. Days off are no exception.

The lunch hour does not offer immunity. The Chairman insists that professionals always leave

word as to where they can be reached. No one is exempt from this accessibility rule. Many of

the senior people answer their own telephones. Their secretaries are there to help callers get

through; not to restrict access.

Several of the top producers in Private Client Services told us that the reason they came

to Bear Stearns was the promise of immediate access to the leaders of the various businesses.

It is a promise that cannot be violated without incurring the clear displeasure both of the

Chairman and the Chief Executive Officer.

Part of being accessible is returning telephone calls immediately. The norm or “rule of

thumb” is that no more than ten minutes should elapse before a call is returned. And people

are not permitted to prejudge the importance of a call. The Chairman has often said: “ I do not

care if the caller is selling malaria. Calls must be returned!”


The cultural insistence on immediate accessibility ensures that people at Bear Stearns



y p p

stay in the flow. This fuels the networks and ensures that ideas are explored. Staying in the

flow requires that people aggressively look for situations where they can contribute. The goal

is to develop a reputation for being the source of provocative or entrepreneurial ideas. As a

result, people do whatever they can to get involved in the various ad hoc projects and task

forces that spring up within the firm.

In many organizations, people have to be prodded to assume additional responsibility.

At Bear Stearns, people scramble for involvement, eagerly embracing a heavier workload. An

empty calendar is regarded as a bad sign; something to be avoided at all costs. Being in demand

and staying in the flow are one and the same at Bear Stearns.

The cultural mandates to Stay in the Flow and to Be Accessible apply to the treatment

of clients as well as to other members of the firm. There is no acceptable excuse for being late

for an appointment with a client. And there is no excuse for keeping a client waiting on the

telephone.

I believe there is a direct correlation between telephone etiquette

and earnings. Some of you have forgotten that the way you answer

your telephone may be the first—and last—impression the caller

gets of Bear Stearns. Please don’t forget again. From this day

forward, I expect you to know how to transfer a call and also to be

pleasant when answering your phone every time it rings.

Memo from the Chairman, July 1995

Focus on the Client

The focus on the client goes beyond courtesy. Bear Stearns’ employees are directed to

never talk about a client publicly or in the press except under very specific conditions.

Employees at every level are expected to be extremely cautious when responding to requests

for client information. Those who identi fy inappropriate requests are rewarded.

Two years ago, an employee in the Compliance Department received several telephone

calls from an individual who claimed to work in the Unit Trust Department at Bear Stearns.

The individual asked several probing questions about client accounts. The employee was

suspicious and alerted his supervisor, who in turn notified the firm’s General Counsel. The

police were called and the telephone was tapped. The employee’s initial suspicions led


ultimately to cessation of improper activity and the payment of a substantial sum of money to



Bear Stearns by a proxy solicitation firm.

Bear Stearns is adamant about guarding both the confidentiality of customers’ securities

transactions and their money. Periodically, a memo from the Chairman is issued stating this

simple mandate: Know thy customer and know that thy customer’s money is up.

The directive to Focus on the Customer is cardinal at Bear Stearns in spite of the firm’s

extensive proprietary trading activities. Traders can have a very short-term outlook, focusing

more on spreads and the rapid movement of money than on customer relations. A lan

Greenberg is one of the best t raders on Wall Street. And yet, he avidly promotes the

importance of enduring client relationships.

The emphasis on the client clearly contributes to the success of the firm’s clearing

business.

We were start ing Twenty First Securit ies and chose Bear Stearns

as our clearing firm. Even before we opened our doors they helped

guide us through the tangle of legal and regulatory issues, choose

technology, and train new employees. That was many years ago and

we continue to receive the same personal services as when we began.

Robert Gordon, President

Tw enty First Securit ies Corp.

The firm’s focus on the client also attracts talent to Bear Stearns. When two heavily

sought-after brokers joined Bear Stearns, T he Wall Street Journal reported that “Bear Stearns

beat out several rivals in a high-stakes sweepstakes for Wall Street’s most productive brokerage

team that serves some of the world’s wealthiest famil ies.” As for the reason why they chose

Bear Stearns (which does not pay upfront bonuses to lure brokers), the two brokers stated:

We chose Bear Stearns for its very strong client-driven culture.

Tw o account ex ecuti ves speaking t o

The Wall Street Journal , March 16, 1 995

The focus on the client is manifest in the continuous effort to both anticipate and

respond to unique cli ent needs and opportunities. For example, in the two years preceding the




secretaries’ votes, directors’ votes, everybody’s votes. Regard yourself



as a salesman and everyone else as an important prospect.

He points out that there is no reason not to Run for Mayor all the time. It stimulates

commitment and takes no more time than being rude. While hostility may make a person feel

powerful, aggression actually diminishes power in the long run.

Bear Stearns’ leaders are not urging their people to get “soft.” On the contrary, they want

to encourage the kind of toughness required to survive and prosper in a demanding business.

Their message is that “tough” shouldn’t mean “nasty.”

At Bear Stearns, tough is refusing to compromise values and ideas. Tough is having

integrity. Tough is saying it like it is and having the courage to admit mistakes. Tough is being

self-confident without being arrogant.

Stay Humble; No One Individual Is Bigger than the Firm Itself

A number of firms have been crippled by the meteoric rise and fall of superstars. That has

never happened at Bear Stearns; the culture doesn’t allow it . At Bear Stearns, anyone who

allows success to go to his or her head and displays the signs of overconfidence or complacency

ultimately encounters the ire of the firm’s leadership.

In one of his memos, Alan Greenberg reiterated his perpetual fight against arrogance and

complacency:

The only things that can stop our truly fabulous future are

arrogance, ego and conceit. Bigger and more promising companies

than Bear Stearns have been reduced to rubble by those easily

acquired diseases.

Both the Chairman and the Chief Executive Officer are determined to avoid the onset

of the organizational disease the ancient Greeks labeled “hubris”—a disease of unbridled

arrogance and pride. Egotism and self-centeredness are major symptoms of hubris. The

ITT Corp. autocrat, Harold Geneen, recognized the symptom in himself and in others

when he wrote in his memoirs: “The worst disease that can afflict business executives in

their work is not, as popularly supposed, alcoholism. It’s egotism!”

Leaders afflicted with hubris or egotism believe that the rules that apply to others do


not apply to them. They see themselves as being above the law. Subordinates are there to serve



the master. As leaders turned aristocrats, they listen to no one. Unchallenged and blinded

by arrogance and conceit, the executives begin to ignore or minimize the power or importance

of competitors or potential competitors. There is an illusion of invulnerability compounded

by an unchallenged and widely accepted stereotype of the “enemy” (i.e., the competitor) as

inherently weak. The result is the one thing that no business can afford: poor judgment.

It is for this reason that the leaders of Bear Stearns believe that humility is healthy, both

for the individual and for the firm as a whole. They also understand that it can be difficult to

“stay humble” in the face of success. Jimmy Cayne tries to do so by reminding himself that

many people and outside factors contributed to his success. A s a world-class bridge player,

he likes to use an analogy from the game to describe his good fortune: “ It takes real skill to

win at the game. However, skill is not enough. You also have to be dealt the cards. I was

fortunate enough to get more than my fair share of good cards.”

Be Humanistic

Bear Stearns tries to see that its people are dealt good hands. It tries to help each person

fulfill his or her potential. The firm pushes its people very hard. But it also gives them

opportunities to excel during good times and tries to take care of them during bad times.

This was very apparent in the firm’s response to both the crash of 1929 and Black Monday

of 1987. In neither case did the leadership of the firm lay off or fire employees. Since 1987,

some of the younger and newer members of the firm have been anxious to get rid of what they

consider “dead wood.” However, one of the senior members of the firm expressed a cultural

norm when he said:

Yes, this is an area where we move slower than we probably should.

But the difficulty about the weeding out process is that when you

originally hired these guys, say fifteen to twenty years ago, they all

had passing grades. They did OK. But now the businesses that we are

in are changing. “C” players won’t make it here anymore. But you just

can’t arbitrarily throw them out. You have to first give them the

chance to improve and see if they are up to it.


There have been cases where formerly high producers suffered temporary “burn out” or

i d l i th t h d ti i t th i d ti I th



experienced personal crises that had a negative impact on their production. In other cases,

individuals have made legitimate mistakes that have cost the firm a considerable amount of

money. In both situations, people were given the time to quietly self-correct. Many have made

dramatic and rewarding comebacks.

The firm applauds a fair fight among well-armed equals. However, it will severely discipline

anyone who tries to take advantage of others when they are down, or at a disadvantage. In the

corner of the Chairman’s office stands a dramatic symbol of this cultural belief. The donor of the

symbol expressed his gratitude to Alan Greenberg for his continued confidence in the man’s

ability and integrity. He gave him an eight-foot baseball bat inscribed with the words: To the

biggest hit ter I know. Thanks for going to bat for me.

Another symbol of humanism can be found in Jimmy Cayne’s office. There, he proudly

displays Gata Kamsky’s chess trophy; the trophy earned when 16-year old Gata won the 1991

U.S. Open Chess Championship.

Several years ago, Jimmy noticed a very brief statement in the newspaper about the

frustrated aspirations of the then 13-year old Russian chess player. Gata was a boy with

enormous potential in desperate need of a sponsor if his talent was to be realized. Jimmy

became that sponsor. For several years he supported the boy and his father, both psychologi-

cally and financially. His generosity and guidance prompted the Executive Director of the

American Chess Foundation to express his gratitude:

The way you have given money, time, psychological support and wise

counsel has resulted in Gata’s reaching the top of the American chess

pyramid. He could not have done it without you. Your influence on

Gata’s future will be decisive and permanent. You have shown Gata

how a man should act. How, with intelligence, hard work and fair

dealing, great success can be achieved in America.

The emphasis on humanism is evident in the firm’s posture toward charitable donations.

The leadership of the firm has institutionalized the sense of generosity—long a part of the

culture of Bear Stearns—in stipulating that Senior Managing Directors are expected to give a

minimum of 4% of their total compensation to charity.


Most Senior Managing Directors volunteer to give even more to the charities of their

choice Perhaps more impressive than the giving of money however is the giving of time and



choice. Perhaps more impressive than the giving of money, however, is the giving of time and

personal energy. The list of beneficiaries is a long one and it is diverse. The firm sponsored

a conference call for families of soldiers in the Middle East during the Gulf War. It donated

computers to the Association of Retarded Chi ldren. Its Los Angeles Office supported a fine arts

program for a South Central Los Angeles High School, to help educate people about why the

riots occurred and how they impacted the lives of i ts citizens. Employees have donated frequent

flier miles for critically ill children and their families. In addition, Bear Stearns employees

donate time and money to the Everybody Wins Foundation, an organization that enables

corporate employees to mentor and read to children one-on-one during the child’s lunch hour.

During the 1994 school year, they contributed 1,000 hours mentoring New York City school

children.

The firm has even created an Adopt-A-Library Program. To mark its move to the

MetroTech Complex in Brooklyn and its desire to be a good neighbor, Bear Stearns sponsored

two local l ibraries. Alan Greenberg expressed the firm’s intent when he said:

For many of us at Bear Stearns, the public library was the first rung

on the ladder of achievement. So we consider it both a privilege and

an obligation to repay the library for the freely accessible services it

gave to us. We want to do what we can to help the library make that

same investment in others.

The New York Daily News , April 1, 1992

Several of the beneficiaries of Bear Stearns’ charity are the families of employees who have

died suddenly, leaving behind wives, children and mortgages. When a part-time maintenance

worker died, Bear Stearns gave $70,000 to his wife and family. (The man’s full-time employer

did nothing.) Or, consider the young man who died after being hit by an automobile as he

walked home from the train station. Bear Stearns reti red his mortgage in what A lan Greenberg

referred to as an “old-fashioned mortgage-burning ceremony.” When the 15-year old son of a

secretary in Fixed Income was diagnosed with Hodgkin’s Disease, a group of Bear Stearns’

employees created a $35,000 trust for the child.


Bear Stearns expects its employees to be generous to others while avoiding self-indulgence,

particularly at the firm’s expense



particularly at the firms expense.

Protect the Money Machine

The aggressive and single-minded pursuit of a goal typifies the entrepreneur. In the case ofBear Stearns, that goal is to make money—a great deal of money—for the firm, for the firm’s

stockholders, for the firm’s clients and for one’s self.

Two statements are often heard that seem designed to Protect the Money Machine.

One is rigorously avoid unnecessary expenses. The continual war against expenses and the

vehement insistence on cost control helps the firm avoid the kind of self-indulgences that

have crippled other firms.

The leaders of each of Bear Stearns’ businesses rigorously control expenses—especially

when business is good. They are acutely aware that every dollar they save on expenses goes

directly to the bottom line. Bear Stearns has no trouble curtailing many of the expenses that

are considered the privileges of upper management at other firms. It simply doesn’t permit such

expenses, such so-called “privileges.” For example, except for predefined situations, employees

who want to fly first class have to pay the difference between the first class and the coach fares

out of their own pockets. There are no corporate jets, cars or apartments.

That cost and expense control is fundamental to the culture becomes apparent when we

look at the memos from the Chairman written between October 1978 and September of 1995.

Of the more than 125 memos that he wrote to the firm at large, almost 40% made reference

to the need to control expenses.

The second equally pervasive cultural message designed to protect the money machine

is: What benefits one, benefits all, and what harms one, harms all. This cultural belief

helps protect the firm internally from fraud and other unethical or illegal behavior. People

at Bear Stearns keep their eyes open; they are constantly on the lookout for anything

suspicious. The Chairman periodically issues forceful reminders.

We think all of our people are honest. However, they are even more

honest when they know they are being watched like a hawk by every-

one else in the organization.


That everyone has heard and understood this message is clear in this employee’s comment:



While our firm prides itself on risk control, no one here takes it for

granted, especially me. The firm trusts me, but I know that others are

always looking at my positions. Ace is as likely to call me to ask why Iam making money as he is to ask about a position which is underwater.

Senior M anaging Director

The firm strenuously adheres to tight compliance procedures. Senior Managing Directors’

brokerage statements are reviewed every month. There is a daily check of employee trades. But

it i s the culture itself that exercises the greatest control. And it is the culture that helps the

leaders of Bear Stearns keep politics positive.

Keep Politics Positive

Organizational politicking is the use of power that is not based either on formally granted

authority, the culture, actual knowledge or expertise. In that sense, it is not legitimate with

regard to either the means that are used or the ends that are pursued. In organizations in which

politicking is a negative force, the political games that are played are divisive, generating and

perpetuating conflict and distracting employee energies.

The securities industry is particularly prone to internal politicking. Highly stressed,

individualistic producers dislike collaboration (or even communication) and thus avoid

discussion that would contain politi cal tensions. The “superstars,” who periodically rise on the

Street, fuel negative politicking given their significant political clout and ability to call

the shots regardless of management’s preferences or cultural norms. Traders benefiting from

inefficiencies in the market are tempted to rely on deception as their primary tool of the trade.

When compensation is based on favoritism, all decisions in a firm become overly politicized.

Bear Stearns’ leadership is highly aware of the political nature of the securities industry and

of the need to keep politi cs positive. According to the Chief Executive Officer:

Politics and capitalism go hand in hand; politics are a fact of

organizational life. And, politics can be either positive or negative.

They cannot be neutral. The challenge is to ensure that politics

are positive.


Political energies are positively channeled at Bear Stearns. Politics ensure that all sides of

an issue are considered. Through networking and the building of alliances or the finding



g g g g

of sponsors, people at any level in the organization can get a hearing for an “unpopular” idea,

or one that runs counter to the current thinking of top management.

Positive politics also ensure that capable people within Bear Stearns are able to riseto positions of leadership. The “old guard” that is so often reluctant to give up control is more

easily displaced since positive politics make it culturally acceptable to call periodically for

new elections or to challenge the incumbent’s “right to rule.”

The networking that is the foundation of politicking provides enormous organizational

benefits. As people take the initiative to create relationships with people in other areas,

functional parochialism and “tunnel vision” diminish.

At Bear Stearns, the pursuit of self -interest and organizational interest are in balance;

politics are positive. The key to keeping politics positive is a cohesive culture. A shared set of

expectations as to what constitutes appropriate behavior stimulates cooperation or at least

mutual understanding. Cultural cohesiveness mutes the conflict and unbridled competitiveness

that characterize a negatively politicized culture.

All of the cultural mottoes, slogans and legends provide a system of checks and balances

within Bear Stearns to make politics positive:

• The theme that no one is bigger than the firm itself works against the

unchecked pursuit of self-interest.

• The emphasis on keeping the playing field fair and level ensures that

decisions are based on performance, not on favoritism.

• The reliance on informal power ( versus the formal power of tit le) fuels

attempts to network and to stay in the flowwhile discouraging the creationof rival camps.

• The humanistic underpinning of the culture coupled with the Chief

Executive’s mandate that everyone run for mayor mitigate against the

abuses that occur when those in positions of political power begin to feel

that they are above the law or above the constraints of social etiquette

and human decency.


• The emphasis on saying it like it is ensures that a bearer of bad tidings

will be heard rather than “shot.”



• The likelihood of a politically motivated “cover-up” is significantly

lessened due to the insistence on no surprises.

• The organization’s refusal to engage in bidding wars with competitors for its

own people makes it unlikely that employees can hold the firm hostage. The

potential polit ical clout of the “big producer” is thereby contained.

Because of its values, norms and beliefs, Bear Stearns’ culture is at once cohesive

and adaptable. It is pervasive, permeating the entire firm. And, it is tough. Not everyone is

capable of or willing to meet its demands. However, many employees who leave elect to main-

tain a relationship either as a client or an enduring friend of the firm. A significant part of thereason that they do so is the vitality of the culture. The continued vitality of the culture is

dependent on the leadership of the firm.

The attempt to create a sense of partnership while maintaining the energy that stems from

the vigorous pursuit of individual gain requires continual monitoring and active intervention

on the part of the organization’s leaders. Their direct involvement helps to ensure that

entrepreneurs working in a chaotic environment pull in the same direction.

Bear Stearns’ Leaders: Guardians of the Culture • 51

Bear Stearns’ Leaders:Guardians of the Culture



Guardians of the Culture

Organizations that have tight operational plans, which are structured hierarchically, and

which operate more as a bureaucracy than a free market can survive during periods of weak

leaders. Organizations like Bear Stearns require strong leadership. Or, as one Senior Managing

Director expressed:

To be a leader at Bear Stearns, you have to be able to manage on a

daily basis three predominant emotions in each of your followers:

love, fear and greed.

The Chairman of Bear Stearns is the kind of leader around whom stories and

legends are woven: strong, clear, charismatic and autocratic. He leads because

others choose to follow. He is the kind of figure who inspires in others both

affection and awe. On the one hand, his highly disciplined manner, dispassionate

demeanor, sense of cold appraisal, intolerance for chit-chat or dawdling, and rapid-fire

decision-making style make him an intimidating figure. On the other hand, he is totally

accessible and displays genuine interest in the well-being of every member of the firm.

Part of the reason A lan Greenberg is able to inspire loyalty as well as fear is his involve-

ment in all aspects of the firm. Nothing is too trivial to warrant his attention. Therefore, no

52 • Bear Stearns’ Leaders: Guardians of the Culture

one’s job is too unimportant to be of interest to him. When people do a good job, he picks up

the telephone to congratulate them. When they displease him, his displeasure is made imme-



diately and unquestionably obvious. The Chairman personifies both the toughness and the

humanism of Bear Stearns’ culture. And in his continued visibil ity on the trading floor, Alan

Greenberg is the firm’s ultimate entrepreneur.The President and Chief Executive Officer is the guardian of the process that sustains the

culture. It is he who ensures that issues get fully debated and that conflicts get confronted and

resolved. It is he who oversees the compensation process and protects the meritocracy. It is he

who must often be the final court of appeal, the arbiter whose job it is to coordinate and guide

the efforts of ambit ious, individualistic, independent egos. And, it is he who reinforces the

message that the only unforgivable weakness is the belief that one has no weaknesses. Jimmy

Cayne personifies the cultural balance between passion and professionalism.While the other key leaders of the firm each have a unique personal style, they are

all assertive, self-confident, decisive, action-oriented and capable of managing well under

pressure. In effect, they personify the characteristics of the effective entrepreneur. At the same

time, they are each strong leaders, able to use personal credibility, keen insight and firm-wide

networks (positive politics) to guide, control and motivate the smart, ambitious people who

work in each of their business areas.

During the seven years that we have been working with the firm, the Chief ExecutiveOfficer and members of the Management & Compensation Committee have devoted a great

deal of attention to the issue of leadership. They have identified certain key behaviors that all

people in leadership positions must display if Bear Stearns is to fully realize its growth potential.

Tyranny, suppression, arrogance and complacency are not tolerated at Bear Stearns. Nor is

passivity, false politeness or an ingenuine attempt to appease others. The firm’s leaders are

activists. They mobil ize resources, incite others to action and stimulate new thinking. They do

so through the strength of their own convictions, passions and ambitions. In so doing, they

reinforce the firm’s entrepreneurial culture while defending against structural rigidity and other

signs of organizational aging.

Bear Stearns’ Leaders: Guardians of the Culture • 53

B E A R S T E A R N S ’ K E Y L E A D E R S H I P B E H A V I O R S



• Internal Sales/Marketing

Seems confident of his or her ability to contribute.

Stimulates others to respect his or her capabilities or expertise.Is outgoing, enthusiastic and personable.

Suggests ways he or she could help others solve problems or respond to opportunities.

Treats others with respect.

• Synergy/Teamwork

Looks for ways that people can make money together.

M akes others feel l ike they are playing on the same team.

Promotes dedication to the firm as a whole.Enhances others’ pride in the firm and its overall capabilities.

Discourages divisive behavior.

Refers business to other areas.

M anages dif ferences of opinion constructively.

Leverages the talent of people in other areas to get things done.

• Networking/Information Sharing

M akes himself or herself accessible.Keeps others well informed about issues that affect them.

A ccesses others’ opinions and ideas in areas in which they can make a contribution.

Initiates informative phone calls.

Returns calls promptly.

• Building Trust and Confidence

M aintains confidentiality.

M akes and lives up to commitments.

M akes others feel confident that he or she will always act in their best interest.

Focuses on solving problems as opposed to placing blame.

Recognizes the contribution others have made to an effort.

M akes an active effort to understand others’ objectives, needs, problems, opportunities.

Shows that he or she has confidence and trust in others.

Says it like it is; is straightforward.

54 • Bear Stearns: Why I t Works and How I t Works

Bear Stearns: Why it Worksd H it W k



and How it Works

Strategy

Structure

Culture

Style

ENTREPRENEURS

• Anticipate

• Give smart people

room to maneuver

• Freedom to fail

• Keep learning

• Flexible, fluid

• No organization charts

• No career paths

• Meritocracy

• Action-oriented

• Don’t fear losing • Hit a home run

• Make own

opportunities

• Courageous

• Decisive

• Action-oriented

• Diverse

• Capable of

producing

INDEPENDENT

• Be contrarian; avoid the fads

• No clear

successors

• Pay for it yourself

• Create your own

destiny • “Can do” attitude

• Confront conflict

• Dissent is

constructive

CLIENT-ORIENTED

• Know thy customer’s money is up

• Understand clients’ needs, objectives

• The relationship matters

• Commission system

• Account assignment process

• Tracking key account activity across firm

• Assume the client

is right

• Run for mayor

• Be accessible to clients

• Integrity

• Relationship management skill s

Bear Stearns: Why I t Works and How I t Works • 55



TOUGH BUT FAIR

• If you believe in it,you’ll pay for it

• There are no superstars

• Hold everyone

accountable

• No territorial

prerogatives

• No special deals

• Vigorously seek

personal financial

gain

• Say it like it is; be

straightforward

• Straightforward; assertive

• Demanding

• Intolerant of arrogance and hubris

CONTROLLED

• Control risk

• Cut losses

• Grow businesses

steadily and

purposefully

• Create distinct P&Ls

• Risk Committee

• Use technology

to monitor impact of decisions on

bottom line

• No surprises;

admit your

mistakes

• Be unflappable

• Control expenses

• Objective and dispassionate

• Highly focused

and disciplined

PERSON-CENTERED

• Let talent create strategy

• Give people another chance

• Let people follow

their interests

• Respond to

employees during

times of crisis

• Be humanistic

• Give to charities • Stay humble

• Run for mayor

• Stimulate; don’t suppress

• Earn a nd

maintain tr ust

• Invigorate, not

intimidate

SMART

• Monitor trends

• Target key

opportunities

• Hire smart

people

• Let the smartest

prevail

• Gain access to

people with ideas

• Emphasize

informal power

• Come up with

an idea and

persevere

• Ask for the order

• Seek feedback

• Premium on

good judgment

• Trust your instincts

INTEGRATED

• Leverage firm- wide resources

• Do internal marketing

• Encourage synergy

• Multi-disciplined

committees; President’s

Advisory Council

• Internal joint ventures

• Conflict will not

be tolerated

• No one is bigger

than the firm

itself

• Conflict resolution

• Team players

• Focus on the best interest of the

firm as a whole



Documents

Bear Sterns Strategic Flexibility