CLIENTS FIRST: WILLIAM BLAIR AND COMPANY, 1935-2000
By Jim Bowman
Chap. 1, BEGINNINGS: 1935 THRU WW2
Investment banker William McCormick Blair opened for business with his name on the door on January 8, 1935. He and Francis A. Bonner started Blair, Bonner & Co. at 135 South LaSalle Street, Chicago. Blair was president and treasurer, Bonner vice president and secretary. They had worked together at the Chicago office of the top-level investment banker, Lee, Higginson, and Company, where Blair had been a partner from 1922 until the firm went bankrupt in 1932. Blair was a Yale graduate, class of 1907 at age 23. Bonner was Harvard, the same year.
Blair had gone to work for Chicago's Northern Trust Company when he graduated. While he was working there, his father, Edward Tyler Blair, met one of the Smith family on the street. It was noted that William was working at Northern, which the Smiths ran. His father went beyond that, observing that William would not be working there long, meaning he'd be heading for a better job.
Two weeks later, William was given a chance to find a better job; he was fired. He joined a bond firm, David Reid and Company, probably also in 1907. It was a time, before the 1920s, when bond firms were more important than stock brokerages. From Reid he went to Lee, Higginson, a Boston-based firm, in 1909, in due time becoming managing partner of its Chicago office in the Rookery Building, at 209 South LaSalle.
Bonner had gone into newspaper work after college - as assistant financial editor of The Chicago Evening Post for five years. The Post, which had been founded in 1890, was to merge with The Chicago Daily News in 1932, three years before Blair, Bonner opened. Then Bonner spent five years at Railway News & Statistics, in Chicago. He joined Lee, Higginson in 1918 - when Bill Blair would have been a nine-year veteran - heading its loan-origination department.
When Lee, Higginson folded in Chicago -- its London affiliate, Higginson and Company, lasted at least until 1939 -- Bonner served two years as president and director of a firm called Bonner, Troxell and Company, which was perhaps an investment firm. He'd been a governor of the Investment Bankers Association and in 1935 was vice chairman of the (national) Investment Bankers (NRA) Code Committee - the over-the-counter industry's voluntary continuance of the NRA code concept whose adoption led eventually to formation of the National Association of Securities Dealers, or NASD.
1934, BEFORE THE FIRM
In 1934, as Blair and Bonner were organizing their firm, the limping economy showed some encouraging signs. Chicago-based Montgomery Ward and Company and the Walgreen Company had their biggest sales months ever in December. In January, the day before Blair, Bonner officially opened, grains rallied on prospects of inflation implied in President Franklin D. Roosevelt's budget message to Congress.
Stocks rallied too. Railroads led the advance. Indeed, "speculators" and "commission-hungry brokers" welcomed the prospect of inflation, The Chicago Tribune noted. January 7, 1935, was the year's first million-share day -- a minuscule volume by 2000 standards, when 855 million could be characterized by The Wall Street Journal as "thin" trading.
Prices were rising. Chicago-area gasoline was over 16 cents a gallon for regular. Nationwide, the Bell System had installed more than 21,000 telephones in December, up from 13,000 in December, 1933. The steel industry was operating at 43.4% capacity, up 10% for the week. Chrysler had just ended a record year.
The brokerages were not all gone. Investment counselors Sheridan, Farwell and Morrison, Inc., at 8 South Michigan Avenue, were advertising that they "spend . . . large amounts for independent research because [they] have positive proof of its value." James E. Bennett and Company, stock brokers at 332 South La Salle Street and members of "all principal exchanges," advertised "private wires to all markets."
But catastrophe was not yet spent, and the climate was not good. The market was a shadow of its 1929 self -- $1.1 billion in new issues, compared to $11.6 billion in 1929. New laws had put "a cop on [Wall Street's] corner," in Will Rogers' phrase -- the 1933 Securities Act, requiring registration of securities, and the Securities Exchange Act that created the SEC in 1934 to regulate markets and dictate trading practices. The SEC's first chairman was Joseph P. Kennedy, father of a young man who would become president 27 years later.
Stock investors, disillusioned by Congressional hearings that hung the industry's dirty linen out to dry, stayed away in droves, not to return until the 1950s. The decision to stay or leave the business, much less enter it, "was fraught with uncertainty," said Fred G. Clark and Richard S. Rimanoczy in their 1961 book, Where the Money Comes From; a Brief Account of the Role of Investment Banking in American History and Its Place in the Economy Today.
Many investment veterans decided it was worth neither effort nor risk. William McCormick Blair, with cause enough to be disillusioned, was not one of them.
THE FIRST WILLIAM BLAIR AND COMPANY, 1840
Blair was a Chicago blueblood, of pioneer stock. His grandfather had arrived in Illinois in 1840, a farm boy turned hardware dealer from Cortland, in central New York south of Syracuse. Cortland had been settled only two generations years earlier, in 1792.
He had left the farm at 14, his schooling completed, to work for stove and hardware dealer Oren North. North thought enough of him to send him four years later to Joliet, Illinois, to open a branch store. North couldn't follow, as planned, because of bad business conditions, and sold the Joliet enterprise to young Blair. Thus was born the first William Blair and Company.
After two years in Joliet, the young man moved to Chicago for the promise it presented. The new Illinois & Michigan Canal and the railroad, both connecting Chicago to the Mississippi River, was changing the direction of commercial traffic from north and south to east and west, just five years after the city's incorporation. In Chicago he opened a store at what is now Wacker and Dearborn, one of a half dozen or more hardware stores in a city of 7,000 or so people that stretched north to North Avenue, south to 22nd Street (Cermak Road), west to Wood Street.
He lived at the Tremont House, one of Chicago's more respectable hotels -- the other was the Sherman House. They catered largely to farmers who came to town with wagon loads of wheat. The Tremont was also the city's highest brick structure, at five stories that seemed "to scrape acquaintance with the clouds," according to one newspaper.
In 1844 his brother Chauncey B. Blair, having also left New York, invested in the business. William was able to add iron goods to his stock and move his store to Lake Street. Seven hardware stores advertised in the 1843 city directory, all of them on or near Lake Street; his was not one of them.
This changed with Chauncey's infusion of cash. The store advertised in 1844 as owned by C.B. (apparently for Chauncey) and W. Blair. Its business was wholesale and retail - cooking and parlor stoves, tin plate, sheet iron and copper, shelf and heavy hardware, iron, steel, nails and "spits" (for cooking). The Blairs were also "manufacturers" of tin, sheet, and copper wares. Their store was one of a dozen hardware advertisers.
In 1846 C.B. Blair went into banking, William E. Stimson joined William Blair, and the store was Blair & Stimson. Two years later they moved to a bigger Lake Street building. By 1852 Stimson was gone. Now it was William Blair, hardware, period. William Blair was living in his own place on Michigan Avenue.
The firm put in a line of English and German hardware to go with American. Claudius B. Nelson joined William Blair and stayed with him for a number of years. William Blair moved for a time to 111 Wabash. By 1856 he was back on Michigan Avenue, between Congress and Harrison, in a home on what is now the site of the Congress Hotel.
William Blair and Company was a "fence and wire agency" with "a large supply of superior fence wire" in store, to be sold "at the lowest rates," according to an 1857 ad. The store was the "oldest in the city at wholesale selling," with prices as low as Eastern jobbers, "adding the cost of transportation."
The store had its shipping office on-site. Customers came from Illinois, Northern Indiana, Iowa, Wisconsin, and Minnesota to view a "large assortment of cutlery" and samples of other stock in a second-floor show room, including butter churns at $7 and $8.50, a croquet set of 8 mallets and balls at $2 to $5.50 - the high-end price for hard maple mallets. Merchants of "interior towns" found it better to purchase hardware in Chicago than "over East, where extensive delays" were a problem, not to mention "the risk of transit."
Chauncey Blair was a banker on his way up. By 1865 he was president of Merchants National Bank and was living in his own Michigan Avenue residence. In this year William Blair moved the hardware business to Randolph Street, where on a fateful October day in 1871 it was burned out in the great fire, only to reopen 15 short days later on Canal Street, where it stayed for a year, moving then back to Lake Street.
By 1882 William Blair had his son, Edward Tyler Blair, as one of two partners. The other was James M. Horton. But Edward had no taste for the business. His interests were literary, and he was to write several books, including a life of Henry IV of France, the much-loved late 16th- and early 17th-century ruler who (long before Herbert Hoover) wanted "a chicken in every peasant's pot every Sunday." The father judged he'd make a poor hardware man. So he sold out to James Horton and two others - Gilmore and McWilliams - in 1888. Father and son went into retirement.
Edward's son, William McCormick Blair (bearing his mother Ruby's maiden name), was four years old at the time. He was 15 when his grandfather the hardware man died after ten or so years of retirement, at which point William was a student at Groton, a Massachusetts prep school.
LOUISE BOWEN THE MOTHER-IN-LAW
His mother was a McCormick (Ruby), whose great uncle had invented the reaper. In 1912 William married Helen Haddock Bowen, great granddaughter of the first white child born in the Fort Dearborn settlement that preceded the city's incorporation in 1837. Helen Bowen's mother was Louise DeKoven Bowen, who had helped Jane Addams found Hull House and was once asked by sister activists to run for mayor of Chicago.
This was in 1923, when she would have opposed the flamboyant incumbent William Hale ("Big Bill") Thompson for the Republican nomination. But she was a woman before her time, and the liberal
Republican men whom she asked to back her refused. They "resented the possibility of having a woman for mayor," she said at the time, as told by Maureen A. Flanagan, in a 1995 American Historical Association paper.
Among Louise's Hull House-related enterprises was development of a 72-acre spread on Sheridan road in Lake County which she bought in 1911 as a summer vacation spot for Hull House children. She named this "country club," as it was called, after her late husband, Joseph T. Bowen. It operated until 1962, serving over 40,000 children whose time spent there was "secure from the slow strain of the world's contagion," per the club motto.
WILLIAM BLAIR THE YOUNG MAN
Meanwhile, her future son-in-law William Blair had entered Groton School in 1897 for its six-year program, graduating in 1903 and entering Yale. There he lettered in crew and coached fresh-soph football, helped in that by the grandfather of Harvey Bundy, a William Blair and Company partner since 1976, who tells what he heard within his family, that the two coaches, juniors, led their team to victory over the varsity, using the new, experimental forward pass - a full eight years before Notre Dame defeated Army using the forward pass in 1913!
At Yale, Bill Blair was "tapped" for Skull & Bones, the invitation-only organization that in the mid-30s, when Blair, Bonner & Company was started, had a member who was to be president of the U.S., George H.W. Bush. Bill Blair was "last tapped," noted Bowen Blair, his son, meaning he was held in highest esteem among those tapped - literally, on the shoulder from behind, while standing in the yard.
Leaving Yale in 1907 at 23, he returned to Chicago; and after his job at Northern Trust bank, was for a short time a "bondman" (bond salesman), in city-directory terms, with David Reid and Company, on Dearborn Street. By 1909, he was officed in The Rookery building, apparently for Lee, Higginson, and living on "Lincoln Park Boulevard." By 1914 he had moved to 1416 Astor and was working as a "salesman" out of a fourth-floor office in the Rookery.
The 1416 Astor address was the house built for him and his bride Helen Bowen by Helen's mother, the recently widowed Louise. Her husband, Joseph T. Bowen, had been Northern Trust's first cashier, and her account there was Number 1. If such close connection with Northern helped Bill Blair get hired in 1907, it did not prevent his being fired shortly afterward, as we have seen.
When war threatened in 1917, Bill Blair joined the Four-Minute Men of Chicago, who gave four-minute speeches in support of the war effort during movie theater intermissions. His friend Donald Ryerson, of the steel family, organized the group in a meeting at the Saddle & Cycle Club and gave the first speech on March 31, 1917, at the Strand Theater, on Lincoln Avenue. The group went national, and Ryerson became its national director.
Blair the salesman led all in selling Liberty (war) Bonds in Chicago. When a national Committee on Public Information was formed that absorbed the Four-Minute Men, he went to Washington to be its director. Towards the end of the war, he enlisted in the Army and trained at a base in upstate New York. Also during the war, he donated for scrap what we may assume was a prized possession, his 1910 Marion Bobcat Roadster.
Life on Astor Street went on. Their house was on the same lot as Louise Bowen's, with a large lawn between the two. Bill and she got along well. The family summered in Lake Forest, renting there in May and June, and "did a lot of horseback riding," recalled Bill Blair's son, Edward McCormick Blair.
The Lake Forest horseback riding led to tragedy when Helen, the only daughter, died in a riding accident. Her parents were to name a newly renovated chapel after her at the family's church, Chicago's Fourth Presbyterian, on Michigan Avenue.
In July and August, "the polio months," Helen and the four children went off to Maine, staying at Louise's place in Bar Harbor. Bill would come up for a week or two - usually by train.
THE LEE, HIGGINSON FAILURE
At Lee, Higginson, which was Boston-based, Bill Blair was managing partner for the Chicago office. In this capacity he would be at the scene of what may be called a great financial accident. Lee, Higginson was a world-class investment banker in the mold of Chase National Bank, Bankers Trust, Kuhn, Loeb, and others whom the radio priest Father Charles Coughlin called the "twelve apostles of international banking." But its international leadership position led to a fatal mistake, underwriting the securities of one Ivar Kreuger.
Kreuger, a Swedish national, dominated Europe's match trade in the 1920s through his International Match Company and Kreuger & Toll company, which were affiliates of the giant Swedish Match Company. Thus he was generally known as "the match king." Widely considered a financial genius and something of a hero to boot, for his loans to war-ravaged countries, he was also rumored to have more money than he admitted, thanks to supposed peculiarities of European bookkeeping. He "did nothing to dispel" this idea, wrote Philip L. Carret in his 1991 book, A Money Mind at Ninety, but rather "encouraged it."
The opposite was true. Kreuger needed money. When he came to New York for more of it and was turned down, his bankers had a consolation dinner party for him which he attended as if he hadn't a worry in the world. But he sailed back to Paris and was fatally shot or shot himself. His books were opened and shown to be almost empty. His shares became not worth the sturdy paper they were printed on.
"The once great firm of Lee, Higginson & Company," wrote Carret, never recovered from the blow."
Bill Blair learned about it on a Saturday, a trading half-day. He had a tennis date in Lake Bluff with his friend Albert D. Farwell and sent word he'd be late. When he got there, he played, but not well.
"Something wrong, Bill?" asked Farwell, a friend from Yale with whom he had already been through some tough times in the securities industry.
"I'm broke," Bill replied. "Lee, Higginson has gone bankrupt."
RUNNING UP TO BLAIR, BONNER
It was left to Bill Blair to close down the Chicago operation as gently as possible or maybe even to keep it going until Lee, Higginson came out of the woods, as some apparently thought it might. For instance, he tried to get the dying firm to hold onto his own top salesmen by paying top wages until things blew over - among them three with the last names of Blunt, Ellis, and Simmons. He couldn't, however, and they left and formed their own firm, which absorbed others from Lee, Higginson.
Lee, Higginson closed for good in Chicago probably during 1934, some months before Bill Blair and Frank Bonner - two of many Lee, Higgins castaways - opened their doors at a time of dreadful economic uncertainty.
They both were starting over - at an age, 50 years old, when most have retirement in mind.
The nation's investment firms numbered just 200 -- down from almost 600 in 1929. True, the market was beginning to rise, but confidence was hardly restored. Investment banking itself was under a cloud, as shown in comments by SEC Commissioner, later Supreme Court Justice, William O. Douglas, who called investment bankers "financial termites . . . who practice the art of predatory or high finance," destroyers of "the legitimate function of finance . . . a common enemy of investors and business."
The new firm started with $50,000 that William Blair raised from friends - Joseph and Edward Ryerson (of the steel family), John and Douglas Stuart (of Quaker Oats), and Roger Shepherd, of Minneapolis, a friend from Yale. They told him there was $50,000 more if he needed it. He did need it three years later, when a preferred stock underwriting - for Pure Oil, headed by another friend, Rollie Warner - went bad when the market switched "dramatically overnight" and he
lost almost all of it, said Frank Farwell, relying on his father's account.
Industrial production, on the rise since the 1929 low, peaked in May, 1937, producing a "recession within the Depression," as Gary Walton and Hugh Rockoff put it in their History of the American Economy. By March, 1938, prices had slipped to less than half the peak of the previous May. Most critics blamed anti-business legislation of 1935 and 1936 and presidential rhetoric about "royalists of the economic order," saying it inhibited long-term investment.
Relief and public works spending had been cut early in 1937; and new taxes had been imposed, including the new Social Security tax. In addition, the Federal Reserve Bank "locked up" excess bank reserves, leading banks to reduce loans and deposits; and the money supply fell.
This was not 1930 and 1931 over again, however. Far fewer banks suspended operations, nor was the overall damage nearly as severe. But investment spending was still down, $7.1 billion since 1929; and the net national product was still "well below" the 1929 level, according to Walton and Rockoff.
William Blair had a plan, however. His eyes were peeled for Midwestern growth-oriented companies which he could recommend to investor clients. His emphasis would be on client success, not his firm's. He would be handling other people's money -- from largely Midwestern "pools of wealth" -- with a view to the long term. He would be in it for the long haul with investors and with companies invested in.
This meant the firm would originate issues, not sell what others originated. He would provide Chicago financing for Midwestern companies. This was key. His would be a wholesale firm, dealing with corporations, doing corporate financial work, deciding what securities would be marketed - work that had been left largely to New York-based firms.
He had something else in mind. His people were not to be simply salesmen who took product from New York wholesalers - Morgan Stanley and the like - for selling locally or regionally (retailing), as most firms outside New York were expected to do. Rather, they were to find investment opportunities and sell them. They were to produce their own product.
Not so with his Chicago competitors - seven at the start - who were to sell others' ideas exclusively, in the manner of the standard regional firm. All these were gone in 2000. "We found our own ideas, we did our own work, we found our own corporate clients," said the firm's CEO in 2000, E. David Coolidge III. "We did not rely on Wall Street."
William Blair and his firm had to be competent, of course, but more to the point, he had to be unfailingly square with people. Traditional values would be in play -- honesty and integrity above all. His successors in the firm still talk about it. He was a stickler on the point.
The new firm's quarters were of a piece with the new enterprise. The newly erected Field Building - on the site of the first Chicago skyscraper, the Home Insurance Building - stood for investment in a time of very little investment. Built before the Depression put a halt to major new construction, it was the last new skyscraper in Chicago for more than 20 years. The next was the Prudential Building, built in the 1950s.
It was also Chicago's first skyscraper supported entirely by its framework, not by its walls -- a beautiful structure, promoted to tourists in 2000 as an art deco masterpiece that "reached a purity of form with vertical bands of windows on the exterior and a stunning lobby of marble, metal fixtures and mirrored surfaces."
The firm moved onto one-fourth of one of its floors. There were 10 people - William Blair and his secretary, Dorothy Mosiman; Frank Bonner and his secretary, Gladys Reisman; Robert Kiep and his secretary; T.J. Cavanaugh, who ran the back office; Hugh Gary, a trader; a cashier with the last name of Nardi; and Betty Cavron on the switchboard. Blair and Bonner were the partners. Kiep, who worked closely with William Blair on his accounts, became one later.
Most of this information is from Dorothy Mosiman, who had helped William Blair sporadically while he was closing down Lee, Higginson and preparing to open the new firm, appearing "infrequently" at the Rookery Building offices. Dorothy had been hired through an agency to be of "extra help" to him. She was fresh from the University of Chicago, where she had studied English and history, and came to William Blair "knowing nothing and knowing I knew nothing," as she put it many years later. She became his right-hand woman, arriving daily at the Field Building office before he did and leaving after he left.
Frank Bonner had his own story, running parallel to the new firm's, most of it centering around his work for the securities industry. The firm opened officially in January, 1935. By September Bonner was chairman of the investment bankers' committee which was to decide whether to accept the National Recovery Administration (NRA) Code -- all that remained at this point of the NRA itself, which had been declared unconstitutional. Most felt the Code was "good . . . in principle" and had some "good points," and most bond dealers were trying to abide by it, he told The New York Times.
The code committee was drafting what The Times called a "workable self-government successor" to the NRA. Asked what he thought of Morgan, Stanley's recent decision to ignore the code's requirement of three days' notice (by prospectus) of a public bond offering, he answered diplomatically that the three-day provision had its good and bad points and had been "a subject of debate from the beginning." As for the code itself, his committee was "polling investment houses" to see how they felt about it.
Three years later, in July, 1938, he joined the SEC for three months in Washington as an adviser on how to organize over-the-counter brokers and dealers within the SEC framework. From these and other efforts that year came The National Association of Securities Dealers (NASD), created as OTC traders' self-regulating body -- a direct offshoot of Bonner's code-committee work of three years earlier.
His code committee became the Investment Bankers Conference, with the goal of establishing "high standards of commercial honor." Bonner's role in all this got a stamp of approval in January, 1940, when he was elected chairman of NASD's board of governors, succeeding B. Howell Griswold of Baltimore, the first chairman, who resigned.
He plunged further into his work, addressing the New York Security Dealers Association in March on the topic of OTC trading. In July he conferred with the SEC, The New York Times noted. By November, as NASD chairman and president of the Investment Bankers Conference, he found himself in the middle of the (pre-) war effort as head of an investment bankers committee negotiating with the SEC about defense-contract financing. In July, 1943, he was appointed director of the credit policy office of the Office of Price Administration. He was spending a fair amount of time in Washington and was to return there for good in 1944.
THE SECOND WILLIAM BLAIR & COMPANY
Meanwhile, Dorothy Mosiman was creating a support staff, at the start of a career with William Blair and Company that was to extend 48 years to her retirement in 1983. She was to be "mother confessor" to young women hired as secretaries over the years, and there was to be "a universe of people who care about her," as longtime partner Volney B. Foster put it in 1996. An accomplished pianist, she was also bilingual and when occasion called for it put William Blair's speeches into better French than he had at his disposal.
One can only imagine the great care with which Blair ran the firm, in view of his bad experience with the once-great Lee, Higginson. Dorothy Mosiman recalled his requiring a daily trial balance, which their auditor said was unique among firms he knew of. In later years and more complicated times, other managing partners would require not the trial balance but a daily income statement.
William Blair was also a mainstay of the (businessman's) Chicago Club, whose mortgage -- held by Northwestern Mutual -- came due at the start of the war. There wasn't money on hand to cover it, and he called on a friend -- the chairman of Connecticut General Life Insurance Company, in Hartford -- to take the mortgage over. The friend, a director of Swift and Company who knew the club from his Chicago trips, in effect saved it by granting another mortgage. Blair was club president at the time and ran it during the war years -- years, he said, of "lamb hash" for lunch, because lamb was available in those years of shortages. As for the firm, it was selling railroad bonds to stay in business. There was a good deal of such business, Chicago being the railroad center that it was.
One of the firm's bond salesmen was Robert Root, who came in 1943 from a Davenport, Iowa, house after meeting partner-to-be Wally Flower at a Des Moines bond convention. He had fond recollections in 2000 of how "Bill Blair took his salesmen to dinner at [his] Lake Bluff [home] twice a year - a dozen or fifteen of us" and of Bill Blair as "a very pleasant guy -- not a finer in the world."
Bonner decided to stay in Washington, and in 1944 the firm was reconstituted and renamed William Blair and Company, the name given that hardware business 102 years earlier. A new partnership was formed: William Blair, Wallace Flower, Donald Miehls, Lee Ostrander, and Daniel Ritter. Flower had joined in the 1930s and returned after some wartime service. Ritter was an old Lee, Higginson hand. The new alignment was announced in Wall Street Journal and Chicago Journal of Commerce ads and was reported in The New York Times.
Ostrander was head of underwriting, Miehls of municipal bonds. "Mr. Blair had the uncanny ability to get the right people and let them go creatively," Dorothy Mosiman recalled. "Letting go was a blessing for these men, who were given their head and not challenged all the time."
The five partners of 1944 constituted the firm when William McCormick Blair's sons, Edward McCormick Blair and Bowen Blair, returned from the war and joined the firm in 1946. At this point, their father's vision -- always for the long term -- had a clear shot at becoming reality.
-- end of chap. 1 --