Column: As Wall Road modified, one historic agency stood quick — for the higher

It might be probably the most distinguished Wall Road agency you by no means heard of: Brown Bros. Harriman & Co. traces its lineage again to 1800, when Alexander Brown moved to Baltimore from Belfast and began a linen buying and selling firm.

In 1931, what was then Brown Bros. merged with two comparatively new-money corporations that had been based by Averell and Roland Harriman, sons of the railroad tycoon E.H. Harriman.

The agency not boasts Browns or Harrimans amongst its companions, but it surely’s nonetheless a mainstay of the monetary sector, one of many final surviving main non-public corporations on Wall Road.

I believe we want extra corporations with a tradition that acknowledges that, in a world the place cash is energy and may unleash innovation and creativity, cash may also be extremely harmful.

Zachary Karabell

It’s additionally the topic of “Inside Cash: Brown Brothers Harriman and the American Approach of Energy,” a brand new e book by monetary commentator and historian Zachary Karabell. I talked with Karabell not too long ago in regards to the e book, the agency, and the tradition that guided Brown Bros. Harriman prior to now and nonetheless does so right now.

We talked in regards to the agency as exemplifying the concept that serving shoppers may be one of the best means for a enterprise to serve its personal self-interest.

Our dialog has been edited for size and readability.

Let’s begin on the finish. Brown Bros. Harriman is little talked about right now. The place does it stand within the Wall Road hierarchy?

It’s true that if individuals are conscious of the agency in any respect it’s due to a second within the twentieth century when it was a part of the institution of the institution.

If you happen to speak about them now, folks both assume they’re out of enterprise or they’ve been purchased or they’re a tragic story of a agency that’s simply eking out an existence.

The fact is that they have 5,000 staff, they’re a worldwide non-public partnership with possibly $2 billion in income, $500 million in revenue, and in the event that they have been publicly traded they’d most likely commerce for between $10 [billion] and $20 billion. In comparison with Morgan Stanley and Goldman Sachs, that’s modest. [Morgan Stanley is worth about $165 billion in market value and Goldman Sachs $125 billion.]

So what’s their most important enterprise?

They do numerous the extra obscure stuff of monetary companies, the workmanlike, low-margin custodial companies for different folks’s bonds and shares, and overseas alternate and asset administration. They do numerous the stuff that wants doing however not numerous the stuff that makes headlines.

You level out in your e book that they’ve survived the ups and downs of Wall Road, even as much as the housing crash of 2008, by doing the other of what the road is thought for: They stayed centered on their shoppers, and prevented dangerous ventures as an alternative of embracing them.

One of many constructive insights we are able to be taught from them is that danger is definitely dangerous. Brown Bros. understood that to outlive over the long run, it’s hardly ever a good suggestion to take outsized dangers relative to what you possibly can bear to lose. In case your aim is to final over the generations and be in concord with the world, then measured danger is what you wish to search for, not outsized danger.

In lots of ways in which’s the key of their success — don’t attempt to have all of it, as a result of doing so normally leaves you uncovered to having nothing.

So did they utterly keep away from railroads, the telegraph, and different main new applied sciences?

They did small investments within the railroad and the telegraph within the nineteenth century. However the emphasis was on small — they don’t take the lead, these investments will not be the predominant foundation of their enterprise. They’re not betting the farm. From the 1800s to the current, this can be a agency whose governing mantra was, if each night time you go to mattress, your books higher be balanced so when you get up within the morning and the world has modified for the worst, you’re ready for it. It’s being ever-ready for a disaster. It’s the right pandemic agency.

What saved them away from promoters who have been sucking in so many different huge financiers?

Plenty of these folks they discovered culturally unsavory. Brown Bros. Harriman then and even right now has a stiff tradition of rectitude that’s chemically averse to the speculators or the extra nakedly bold folks. For them, the entire group of speculators in railroad bonds was form of scuzzy.

One in every of your most important themes is the agency’s tradition, which was centered on serving their clientele with integrity. But they did do enterprise in Germany between the wars, and their involvement within the cotton commerce earlier than the Civil Struggle implicated them in slavery — although they have been supporters of the Union trigger.

There’s not an entire lot of hypocrisy — even of their involvement within the cotton commerce, which trusted slavery, they have been against slavery and tried to get out of the cotton commerce. That’s not an apologia for his or her involvement in slavery, which might don’t have any apologia.

There’s not a hint or trace of scandal or black sheep or problematic enterprise practices of their complete historical past, until you imagine some deep conspiracy theories about them within the Nineteen Thirties, that they by some means funded the whole lot that led to Nazi Germany. They’d vital enterprise dealings in pre-Nazi and early Nazi Germany, as did a zillion different American corporations, however they weren’t a part of some secret cabal to carry Hitler to energy.

Everybody talks in regards to the cliché that your phrase is your bond. Alexander Brown preached that in his letters to his sons, who turned the Brown brothers.

You write in your e book in regards to the one plunge into an enormous speculative funding that went improper, and maybe taught them a lesson.

One second within the nineteenth century after they form of dip their toes into speculative waters was funding the primary transatlantic steamship line to compete with Cunard. James Brown, a son of the founder, invested with this man Edward Knight Collins, a form of roly-poly self-made aggressive character — there was a cause why Collins and P.T. Barnum have been buddies; they have been lower from the identical material.

The opposite Brown companions have been repulsed. They have been saying, “We don’t wish to be round that kind of particular person with the mentality of I wish to get mine, I wish to get all of it, I wish to get it rapidly and rattling the results.”

After which … ?

The road’s S.S. Arctic went down in 1854 in a collision. It was the Titanic of its period. Collins and James Brown misplaced a number of relations. The sinking of the ship sank the hopes of the road. The agency by no means actually embraced that form of speculative enterprise once more.

But they ended up merging with the offspring of one of many nice railroad tycoons of the late 1900s, E.H. Harriman. How did that occur?

They by no means would have merged with E. H. Harriman himself. However his sons, Averell and Roland, had began an funding agency in 1920, partially as an excuse for Averell to journey around the globe and attempt to do offers. They have been a brand new agency run by the 2 sons of a wealthy man. And also you had Brown Bros., which had been round greater than 100 years.

All its youthful companions had all gone to Yale, and most of them had been in Cranium and Bones — it was the clubbiest of the clubby institution. Prescott Bush [father of President George H.W. Bush and grandfather of President George W. Bush] married the daughter of George Herbert Walker, who was the president of the Harriman firm. and Robert Lovett, the son of Robert Lovett who managed the Harriman enterprise, married the daughter of James Brown, so all of them knew one another.

However they will need to have had a cause to merge.

Brown Bros. had purchased an entire bunch of Argentine bonds at precisely the improper time. And whereas Harriman had cash, all of the enterprise was shrinking. You had a enterprise with out sufficient cash and cash with out sufficient enterprise. So that they merged. The infusion of Harriman capital helped float the enterprise throughout the worst of the Nice Despair.

This was additionally the interval that led to their peak in political affect, proper? Averell Harriman spent a time period within the mid-Nineteen Fifties as governor of New York and years as a diplomat.

There was Prescott Bush. Robert Lovett [who became a partner of Brown Bros. Harriman in 1926] was most likely some of the essential State and Protection officers from 1941 to 1952. JFK needed Lovett to be his secretary of Protection or the Treasury, however Lovett really useful Robert McNamara and Douglas Dillon for these posts. They’d enormous political weight, however the world has moved on.

Do we want extra corporations on Wall Road like Brown Bros. Harriman?

We’d like extra corporations with a tradition that acknowledges that, in a world the place cash is energy and may unleash innovation and creativity, cash may also be extremely harmful. On the heart of a system that’s controlling the movement of cash, you do need extra folks culturally to be conscious of its capability to destroy and never simply tripping over themselves simply to get more-more-more-more.

Some components of speculative capital are actually important for the system, however you need that to be the spokes and never the hub. On the earth right now it’s the reverse. Too many corporations on the heart try to get more-more-more and the conservative, quieter elements are pushed to the periphery. That steadiness I don’t assume is wholesome.

You need there to be a perception that to those that’ve been given lots, lots is anticipated. The companions of this agency imagine that, and I don’t assume it’s hypocritical. It may need been self serving, however we should always be capable of imagine that folks may be attentive to their very own good and in addition to the general public good. The 2 will not be inherently at odds. That tradition is a crucial one for a extra balanced capitalism and a extra balanced society.

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