John Oller - White Shoe - A Book with Legs

Summary

A Book with Legs: Episode Summary – John Oller on "White Shoe"

Release Date: December 16, 2024
Host: Cole Smead, CEO and Portfolio Manager at Smead Capital Management
Guest: John Auler, Retired Lawyer and Author of "White Shoe: How a New Breed of Wall Street Lawyers Changed Big Business in the American Century"

Introduction

In this compelling episode of A Book with Legs, hosted by Cole Smead of Smead Capital Management, the discussion delves into John Auler’s insightful book, White Shoe: How a New Breed of Wall Street Lawyers Changed Big Business in the American Century. Auler, a retired lawyer and journalist with a rich academic background from Georgetown University and Ohio State University, explores the profound influence of corporate lawyers on American big business from the late 19th to the early 20th century.

Origins and Inspiration

John Auler traces the inspiration for White Shoe back over a decade, initially stemming from his own work on a history of the law firm Wilkie Farr & Gallagher. This internal project expanded into a broader examination of major Wall Street law firms and their pivotal figures during a transformative period in American business.

Notable Quote:
“The modern mega law firm was born between roughly 1880 or 1890 to about 1915 or 1920.” [04:00]

Key Figures and Firm Dynamics

Paul Cravath and the Cravath System

Auler highlights Paul Cravath’s role in shaping modern law firms. Cravath, though not from the elite educational background he later sought in his hires, instituted the Cravath System—a meritocratic approach emphasizing hiring from top law schools and fostering a structured, hierarchical firm environment. This contrasted with contemporaries like William Guthrie, who preferred a more traditional, small-firm approach.

Notable Quote:
“Cravath was more of an organization man. He saw the limits of small proprietorship and systematized the big law firm practice.” [09:03]

William Nelson Cromwell: The Physician of Wall Street

Cromwell emerges as a particularly influential figure, known for his creativity and ability to rehabilitate ailing companies. His innovative approaches to corporate restructuring and bankruptcy proceedings laid groundwork for what Auler terms “modern-day stakeholder proceedings.”

Notable Quote:
“He was incredibly creative for his time, filing bankruptcy papers simultaneously in 50 different jurisdictions to streamline proceedings.” [21:53]

Northern Securities Case and Antitrust Implications

A significant portion of the discussion centers on the Northern Securities Case, a landmark antitrust lawsuit initiated by President Theodore Roosevelt. The case targeted the Northern Securities Corporation, a holding company formed by J.P. Morgan, James J. Hill, and E.H. Harriman, aiming to monopolize the transcontinental railroad industry.

Notable Quote:
“The Supreme Court ruled that Northern Securities was an illegal combination in restraint of trade, regardless of the holding company structure.” [19:06]

Auler explains how the legal strategies employed by lawyers like Francis Stetson and William Nelson Cromwell shaped the corporate landscape, ultimately leading to more stringent antitrust regulations.

Influence on Foreign Policy: The Panama Canal

Cromwell’s role extended beyond corporate law into significant foreign policy maneuvers, most notably the acquisition and construction of the Panama Canal. His efforts in shifting U.S. preference from Nicaragua to Panama, including orchestrating public opinion and supporting the Panamanian revolution, were pivotal in realizing this monumental infrastructure project.

Notable Quote:
“Without Cromwell, we would probably be talking today about the Nicaragua Canal, not the Panama Canal.” [23:34]

Roosevelt, Taft, and the Trust Buster Era

The episode delves into the political ramifications of antitrust actions, particularly the split between Presidents Theodore Roosevelt and William Howard Taft. Roosevelt’s progressive stance on regulating big corporations contrasted with Taft’s more aggressive antitrust prosecutions under Attorney General George Wickersham.

Notable Quote:
“Roosevelt feared a revolution from below and believed that restrained capitalism was necessary to prevent social unrest.” [30:32]

This ideological rift influenced the Republican Party and set precedents for future antitrust policies, illustrating the delicate balance between corporate power and regulatory oversight.

Legacy and Modern Parallels

Auler draws parallels between the monopolistic giants of the early 20th century—like J.P. Morgan and John D. Rockefeller—and today's tech behemoths such as Amazon and Google. He discusses the evolving nature of antitrust considerations, emphasizing how modern regulatory challenges echo past struggles with corporate concentration and influence.

Notable Quote:
“The Googles and Amazons of today were the Standard Oils and American Tobaccos of yesterday.” [49:48]

Evolution of Legal Ethics and Corporate Responsibility

The conversation touches on the development of legal ethics, particularly the contention between Louis Brandeis’s view that lawyers have a duty to the public versus the prevailing notion that a lawyer's primary responsibility is to their client.

Notable Quote:
“The lawyer's primary duty has always been to the client, not the public, which is why Brandeis’s view did not prevail.” [40:18]

Decline of the White Shoe Era

Auler reflects on the decline of the dominant influence wielded by Wall Street lawyers, attributing it to increased regulatory frameworks, ethical constraints, and shifts in political landscapes. He suggests that contemporary legal professionals operate under stricter rules that limit the kind of unchecked influence seen in the past.

Notable Quote:
“There’s not as much room for that kind of power and creativity today.” [66:31]

Conclusion

White Shoe offers a profound exploration of how a cadre of influential lawyers shaped the trajectory of American business and regulatory practices. John Auler’s insights provide a nuanced understanding of the interplay between law, politics, and corporate power, drawing lessons that resonate with today’s economic and legal challenges.

Notable Quote:
“They were making up the rules as they went along, determining the framework within which modern big business operated.” [66:31]

Further Information

For those interested in exploring John Auler’s work further, visit his author website and follow him on social media platforms such as Facebook and Instagram. Auler continues to contribute to discussions on American history, biography, and true crime, offering valuable perspectives on the intricacies of corporate law and its lasting impact.

This summary encapsulates the key discussions and insights from the episode featuring John Oller’s White Shoe. For a deeper dive into the complexities of early Wall Street law firms and their enduring legacy, listening to the full podcast episode is highly recommended.

Transcript

John Auler (0:03)

You're listening to A Book with Legs, a podcast presented by Smead Capital Management. At Smead Capital Management, we advise investors who fear stock market failure.

Cole Smead (0:12)

You can learn more@smeadcap.com or by calling your financial advisor. Welcome to A Book with Legs podcast. I'm Cole Smead, Chief Executive Officer and Portfolio Manager here at Smead Capital Management. At irfram, we are readers and we believe in the power of books to help shaped informed investors. In this podcast, we speak to great authors about their writings. The late, great Charlie Munger prescribed using multiple mental models and analysis. We analyze their work through the lens of business markets and people. Today, we are going to look back at the height of influence that corporate lawyers had in America. We will also learn what underpins many of the elite law firms of America today. Joining us is John Auler to discuss his book White How a New Breed of Wall Street Lawyers Changed Big Business in the American Century. He published this in 2019 to introduce our listeners to John. John is a retired lawyer and journalist. He has published numerous titles, including his most recently published book, Gangster Hunters. He received a law degree from Georgetown University and a bachelor's degree from the Ohio State University. John is a member of the Biographers International Organization and the Ohio School of Communications Advisory Board. John, thank you for joining me today.

John Auler (1:35)

Thank you for having me.

Cole Smead (1:36)

So, I mean, obviously your background lends itself to writing about lawyers, but, you know, what inspired you to write about these individuals? You have some really key figures, but, you know, did you come across a name that kind of got your mind going or how did that all come about?

John Auler (1:54)

I would say it sprung from the fact that about 10 years before I started this book, a dozen years maybe, I wrote a history of my own law firm, Wilkie Farr and Gallagher, which was one of the Wall street law firms discussed in the book. Actually, it was used to be called the Hornblower Firm and then it became Wilkie Farr. But that was just about my firm and its history. It was a short book, internally published, a little bit tongue in cheek here and there. But then I sort of got the idea, well, why don't I expand that and sort of write the history of all of the major or the most major Wall street firms from their beginnings to at least through a certain period of time. And then I had to choose when to cut it off. And I sort of chose a time period that kind of overlaps between. Some people call it the Progressive Era, some people call it the Gilded Age. It was the gay 90s. I mean, it Goes by a bunch of different names, but roughly 1880 or 90 to about 1915 or 20. And that was really when the modern mega law firm was born. They weren't mega back then. A first 15 person law firm was considered a law factory in 1905. But so I really wanted to, you know, pick the major law firms. And then they each had associated individuals who ran them and started them. And some of them were pretty big names, at least within the legal world and to some extent outside people like Paul Cravath of the Cravath firm. William Nelson Cromwell of Selvan and Cromwell. Charles Evans Hughes, who ran for President, Chief justice of the Supreme Court, became Hughes, Hubbard and Reed. Elu Root. His son formed a firm that later became Dewey Ballantyne. So anyway, all these big firms usually are affiliated with some fairly major Wall street legal players in the early years, sure.