My last official interaction as a banker with the firm occurred on December 21, 1984, where at a dinner I was made an honorary partner and presented with a check bearing the legend, "Distributive Share to Honorary Partner Wriston for Fiscal 1984." The sum of the check was $3.65. I have refrained from cashing it, lest the auditors get upset, but through some administrative error, the firm has failed to forward my checks in all the intervening years.

Despite this egregious error, Steve Volk has asked me to talk to you today about the relationship, past and present and future of the firm and the bank. I am no expert on the present, but I know something about the past, and my view of the future can't be checked for years. The relationship goes back a long, long way. It started even before the firm was founded in 1873 by Thomas Shearman and John W. Sterling. Their previous firm, Field and Shearman, had ties to Cyrus Field whose efforts to install a transatlantic cable were financed by Moses Taylor, the then President of Citibank. When James Stillman took over the bank in 1891, it had only two officers, the president and a cashier and a handful of employees. Then as now, personal relationships counted for a lot. A close relationship developed between James Stillman of the bank and John Sterling, which started when Stillman asked him to look after his personal ranching interest in Texas in 1876. Fate then intervened as a bank in which Sterling was the principle owner failed and in a role reversal he went to Stillman to persuade him to bail him out by buying what was left of it. A merger was arranged between Citibank and the Third Nation Bank, and upon its completion Stillman's biographer Anna Burr opined that "The lawyers judgment was even more fully trusted."[1]  The two men lived around the corner from each other and often dined together, but in any event met each night at 10 p.m. if they missed dining together. Sterling started a wonderful tradition that has unfortunately lapsed. He refused to take any fee for his services. As with any institutions that survive for many years, whether governmental or private, Citibank and the Firm had their troubles from time to time - some as a victim of domestic or global dislocations and some self inflicted.

After the crash of 1929, Charles E. Mitchell, Chairman, came under attack for the practices of the bank and its affiliate, the City Company. As the depression deepened the hunt for a scapegoat was in full cry. Action centered on hearings held by the Senate Banking Committee. Ferdinand Pecora, the counsel to the Senate Banking sub-committee was determined to bring down Charles Mitchell. For reasons which are unclear, the Firm made a large conference room available to Pecora where for four days he worked early and late studying the practices of National City Company and taking extensive notes from the records of the bank to build a case against Mitchell. The motivation for this hospitality by the Firm to an adversary of their client is unclear. When Mitchell testified before the committee on February 21, 1933, however he was accompanied by an S&S partner, although at his subsequent trial for tax evasion, at which he was acquitted, he was represented by Max Stever of another firm.

The constantly changing value systems and the ebb and flow of business troubles kept the firm and the bank in daily touch for over a hundred years. Indeed, for many years the firm was represented on the bank's board, a situation that was not that unusual at that time. As time went by, it became clear that this arrangement had many downsides, and so with great trepidation I made the pilgrimage to Mr. Eaton's office to suggest that when he retired from the board, he be the last of the firm's partners to serve. To my great relief he agreed at once. Perhaps his memories of the famous Gallin case in which the firm could not appear in court to represent the Bank's directors who were being sued, because three of the defendants were partners of the firm influenced his action.[2] 

The good news is that it is fair to say that anything of any consequence that happens in the world affects Citibank for good or ill and the resolution of the resulting problem often requires a lawyer. As it became clear that the banks were losing market share at an alarming rate to others in the financial business, the idea was conceived that we would form a bank holding company to break out of some of the restraints put upon banks in the 1930's. The technical problems involved were formidable, but the firm obtained from the IRS and the SEC rulings and no-action letters to permit the scheme to go forward. I still remember coming into the Citibank boardroom early the day of the meeting at which we would ask the board for approval, and seeing a young brilliant lawyer named Jack Roche whose white face reflected the fact that he had not been to bed for days as he put together the myriad documents to make this path-breaking step a reality. He of course followed another partner, Hans Angermueller, in the post of General Counsel of the Bank.

The firm and the bank played a significant role in the release of the hostages from Iran. John Hoffman was heavily involved in everything from finding a rationale for offsetting our deposits against Iranian loans, to becoming a channel of communication between Iran, the banks and the government. At the last minute, when a deal had been struck, the Bank of America blocked it by arguing about the interest they would pay on the blocked Iranian balances. We got President Carter to call BofA and, as they say, cooler heads prevailed. In the middle of President Reagan's inauguration, the money was transferred and the plane took off with the hostages aboard.

Sometimes the bank attempts to give lifetime employment to one of your partners as in the case of Henry Harfield and the Banco National de Cuba, a case that went on for 13 years and was argued twice before the Supreme Court, which threw it back to the appellate court where it was finally won. The list of events in which the firm participated with the bank tracks the business history of our country and would fill volumes. In short, in the past the bank and the firm have been arm in arm in good times and bad, and there have been plenty of both. But times are changing and the relationship has grown more complicated because the world has grown more complicated. Years ago when the firm represented both Citibank and Chemical Bank the conflict-of-interest problem was more clear cut, and when this was brought to the firm's attention as a sort of either/or situation the Chemical was dropped as a client. Today the world is not that simple and potential conflicts of interest seem to come in a different door each day. From a near monopoly on Citibank's legal business, the firm while still in first place by a huge margin, is no longer the only choice. In a similar manner, the firm's partners have many choices for their personal affairs. Many partners do not use the Bank to manage their investments, or they choose to maintain a CMA at Merrill Lynch instead of at Citigold. They give their business to others because in their opinion these companies can do specific tasks better than Citibank. While we would take issue with that judgment, it represents reality. The same principle applies in picking a lawyer for a specific task as no group can be all things to all people.

This situation is complicated by the fact that as technology becomes embedded in business, the law of technology which is convergence, becomes more and more evident. As one company after another merges or creates alliances, the number of financial players grows smaller and the potential conflicts grow. The growth of business alliances is another rapidly growing phenomenon. The word "alliance" has come to encompass everything from a 500 page document to a handshake, and often creates strange bedfellows--for example, Mercedes has teamed with Swatch Watch to help them develop a car that will appeal to young buyers. Companies with old names are now doing new things, many of them in the financial area. Everything is converging and many believe there is now little difference even between a product and a service. Chris Meyer points out that LoJack is a product that will not prevent your car from being stolen, but it is also a service in the sense that it will help you get it back if it is. The hidden radio device signals its exact location to the police. "The product is simply a service waiting to happen; the service is the product in action." There are hundreds of such examples which will create all kinds of legal issues that are not yet evident, but will furnish grist for your mill in the years to come.[3] 

While no one can predict how the relationship of the firm and the bank will develop in the future, particularly in view of the pending merger with Travelers, we can make some guesses as to the kind of environment in which that interaction will take place. The first fact about the world of tomorrow is the easiest to articulate but the hardest to grasp. We understand the words and even see the evidence, but don't quite absorb the fact that the old industrial society we grew up with is slowly morphing into a new information network society, an economy that has new rules some of which are only dimly visible. Peter Drucker has gone even further to opine that the new realities make a comprehensive economic theory of how the world works almost impossible. "To give us a functioning economic theory, we thus need a new synthesis that simplifies - but so far there is no sign of it."[4]  The marriage of the computer with telecommunications has created a truly global market for everything from information, to money, to stocks and commodities. Your new competitor may be half way around the world--even someone you never heard of until his product or service shows up in what you thought was your market. American business in now fully aware of this and has begun to put its capital where the action is. Today: "All the world's businesses spend more on telecommunications each year than they do on oil."[5]  Indeed this capital investment in technology has provided the world with a new kind of energy that flows through the world's networks. This in turn has fashioned a new kind of economy, a network economy in which the classic economic law of decreasing returns, has been replaced in many instances by the new paradigm of the law of increasing returns. For example, one fax machine is worth nothing, two something, but 100,000 of them connected together explodes their value. In the old economy, it was a given that two pounds of hamburger would cost about twice as much as one pound. In the network economy, the second piece of software is not twice as expensive as the first - in fact it is basically free. Netscape, for example, gave away some 50 million copies of its software, when conventional wisdom dictated that giving away one's product was no way to make a profit. Netscape made its profit on the back end by selling upgrades, but more than that by giving the initial disk away grabbed market share which established a standard.

It can be argued that the speed and size of these global markets today have created a difference in kind and not just in degree from markets in the past. After all it is speed alone that transforms a harmless piece of lead into a deadly bullet or a group of still pictures into a motion picture. The speed, size and complexity of the market made possible by the convergence of computers and telecommunications has had and is having a profound effect on the world we live in. Nicholas Negroponte went even further when he opined that: "Computing is not about computers any more. It is about living."[6]  It is computers that make possible the global market, and markets of all kinds impact the way we live, the way we work, and what we work at.

The global market today might be described as the very model of what has become known to scientists as a complex adaptive system. The agents, or people who influence the system range from learned central bankers to 21-year-old traders at some small merchant bank. The number of agents in the global market are numbered in the millions, each having his or her own agenda and interacting in ways to produce a result that cannot be predicted. Indeed modern mathematics have proved that complex systems do not permit prediction. When the pundits on the evening news explain why the dollar is strong or weak, or why the stock market went up or down 120 points, they advance the limits of creative writing but not necessarily our understanding. These great complex systems are non-linear and tend to resemble biological rather than mechanical systems. In these systems the chaos theory postulates that small events tend to have large consequences over time. The classic example is that of a butterfly moving its wings over China affecting the weather weeks later in Wisconsin. The global market exhibits some of these characteristics. Despite massive work by the Santa Fe Institute and many others, we just don't know just how these complex systems work. As Mitchell Waldrop put it: "...The marketplace responds to changing tastes and lifestyles, immigration, technological developments, shifts in the price of raw materials, and a host of other factors."[7] 

In this new networked world, refinement of current practice whether in law or business or government is no longer as important as innovation. We live in a world that favors decentralization, rather than centralization. It is a world that will see the increasing importance of what in Washington speak are called NGO's, or Non-Government organizations which run the gamut from the International Red Cross to Save the Whales. This is not a minor matter: The union of non-government organizations identifies more than 30,000 international organizations with the great majority being non-governmental. These new agencies have multiple allegiances and global reach. Recently a NGO was the driving force behind the proposed treaty of Land Mines. And their role in recent international conferences from Rio to Tokyo is unprecedented. These NGO's represent no business interests, nor those of governments. They represent their own special interest. How you advise your clients to deal with this new force will assume increasing importance.

In addition to NGO's, there is another tide running in the world which was not foreseen. Many predicted the growth of world government and huge new world governance organizations, which would control the way we live and work. This did not happen. Instead of great new international organizations, we see a loose coalition of bank regulators from many countries meeting together to set up capital standards. These coalitions bypass the foreign offices and state departments that used to guard communications between nations. This bypassing of diplomatic channels is happening on many fronts. In the legal field, judges are building a kind of international community without benefit of diplomats. Anne-Marie Slaughter of Harvard Law School has pointed out that: "The Israeli Supreme Court and the German and Canadian constitutional courts have long researched US Supreme Court precedents in reaching their own conclusions on questions like freedom of speech, privacy rights and due process."[8]  Judges in the European Community meet together regularly, and in our part of the world the Organization of the Supreme Courts of the Americas became functional in 1996. Like national bank regulators, the judges are producing a kind of judicial foreign policy. The development of the law for this new networked world seems to be following the same path as other institutions. Ann-Marie Slaughter recently summed it up this way: "Champions of a global rule of law have most frequently envisioned one rule for all, a unified legal system topped by a world court. The global community of law emerging from judicial networks will more likely encompass many rules of law, each established in a specific state or region. No high court would hand down definitive global rules. National courts would interact with one another and with supranational tribunals in ways that would accommodate differences but acknowledge and reinforce common values."[9]  The ultimate test of these arrangements will be accountability to the people, as democracies will not want to put their fate in the hands of technocrats without oversight for very long. There may well be an increasing tension between the Act of State Doctrine and the Constitutional sanction of a treaty. Just last week, a Paraguayan man was executed by the State of Virginia, despite an order by the International Court of Justice requiring the United States to "take all measures at its disposal" to stop the execution. Even the American Secretary of State weighed in citing the Vienna Convention on Consular Relations that requires that foreigners accused of a crime be advised that they have a right to speak to their consul - an event which did not occur in this case. Prosecutors argued that this technical violation could not lead to a reprieve for a man who committed a horrible crime, and the Supreme Court in a 6 to 3 ruling let the execution proceed. In an increasingly interconnected world, this case may only be a harbinger of things to come.[10] 

The huge flow of information moving around the world at near the speed of light has created new uncertainty about copyright laws, the right to privacy and who owns information. British copyright law dates back to the Statute of Anne, enacted in 1709 at a time when pen and paper was the only way to communicate. How a concept and a law three centuries old can be reformulated to fit tomorrow's world will be a huge challenge. As in most things, there are competing values to contend with. The right of a person to own the intellectual property he or she created is enshrined in our patent and copyright laws, but in a connected world the theft of intellectual property becomes easier and constitutes a growing problem. The rights granted by the First Amendment of our Constitution sometimes seems to conflict more and more with our rights to be let alone and of our right to privacy. This issue is further confused by the fact that some people want privacy while others want all the publicity they can get. Some want their views to get wide circulation while others want to keep their secrets, be it the formula for Coca-Cola or the source code in a new piece of software. All of this is complicated by the fact that today all products of the mind from music to literature to science and mathematics can now be reduced to zero and one in the digital age and sent around the world at near the speed of light. The sheer volume of this digital data causes many to estimate that in the very early years of the next millennium that voice traffic across the world networks will constitute less than 2% of the traffic--all the rest will be data. Anne Branscomb, after years of study, has written that "we have not yet ventured upon a coherent effort to rationalize the legal infrastructure of the information age."[11]  Technology has usually far outstripped the law, and we have the witness of no less a legal personage as Oliver Wendell Holmes who pointed out in a speech at Harvard Law School that: "It cannot be helped, it is as it should be, that the law is behind the times...As law embodies beliefs that have triumphed in the battle of ideas and then have translated themselves into action. While there is still doubt, while opposite convictions still keep a battle front against each other, the time for law has not come; the notion destined to prevail is not yet entitled to the field."[12] 

The whole structure of the Net and what law will prevail is up in the air, or more precisely in cyberspace. Privacy clashes on a minute-to-minute basis with the flood of information. Congress attempts to impose censorship on the Net and runs up against the First Amendment. Because the network exists in cyberspace, no one nation or authority can lay hands on it. The situation will only get worse since Moore's Law still operates and in addition bandwidth is growing faster than anyone predicted. This massive increase in connections is changing the way business is conducted. All of these currents that are running in the world create, what in modern terms, is called a paradigm shift in the way the world works. George Gilder has explained that "The key to paradigm shifts is the collapse of formerly pivotal scarcities, the rise of new forms of abundance, and the onset of new scarcities." Engineers and scientists double the capacity of transmission lines about every two years, and have created abundance where once there was scarcity, and competition where once there was monopoly. The FCC can no longer cope and indeed Peter Huber has suggested that it be abolished as an artifact of the past. In its place he would put: "Nothing grander than common law...The telecosm is too large, too heterogeneous, too turbulent, too creatively chaotic to be governed wholesale from the top down." In a great understatement he goes on to say: "This is, of course, unsettling."[13] 

The accounting profession, like the law, lags far behind reality-hard assets, things you can see and touch are regarded as real, but intellectual capital fails to make the balance sheet. The market which has always been the best measure of value over time sees intellectual capital in a very different light. The market cap of Microsoft now exceeds that of the General Motors, Ford and Chrysler put together even though its physical assets are almost trivial in comparison. When the market values intellectual capital so highly, while accountants do not, complex legal questions are bound to arise.

The government's prosecution of Microsoft in the world's fastest changing industry, for the alleged monopolistic practice of "bundling" the Web Browser with Windows is a world moving pell-mell to ever more integrated circuits, and for "dumping" in an industry that constantly cuts prices, puts new strains on old laws.

On a national scale the numbers of our balance of trade, which cause vigorous legal contests between nations, are also based on yesterday's world. It can be argued that the very concept of a trade balance is an artifact of the past. As long as capital--both human and money--can move toward opportunity, trade will not balance; indeed one will have as little reason to desire such accounting symmetry between nations as between California and New York. Today's numbers do not measure export or import of intellectual capital in the form of software, nor do they take account of value added in several countries. The dress you buy in New York may have originated on a loom in Korea, it may have been cut and sewed in Taiwan from a French design, sent to Italy for "a made in Italy label" and then would end up in Fifth Avenue. Our current international statistics cannot track any of these value-added steps, making balance of trade figures almost useless as a policy guide.

So what does all this mean in practical terms for the future of the relationship of the bank and the firm. First we have to realize, not only on an intellectual level but in our bones, that the world really has changed in a very significant way. The global market is a reality that will not go away and Citibank is perhaps the only truly global financial institution in the world. Other banks when the going got tough closed down or greatly reduced their foreign presence or moved to merchant banking, or they specialized in some specific part of the world. Citibank on the other hand, in the words of the current Annual Report, is "applying advanced technology to ensure that we offer...today and in the future, a full range of secure, easily used access points, around the world and around the clock." The achievement of that goal will call for the full range of legal expertise that will be required by the new network economy and by the bank's commitment to use the technology to maintain and enhance its leadership role. It is safe to say that some battles will be fought at the intersection where the advocates of individual privacy meet the guardians of national security. "Privacy" in the great phrase of Kevin Kelly "is a type of information with its polarity reversed..."[14]  With good security freely available on the Net and in many places overseas, our Government's efforts to block its widespread use is a losing game. Of course the old-fashioned letter with no return address offers the best security, but it is unsuitable for bank volumes. The legal situation of venue on the Net is also murky. No consensus has emerged as to what nation's law would apply to transactions in cyberspace where many of the bank's future transactions will take place. As a recent Treasury study dryly put it: "Nation states may find unilateral enforcement of electronic money rules difficult."[15] 

The continued growth of the card business in all of its forms will accelerate the efforts to create what Stan Davis first called "Mass customization." We will have to deal with the attempt to tax data, or its transmission. The strength of patents will be tested and dispute will arise about venue as commerce explodes on the internet. In any period of massive change, new and unexpected problems will explode and will have to be dealt with. As in ancient times, anyone can announce the issuance of his or her brand of private cash and then try to convince people that it has value. There are no lack of entrants to operate these new private mints ranging from Microsoft to Mondex and more enter every day. It would not be surprising if the bank became a player. While E-cash is not legal tender, it is nonetheless being accepted in payment by ordinary people. If people believe that bits and bytes arranged in a certain way have value, it can be argued that what they pay and receive is money. This trend poses complex new legal and policy problems for us all. "A commerce whose primary form of money is data," David Bollier has written, "alters many of the implicit assumptions we have about contemporary organizations."[16] 

In short, tomorrow's law firm must match tomorrow's business configuration and problems. While you have become skilled in IPOs and the securitizing of many different kinds of assets, it is possible that in the future you will be called on to draw the documents to securitize the cash flow of people. Only people produce intellectual capital which is now mankind's most important asset. The British rock star David Bowie sold some $55 million of ten-year bonds secured by the cash flow from the future royalty payments from his more than 100 songs.[17]  Last week, David Pullman, the banker behind these Bowie bonds, lined up $30 million against future royalties of Motown Songwriting Trio Holland-Dozier-Holland. A new financing group EFT has obtained resources to handle more than a billion dollars annually.[18]  Some predict this will be the biggest trend in entertainment in the future. Groups of doctors may join the effort, and perhaps law firms who want the cash now. The Prudential has put up $200 million in a company designed to securitize any intellectual property that has a proven income stream, and this may open up a whole new business.

Each step along the way will create new opportunities for both the firm and the bank, but just how these will arise is not predictable because we will both be operating in a great complex adaptive system where small events produce massive result. Along the way a lot of errors will be made in both business and the law, because all progress in the end is trial and error. "Error," Kevin Kelly has written, "whether random or deliberate, must become an integral part of the process of creation."[19]  It will be an exciting time, and in the words of the Toyota commercial: Enjoy the Ride.

[1] Burr, Anna Robeson, James Stillman: Portrait of a Banker, 1850-1918, Duffield 1927

[2] John A. Garver, Guy Cary and Garett Winston

[3] See: Davis, Stan and Meyer, Christopher, Blurr, Addison-Wesley, 1998

[4] Drucker, Peter, The New Realities. Harper & Row, 1989, p 157

[5] "Wired," September 1997

[6] Negroponte, Nicholas, Being Digital, Alfred A. Knopf, NY, 1995

[7] Waldrop, Mitchell, Complexity, Simon and Schuster, 1992, p 11

[8] Slaughter, Anne-Marie, "The Real New World Order," Foreign Affairs, p 186

[9] IBID, p 189

[10] Greenhouse, Linda, The New York Times, April 13, 1998, p A14

[11] Branscomb, Anne Wells, Who Owns Information, Basic Books, 1994, p 185

[12] Holmes, Oliver Wendell, Collected Legal Papers, New York Harcourt Brace and Co., 1921, p 291

[13] Huber, Peter W., Law and Disorder in Cyberspace, Oxford Press, 1997, p 206

[14] Kelly, Kevin, Out of Control, Addison-Wesley, 1994, p 212

[15] U. S. Dept. of Treasury, "An Introduction to Electronic Money Issues," prepared for the U.S. Dept. of Treasury Conference "Toward Electronic Money and Banking: The Role of Government," Sept. 19-20, 1996, Washington, D.C.

[16] Bollier, David, The Future of Electronic Commerce, Aspen Institute, p 27

[17] Forbes, Feb. 23, 1998

[18] Reuters New Wire, April 16, 1989

[19] Kelly, Kevin, op cit, p 470