The Dow's high for the year was 891.66, there were long lines at the gas pumps, and Goldman Sachs, Morgan Stanley, and Lehman Brothers were essentially one-office firms. "Most of us who went into banking thought it was going to be a demanding and exciting career path," says one member of the Class of 1974, "but we anticipated that the majority of our work would be relatively small-scale and client-oriented. I don't think anyone was ready for the amazing ride we've had."

Ready or not, those 1974 classmates who entered the world of finance after graduation have been swept up in a powerful wave of change. The unprecedented flood of mergers and acquisitions, the advent of the global marketplace, the stock market's dizzying rise, and the capricious fortunes of technology-based companies have made financial services a fascinating trade during the last quarter of the 20th century.

To capture an insider's view of the action, the Bulletin asked five members of the class who have been involved in a variety of banking endeavors to share some personal and professional insights and to reflect on the lessons, losses, and phenomenal gains of their industry over the last 25 years.

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Kevin W. Kennedy

A managing director at Goldman Sachs, where he has spent his entire career, Kevin Kennedy has served the firm in a number of positions, including head of Corporate Finance. He is currently cochairman of the Commitments Committee and a senior banker.

As an undergraduate at Hamilton College, Kennedy majored in art. "I did some awful paintings and metal sculpture," he laughs. "Even my mother saved only one of my paintings through the years - that's how bad they are." He nonetheless places a high value on the liberal arts education he received at Hamilton and now serves as chairman of its board of trustees.

Kennedy says he has developed "an appreciation for a tolerable level of risk" in trying to decide which companies to underwrite at Goldman. "It's painful every time you back a loser," he notes. "You really are shooting for zero defects, but if you don't have some failures, you're probably not taking enough risk."

When asked to share his proudest achievement, Kennedy looks instead to the career of his wife, Karen, who enrolled in medical school at the age of 37 and now has a pediatric practice in Manhattan. "I am very proud of what she has accomplished," he says. "After working when I was in business school and then raising the kids, she pursued a goal that most people would have thought unattainable. She loves practicing medicine."

How would you describe the value of Internet stocks today?

Frightening. Frightening if you own them - and just as frightening if you don't. I think most people feel that it's awfully tough not to make an investment in this area. My hat's off to the Warren Buffetts of the world, who have the courage to say, "I don't buy stocks I don't understand." But I think those people also run a tremendous risk of being left behind.

Goldman has a big market share in Internet stocks, and we have tried our best to understand them, but some of this defies rational analysis! We're using valuation benchmarks that I can't imagine Jay Light even dreamed about in 1974. I just hope that things develop as well as everybody's projecting them to. Otherwise, the valuation adjustment could be quite harsh.

Is there anything that you've missed out on because of the demands of your career?

When you're fully engaged in your career, you don't have oceans of time to be involved in your community and in the organizations that are important to you. When I think about the future, though, I look to John Whitehead (MBA 11/'47) as a terrific role model. After he left Goldman Sachs, he held a senior position in the State Department, and he now serves on so many boards that he's probably as busy and involved today as he was when he ran the firm. He's made philanthropy and involvement in social enterprise a full-time job.

What was your first job?

When I was about ten, I started giving puppet shows at neighborhood birthday parties. I had a little theater and a bunch of hand puppets, and it was lucrative enough to make me feel pretty wealthy when I went to the candy store.

What is your outlook for the stock market over the next five years?

I think most of my classmates would say that what has hap-pened in the stock market in the last 25 years has far surpassed their wildest dreams. Going forward, I'm cautious but fundamentally bullish. I would be shocked if, in the next five years, we didn't have an adjustment of some significance. But I think the underlying fundamentals continue to be good, and the long-term outlook has gotten better and better. If you asked me the outlook for the next fifty years, I would say it's sensational.

How would you rate your personal computing skills?

I've kept up pretty well, by necessity. You can't get a stock quote today without being able to use a computer. Our ability to produce information for analysis has increased exponentially since we were at HBS. I marvel at how quickly things have changed. When I started in this business, if a client wanted price and volume information, someone had to literally go to the library to consult the books put out by the stock exchange, write down the information, and bring it back to the office to have it typed up. Can you even imagine that today?

Would you want your kids to do what you do?

I really consider myself to be one of the luckiest people in the world, with all the times I've won the lottery: being born in America, having parents who could afford to give me a terrific education, getting into Harvard Business School, working for a hugely successful company. If one of my kids wanted to go into this business, that would be great, but what I wish most for them is that they find something to do with their lives that will give them personal satisfaction.

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Stephen M. Waters

An investment banker for the past 25 years, Steve Waters says that what he likes best about his profession is "the opportunity to build businesses." A graduate of Harvard College as well as HBS, Waters spent the first part of his career at Lehman Brothers, where he cofounded the Mergers and Acquisitions department and presided over some of the largest deals transacted during the merger-crazed 1980s.

He joined Morgan Stanley in 1988 as a managing director and later served as cohead of Mergers and Acquisitions, becoming a member of Morgan's Operating Committee in 1990. Beginning in 1992, Waters spent four years in London as cohead of the firm's European operations before resigning in 1996 to found Compass Partners International, a privately held investment banking advisory and investment firm that manages a large European private equity fund.

"I was lucky, both at Lehman and at Morgan, to be given a chance to be involved in the development of some really interesting companies," says Waters. He is pleased, nonetheless, with his decision to go out on his own. "To go from conferring on major issues with heads of global companies to choosing the color of the chairs in the conference room was a bit of an adjustment," he laughs, "but the best thing about this experience is that it's given me a chance to assemble a great group of people and work with them to create what I hope will be an extraordinary fund and firm."

Waters and his wife, Sandy, have three children, including a son who is currently enrolled at Harvard College. A member of the HBS Visiting Committee since 1996, Waters has long been involved in fund-raising activities and as a key member of numerous committees at HBS and at the College. In addition, he has served as Section I's Class Notes correspondent for the Bulletin since 1974.

What was your first job?

Delivering the Hartford Courant at 4:30 in the morning when I was in high school. I was on the track team, and I used to run through my paper route, which allowed me to get in an extra workout each day.

Later, like a lot of our class, I served in the armed forces (Navy) during the Vietnam War before attendingbusiness school. We were probably one of the last classes to have a high percentage of veterans.

What is the most important thing you've learned about business since leaving HBS?

It's better to focus on a few things and do them well than to do lots of things in a mediocre way. I've also learned that, in this business, it's not a bad idea to be a contrarian and resist the urge to follow the herd.

Mentors?

The late Steve Fenster (MBA '66) was a partner at Lehman when I joined the firm. He taught a lot of people about the importance of high standards and about dedication to one's career. There aren't many senior people in this field who will take the time to help younger people along, but Steve was exceptional in that regard.

How have your priorities changed since 1974?

In 1974, achieving financial success was a very important goal. But as I've aged, I've become much more interested in building successful enterprises than in making money personally.

Another change is that when I was starting out, I didn't clearly grasp the difference between being an owner of something and being an employee. I've found that it's much more fun to be the owner.

And, of course, on the personal side, having a wife and family sets up a whole new list of priorities that weren't present at graduation.

Is there anything that you've missed out on because of the demands of your career?

Owning a baseball club. I happen to love baseball, and I think it would be wonderful to have that sort of involvement with a team.

How would you describe the value of Internet stocks today?

Psychological. The same stock could theoretically trade at $2, $20, $200, or $2,000 a share, which is why I view them as apsychological phenomenon as much as anything. I don't have a clue as to how Internet stocks are valued and as a result tend to stay away from them.

How would you rate your personal computing skills?

My children would say laughable, but I can check my e-mail and surf the Net.

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James A. Stern

I was with the same firm for quite a long time, but I changed venues and functions often enough to stay energized, to stay passionate," says Jim Stern about the twenty years he spent at Lehman Brothers - in posts ranging from corporate finance specialist to managing director and head of the firm's Merchant Banking group. In 1994, when Lehman decided to curtail its merchant banking activities, Stern, with several of his colleagues, founded The Cypress Group, a private firm that makes equity investments and now manages two funds aggregating $3.5 billion of capital.

In addition to his long-standing support of HBS, Stern and his wife, Jane, are actively involved in a number of nonprofit organizations, including Tufts University, where he serves as vice chairman of its board of trustees. The Sterns and their two teenaged sons live in New York.

Name something that was important to you in 1974 that isn't anymore.

Business travel. When I started my career, even a trip to Clinton, Iowa, was exciting to me. There was the lure of exploring a new place, going someplace I'd never been before. After those early years of 100-hour workweeks and countless trips to the Clintons of the world, travel - even international travel - is no longer as exciting or glamorous.

Is there anything that you've missed out on because of the demands of your career?

Ironically, extended personal travel! There are some trips I would have liked to take with my family to places that would really require two or three weeks to do properly. I haven't been able to take that kind of time for vacations.

What was your first job?

I was a paperboy in Hartsdale, New York, for a few years, delivering the Reporter Dispatch. In high school, I sold sporting goods at E.J. Korvettes, a New York metropolitan area discount chain. During summer breaks from Tufts as an undergraduate, I worked as a runner on Wall Street at Lehman Brothers, where I ended up spending much of my career.

If you hadn't pursued a career in management, what might you have done instead?

I would have liked to play professional baseball. I was barely good enough to play in college, so playing pro ball was a real nonstarter. Still, it would have been fun to try.

What is the most important thing you've learned about business since leaving HBS?

I don't know if it's the most important thing, but it was a real revelation to discover that there is a shortage of excellent management and dynamic leadership in the business world.

What is your outlook for the stock market over the next five years?

I am optimistic. That doesn't mean there won't be bumps in the road, but you've got low inflation, enhanced productivity, a broadening market in that commerce is more global by the day, and great strides in technology. Barring artificial constraints by government or unusual dislo-cations - such as the first oil embargo that came when we were students at HBS - I'd say existing factors point to a pretty good investment environment.

How would you describe the value of Internet stocks today?

Ten years from now, I suspect some companies that appear to be really out of sight today will look like they were fairly priced. Obviously others will turn out to be flashes in the pan. As in any other industry, there will be winners and losers, but the bottom line is that at some point, these models will have to create sales and earnings. Some of these businesses will have very interesting futures; as for others - I'm not so sure.

What is the best business advice you've ever received?

Before I started working as a runner on Wall Street, my dad told me that there was a difference between being a runner and being an excellent runner and that this distinction would be noticed by the people I worked for. It was an interesting way to say that whatever you do, do it well - and it's something I've never forgotten.

Would you want your kids to do what you do?

I would never want my children to go through life looking over their shoulders at their parents. I do want them to develop a passion for whatever profession they choose. I've always loved what I do, and I've been driven to strive for excellence. That's what I'd like to pass on to them. That, plus the realization that they must find a way to give something back to society. I want them to be passionate about that, as well.

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William J. Kneisel

Bill Kneisel grew up outside New Haven, Connecticut, graduated - like his father, brother, and sister - from Dartmouth, and went to work in Citibank's officer training program before enrolling at HBS. He joined Morgan Stanley shortly after business school and has been with the firm ever since, save for a one-year period in the late 1990s when he was a partner at Lazard Frères.

From 1986 to 1992, Kneisel, his wife, Anne, and their two sons lived in London, where he was the managing director responsible for Morgan Stanley's international investment banking operations. On returning to New York, he took over responsibility for the firm's global equity capital markets business, and in 1997, he became an advisory director. A veteran rock climber and avid fisherman, Kneisel lately has been spending more time at his oceanfront home on the North Shore of Boston.

"The last quarter-century has been a time of unbelievable good fortune from an economic and capital markets perspective," notes Kneisel. "Our generation of HBS graduates didn't create this business climate, but we have certainly been the beneficiaries." Kneisel is currently involved in a number of Dartmouth alumni activities and serves on several independent school boards. "Many of us are able to enjoy the personal freedom that financial security brings at a younger age than our parents did," he observes. "It has become very important to me to consider carefully how I use that freedom to make a difference."

How have your priorities changed since 1974?

When I went to business school, achieving professional success was tremendously important, even more important than financial success. To many of us, becoming a managing director at Morgan or Goldman was a coveted goal - just to get that title.

Once you've lived through the excitement and the personal sacrifices of all that, however, you start to think about other things beyond your career.

If you hadn't pursued a career in management, what might you have done instead?

I've always loved connecting with nature and being outdoors - whether it's hiking in the White Mountains, fishing for stripers, or just going out to see the whales off Stellwagen Bank. I don't know - maybe I would have been a fishing or climbing guide. Maybe I still will be....

What is the best business advice you've ever received?

The way my father lived his life was very important to me. He was a gifted physician who spent most of his life doing research and teaching, turning his back on the more lucrative aspects of his profession. He was an incredibly ethical man, and his example has been a rudder to me.

I have also been influenced by the philosophy of J.P. Morgan, one of my firm's progenitors. He said that the most important thing about a man was his integrity. When he made a decision about whether to lend someone money, he made it on the basis of his assessment of the person's character, not on his perceived ability to repay the loan. More than half a century later, I think that's still pretty good business practice.

Mentors?

Here at Morgan Stanley, I have been fortunate to work with so many outstanding people - many of them HBS graduates. Dick Fisher (MBA '62) and Bob Greenhill (MBA '62) not only led the firm through a major transition, they were a powerful inspiration to their colleagues. As to personal mentors, I would mention three. Tom Saunders, with whom I worked directly for eight years, was a superb banker and one of the greatest client guys ever. Fred Whittemore knew where Morgan Stanley fit in the universe - and he could syndicate anything. Gordon Richardson, former governor of the Bank of England, remains a man of impeccable manners and morals and is endowed with a superb mind. At its core, the investment banking business is about good judgment, and I have been surrounded by it throughout my career.

How would you describe the value of Internet stocks today?

If you go back a hundred years, there were a lot of companies that promised great growth by providing a new technology - electricity. The ideas behind those companies were viable, but not all the companies were. They were right to be involved in a new technology; however, the record shows that few of them survived. I expect something like that will happen with Internet companies, although they will, as a whole, have a major impact on our way of life.

How would you rate your personal computing skills?

I am not enthusiastic about spending a lot of time on the Internet. I think that settling for "virtual" anything is a real loss. There's so much texture to life that is lost if you only experience it on a screen - any kind of screen, be it computer, television, or whatever. You need to be able to touch what you're experiencing, to smell it. Isn't that what life is all about?

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Donald H. Layton

A career banker who began his move up the corporate ladder at the old Manufacturers Hanover, Don Layton is now vice chairman of The Chase Manhattan Bank, one of the largest banks in the world. He has run the capital markets and trading operations for more than a decade, recently took on supervision of its operating services divisions, and is also general manager of Chase's overseas network.

As the banking world has evolved over the last several decades, Layton says he has benefited from having both a Harvard MBA and the more quantitative education he gained while earning bachelor's and master's degrees in economics at MIT. "In banking, having a foot in both the quantitative and qualitative worlds of education has been a great advantage," he notes, "especially as technology and quantitative disciplines have become so important in finance."

After sixteen years as a "classic, two-career, childless Manhattan couple," Layton and his wife, Sandy, welcomed their first son into their lives in 1990. Their second son was born in 1994. "There is an old joke that there are two ways to have kids," he laughs. "You can have them when you're young and have plenty of energy but no money, or you can have them later when you have money but not much energy - but wait, you can then afford to hire people with energy! More seriously, we're trying hard to be hands-on parents, despite the difficulties of my business schedule and our middle-aged lack of energy. It's very rewarding."

What is the most important thing you've learned about business since leaving HBS?

Simple - people. As you rise, you have to motivate individuals, you have to motivate groups, you have to get them to want to work together. People skills make all the difference at senior levels.

How have your priorities changed since 1974?

After graduating from HBS, I embarked upon a very career-centric existence, and I have to admit that it has paid off. But since having children, my life is more balanced - you realize what is really important in this life, and it certainly isn't the latest budget meeting! I'm now a balanced career and family executive.

Mentors?

From my earliest days at ManHan, I had a strong senior mentor who helped make sure that I was getting the right kind of professional assignments. Unfortunately, with the tough times for New York banking beginning more than a decade ago - with all the layoffs and mergers - this kind of mentoring stopped happening. I was very fortunate to have had it.

How would you describe the value of Internet stocks today?

Clearly a bubble, but bubbles have been known to last a long time.

If you hadn't pursued a career in management, what might you have done instead?

I probably would have been an economics professor. I faced this decision during my days as a student at MIT and chose business instead. But I had a clear second choice all ready to go.

What is the best business advice you've ever received?

A business friend of my father's told me that the best possible training for business was to get an undergraduate education at a topnotch science/engineering school such as MIT and then go on to the more qualitative education at HBS. He was absolutely right, and this is, of course, what I did.

What is your outlook for the stock market over the next five years?

I'm modestly bullish. I'm not a crash-theorist. But Internet stocks very definitely make me nervous.

How would you rate your personal computing skills?

I learned how to program computers when I was sixteen (which was almost unheard of back then), worked one summer during college programming both second- and third-generation languages, and took several computer courses at MIT. I haven't been involved to that extent in a long, long time, but this background makes me very comfortable with computer technology. For a senior executive, I'm considered pretty knowledgeable and have a reputation in particular as being an e-mail enthusiast.

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