When a three-year investigation by the U.S. Department of Justice into alleged price fixing by Sotheby's International Holdings and Christie’s International P.L.C. precipitated the resignations of Sotheby’s chairman and chief executive on Feb. 21, the act was seen as a fall-on-one’s-sword gesture to buy good faith with the Feds and stockholders.
But in an interview with Michael Sovern, the 68-year-old Columbia University president emeritus who stepped in last week as Sotheby’s chairman, it became clear that Diana (Dede) Brooks, the 49-year-old president and chief executive of Sotheby’s, and A. Alfred Taubman, the auction house’s 75-year-old chairman, are in a heaping mess of trouble.
“If there was misconduct, it did not go beyond the president and chairman,” Mr. Sovern told The Observer .
After being approached in mid-February by leveraged buyout king Henry Kravis, probably Sotheby’s most powerful board member, and Ira Milstein, a lawyer with Weil, Gotschal & Manges who is Sotheby’s head counsel during the investigation, Mr. Sovern said that a condition of his acceptance of the chairmanship was that he satisfy himself that those employees who remained on board were squeaky clean. He did not say whether he had called for the two resignations.
“I wanted to be sure that if there was any risk with the Justice Department that it was a limited one, and this was not something that was a part of the way in which the company functioned,” he said. “I was particularly interested in the quality of management, the basic integrity of the operation, a sense that the institution was sound and well positioned for the future, and I got satisfactory answers on all those counts.”
Sotheby’s and Christie’s are under investigation for allegedly conspiring to keep commission prices high, a violation of the 1890 Sherman Anti-Trust Act. Investigators believe that the two businesses, which together control more than 95 percent of the world’s auction sales, secretly agreed to match each other’s fees at two different points in time: in 1992 and again in 1995, when the companies began charging the same commission fees within weeks of one another, suggesting that the rates were pre-arranged and not the result of healthy competition. Such collusion is illegal because it effectively creates a monopoly of price.
“There is no question that something very serious happened,” said Roland W. Betts, the chairman of Chelsea Piers who has known Ms. Brooks “since birth” and is a fellow Yale University trustee. “I was shocked. Because Dede is tenacious, and, among other things, it struck me as out of character for her to resign. And that’s what made me so sad.”
“This is an area where people felt they could take unrelenting advantage of others and be protected by their class and cultural status, and then they got caught,” said Ed Hayes, the Manhattan attorney who took the Andy Warhol estate to court in a dispute over its value. “And that’s a really bad thing.”
Sotheby’s and Christie’s, both London-born institutions, were always bastions of old money and society, places where titled aristocrats, deep-pocketed politicians and titans of industry collected Old Master paintings, silver tea services and rare books. They were acceptable workplaces for wealthy co-eds who graduated without an engagement ring, society dames whose husbands funded their tastes in fine art, and distinguished gentlemen with professorial backgrounds and a passion for oil on canvas. The pay may have been minimal, but the prestige counted for a lot.
In recent years, the two auction houses had begun to shed their snooty, old-school traditions in favor of a more aggressive, entrepreneurial approach, and in many ways, Ms. Brooks personified this transformation. A native of Cold Spring Harbor, N.Y., who attended Miss Porter’s School and then Yale, Ms. Brooks surely possessed the right pedigree for the rarefied auction-house world. But she was also a steely businesswoman who, as a friend put it, “ran the business with an iron hand.” Those attributes allowed Sotheby’s to reach new heights in success and earned the 49-year-old Ms. Brooks high marks from shareholders and clients alike.
“Dede loves Sotheby’s. And she is Sotheby’s,” said Mr. Betts. “Taubman is the owner and the money behind it, but he’s not the personality.”
Another friend added that his reaction to the pink slip was one of “shock” because “Dede is so admired.”
Those loyal to Mr. Taubman, an art collector and Detroit-based shopping-mall magnate, said that because his chairmanship was characterized by a lack of day-to-day involvement, he couldn’t possibly have been part of the alleged price-fixing scheme, and that his resignation was an acknowledgment of the fact that the illegal activity would have occurred “on his watch.” As the Justice Department sorts out Sotheby’s role in the scandal, both he and Ms. Brooks remain members of the Sotheby’s corporate board.
Things have changed rapidly since the resignations. Interested buyers range from Mr. Kravis, to EBay, the Internet auction site, to French couture mogul Bernard Arnault, who owns Phillips, the world’s third-largest auction house. Mr. Arnault, the chairman of LVMH Moët Hennessy Louis Vuitton S.A., appears the most likely candidate. He is certainly the most intriguing, for no other reason than the fact that his fellow Frenchman and most famous adversary, François Pinault, owner of the department store company Pinault-Printemps-Redoute S.A., is the sole owner of Christie’s. Once friends, Mr. Arnault and Mr. Pinault are now the fiercest of rivals. The pair fought memorably for control of the fashion house Gucci, with Mr. Pinault winning out at the 11th hour.
Mr. Arnault’s purchase of Sotheby’s would signal the full metamorphosis of the auction houses from hallowed institutions of culture to engines of commerce. After all, despite their famous tastes for fashion, wine and other luxury commodities, Mr. Arnault and Mr. Pinault, like the Trumps and Murdochs and Turners of the world, are ultimately driven by the bottom line.
According to one employee, Mr. Arnault’s interest in acquiring Sotheby’s was acknowledged in a staff meeting held by new president William Ruprecht on Feb. 23, though the French mogul recently denied his interest to reporters.
Since the week of Feb. 21, Mr. Sovern has been taking calls from a corner office on the eighth floor of Sotheby’s newly refurbished headquarters on York Avenue and 70th Street. Staff members recently adorned his office with a “beautiful Modigliani,” he said. He had his company headshot taken in front of it.
For the next few weeks at least, he said, he’d be in the office every day. “I guess I’m just feeling my way,” he said. “It’s open-ended … so far, I’m having a very good time.”