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I found it ironic that Patricia Dunn of HP defended her actions during her 60 Minutes interview by claiming everyone was doing it while you lead your memo by debunking that excuse. I especially liked: And culture, more than rule books, determines how an organization behaves.

Warren agreed that I should share the memo with others, and I sent it to several people, including Richard Beales, at the time a reporter at the Financial Times, who was looking for news. The paper posted the entire letter on its Web site.

Jamie Dimon, CEO of JPMorgan Chase, wrote me that he agreed with Warren. When people justify their actions with the excuse that everyone else is doing the same thing, it is a red flag.

Warren walks his talk. When he took his stance in the 1980s that stock options should be expensed, it was an unpopular viewpoint. The SEC and U.S. politicians pressured to continue the practice. On Christmas Day 1994, the New York Times’ Floyd Norris handed out a “Consumer Deception Award” to Arthur Levitt, then chairman of the Securities and Exchange Commission. Levitt praised the Financial Accounting Standards Board for “great courage” when—after succumbing to political pressure—FASB backed down from requiring that executive stock options be expensed.17 Even though the FASB, politicians, corporate executives and the SEC supported the opposite view,Warren Buffett never wavered.

Neither Warren Buffett nor Charlie Munger takes stock options, restricted stock, or huge cash payouts as part of their compensation packages. Berkshire Hathaway is run more like a partnership than a typical U.S. corporation. The annual report includes “An Owner’s Manual” outlining the partnership commitment. Warren Buffett’s and Charlie Munger’s net worth is due to their Berkshire Hathaway stock holdings, and the other board directors are heavy investors in the company, too. Their own gains and losses are in direct proportion to that of other shareholders.

Buffett and Munger draw a salary of only around $100,000. Their wealth grows as they create value for others. Successful value investing is not a get-rich-quick scheme, it is a way to get rich and stay rich.

Benjamin Graham wrote that a speculator “wants to make his profit in a hurry.”18 The global capital markets suffered because people with access to other people’s money wanted to get rich in a hurry, and “investing” seemed to be the last thing on their minds. Backdating executives put their own compensation ahead of investors’ interests. But stock option backdaters are not alone in seeking extraordinarily compensation. Investment bankers that ended up subtracting value from the global capital markets earned millions of dollars for a single year of bad work. Many hedge fund managers create much less value than the prairie princes (Buffett and Munger), yet they rack up compensation in the hundreds of millions of dollars.

Chapter 4

The Insatiable Curiosity to Know Nothing Worth Knowing (Oscar Wilde Was Right)

I particularly liked the “Dean Man’s Curve” commentary [ Jan and

Dean wrote the song, “Dead Man’s Curve,” and I took Warren’s

message to be an intentional reference.]

—Warren Buffett

to Janet Tavakoli, September 27, 2006

Warren Buffett has nothing against hedge funds, provided the price is right for the risk. After our lunch in Omaha,Warren showed me the letter he sent when he made his rejected bid for Long-Term Capital Management (LTCM). Along with Goldman Sachs and AIG, Berkshire Hathaway made a $250 million bailout bid for LTCM and would have provided an additional $3.63 billion of funding.1 Instead, the Fed engineered a bailout with a consortium of 14 banks and investment banks; only Bear Stearns famously refused to participate. LTCM had once shorted shares of Berkshire Hathaway—a money-losing bet.2 That is what happens when eggheads crack.

My former Merrill Lynch boss, the late Edson Mitchell, was the banker who oversaw Long-Term Capital Management’s initial fundraising. 3 One of my Salomon training classmates, Swiss-born Hans Hufschmid, a partner