The Snowball_ Warren Buffett and the Business of Life - Alice Schroeder [362]
Of course, it wouldn’t be obvious in ten seconds to many people. They would be thinking about all sorts of other things. Mozer was so valuable to the firm; he had turned around the foreign-exchange department; firing him would be unpleasant; might it be possible to rehabilitate him; it was going to be painful to confess to the regulators; their reaction might be scorching; and no less than a major law firm had said that reporting it wasn’t technically required. Buffett skipped all that. He thought in probabilities; he extrapolated right away to whether a catastrophic outcome was possible—then worked out very fast what it would take to get to the lowest probability of catastrophe. Here, it was firing Mozer and confessing right away. Buffett also thought in black-and-white terms about honesty; he had no tolerance for liars and cheaters. So that was that.
Now he found that the situation unfortunately involved more lying and cheating than he had previously been told. The investigators reported to him that Feuerstein had said at the time that Mozer’s actions were “criminal in nature”—a startling contrast to the firm’s agreeable response to later legal advice that no disclosure was required. And nobody had ever told the firm’s compliance department—which was charged with overseeing regulatory conduct—of Mozer’s behavior. True, Salomon had an attitude toward compliance that was best described as loose. There would later even be an argument over who should be considered a member of the compliance committee.7 Nevertheless, the head of compliance had been disturbed when he found out that he was out of the loop and was angry that such procedures as did exist had been ignored.
Buffett and Munger also learned about the time in early June when Gutfreund had met with Treasury Undersecretary Bob Glauber to defend the firm against accusations that it had engineered the May squeeze. They found out that Salomon’s management had considered whether to disclose the February false bid to Glauber immediately after that meeting, and had decided that the time was not right. Glauber later said he felt that he was played for a sucker because Gutfreund had not told him. Nothing had inflamed relations with the government and compromised Salomon’s credibility more than this meeting with Glauber. It smacked of an outright cover-up.
The second press release that the board had approved, saying that the delay occurred thanks to “a lack of sufficient attention to the matter,” had made the board look like part of the cover-up, given that Gutfreund met with Glauber and clearly had the opportunity to tell him. But of course the board itself had been ignorant of the Glauber meeting.
Buffett was angry that he had known nothing of these matters during the entire weekend of the crisis when he had been negotiating with the government. Everybody whose number one job was to protect the firm’s franchise had failed to do so and in fact had acted in a way that actually jeopardized it. Yet even with all of this to outrage him, Buffett still did not know about one last thing: the “cocked gun” Sternlight letter that had been sent and ignored.
A few days later, the board met, and Buffett explained his thinking based on what he had learned. The board canceled the former executives’ magazine subscriptions. It took away their secretaries and got rid of chauffeurs and limousines. It cut off their long-distance phone service and messenger services. They were barred from entering Salomon’s offices. It tried to cancel their health insurance. Wachtell, Lipton offered to step aside as counsel. Initially, Buffett demurred, but then he agreed. The universal opinion was that Marty Lipton’s legal advice had not protected Salomon’s reputation.8
Denham was now helping to oversee Salomon day to day. To augment the legal team for outside matters, Buffett brought in Ron Olson, the most