The Snowball_ Warren Buffett and the Business of Life - Alice Schroeder [372]
Insulted and outraged, Gutfreund turned it down. “It seemed wrong,” he said. “As a matter of principle, I fought.”63 His lawyers interpreted the offer not as meant to inspire negotiation but as so insultingly low that it must be dismissed. In 1993, Gutfreund took Salomon to arbitration.
Arbitration is a process in which a panel of neutral parties listens to both sides and reaches a binding decision to resolve a dispute. Arbitration is also a throw of the dice, for its very nature cuts off negotiation forever once a decision is reached.
John Gutfreund had been reduced to sitting in a small three-room office, where he answered his own phone when his part-time secretary was away. He brooded over the fact that Susan, now dubbed “Marie Antoinette” by the press, had told him not to resign—as if he had had an option—saying it would make him unemployable. They had been cast out of the New York social set. The press had turned on him savagely, in a way he had never imagined could happen, comparing him to felons like Boesky and Milken.64 Many of his former friends had abandoned him. Unassisted by Salomon, he was running up huge bills to defend himself in civil lawsuits.
Gutfreund wanted vindication through the arbitration. But a public raking and digging over the whole Salomon mess, which might have salved his wounded pride, was guaranteed to alienate Buffett and make him less likely to compromise. After Buffett had staked much of his image on Salomon, Gutfreund had let him down, and to retell this story in an arbitration, covered at full yelp by a dogged press, could not possibly inspire Buffett to reinterpret Gutfreund’s behavior more generously. Now that he and Gutfreund were no longer partners, in Buffett’s special sense of the word, transgressions he might once have eventually forgiven became larger with hindsight. They were many, and even without benefit of hindsight they were large:
• The stock-option repricing in 1987, which had cost Buffett so much money.
• The Sternlight “cocked gun” letter from the Fed, which Buffett had not learned about until it was too late.
• The meeting with Bob Glauber at the Treasury, when Gutfreund had kept silent, which had also been kept from Buffett and the other board members.
• An equity plan that allowed an employee to keep his stock if fired for cause, which Gutfreund had put before the board and shareholders late in that fateful spring of 1991.
Buffett felt the whole thing was a tragedy that should never have happened and that Gutfreund’s behavior had been some sort of weird aberration. Although he normally avoided conflict, if forced into battle, his proxies fought for him like cornered hyenas. Charlie Munger, who was inclined to say things such as that Gutfreund made Napoleon look like a shrinking violet, was the appointed bad guy in the arbitration.65 His testimony would be crucial, because he was the one who had negotiated with Gutfreund’s lawyer, Philip Howard.
It was the young president of the New York Stock Exchange, Dick Grasso, who chose the three graying arbitrators who would decide Gutfreund’s fate in a dingy conference room at the Exchange.66 A team of lawyers from Cravath—backed by testimony from Salomon board members, employees, ex-employees, Buffett, and Munger—began to pulverize Gutfreund in a process that took more than sixty sessions and several months before the arbitrators.
Over and over, the arbitrators heard about the meeting between Munger and Philip Howard in which Howard reviewed the list of compensations Gutfreund wanted and Munger listened in some fashion or another. All agreed that Howard left without a signature on Gutfreund’s severance papers, but there was