The Snowball_ Warren Buffett and the Business of Life - Alice Schroeder [471]
The environment for prosecution of white-collar fraud was changing rapidly, partly because there was just so much white-collar fraud to prosecute these days. New York Attorney General Eliot Spitzer, who had launched a merciless attack on corruption in business and on Wall Street, now led the SEC and the Department of Justice in a three-legged race to see which agency could prosecute most zealously. The others hopped along desperately trying to keep up with Spitzer’s pace; all their charges got bundled into one trial or settlement in the end. Spitzer was diabolically inventive at using the new electronic tools of the Internet—especially e-mail—as evidence, at harnessing an accommodating press as a weapon, and at wielding an arcane New York statute, the Martin Act, that gave him virtually unlimited powers, checked only by his personal—and virtually nonexistent—sense of prosecutorial discretion.
With these tools, he had forced two prominent CEOs to resign—Buffett’s business colleague Hank Greenberg, who was now the former CEO of AIG, and his son, Jeffrey Greenberg, the former CEO of insurance broker Marsh & McLennan. A pall of fear hung over corporate America; Spitzer was so successful at execution-by-media that the bitter joke had become that he was saving the government the cost of indictment and trial. Juries that formerly treated white-collar malefactors with deference were now routinely sending them to prison like any other criminal; under new mandatory sentencing guidelines, judges were imposing harsh sentences on them. Some of this mayhem was well-deserved. Greed, hubris, and lack of enforcement had given many people in business the impression that the rules did not apply to them. Just as stock options and the Internet bubble had engorged the senior echelons of business’s wallets at an exponential speed, so had the backlash arrived in gargantuan proportions. Buffett—like most of corporate America—had not fully adjusted to this new environment; his view of proportion was shaped by the earlier era: defined by the careful prosecutorial calibrations of former SEC Enforcement Chief Stanley Sporkin and U.S. Attorney Otto Obermaier; by the travails of Salomon, when even Paul Mozer, who nearly brought down the whole financial system after Gutfreund failed to report his crime, had only served four months in prison. His viewpoint would eventually be revised, however, by the outcome of events that had occurred at Berkshire Hathaway itself.
Buffett usually arrived at the airport to pick up his guests personally. He took them on a nerve-racking ride to the office (if, that is, they were not too dazzled by him to notice), spent a couple of hours listening to their issues and throwing out ideas, then usually escorted them to Gorat’s and treated them to a T-bone and hash-brown meal. He told them to be plainspoken with shareholders in annual reports, to pay employees in alignment with shareholders, not to run their business according to the whims of Wall Street analysts, to deal with problems forthrightly, not to engage in accounting shenanigans, and to choose good pension-plan advisers. Sometimes people asked how to manage their own money, but while he gave them some basic ideas, he didn’t hand out stock tips.
To all those who felt the life of a CEO under scrutiny was not what it used to be, Buffett talked