If You Are Not Honest, It Is Not Them; It Is You

If You Are Not Honest, It Is Not Them; It Is You

Warren Buffett described the process of finding the right person who could deal with the situation on behalf of the management of Salomon Brothers during this crisis: “I wasn’t looking for Forrest Gump, either. But the dozen or so had all the IQ necessary; they had all the drive necessary. These are people who were used to working twelve-hour days and had lots of push. So, it was not a question of energy. It was a question of who, in my view, with both of those qualities already a given, really was the highest quality individual. It was the person who would not stick a gun to my head after he took the job, because I couldn’t afford to fire whoever came in, and I couldn’t afford to have him quit on me when the going got tough a week or two weeks or a month later, because with one more event like that, it would have been curtains. So, I really had to be sure of the steadfastness of the individual. I had to be sure he was up to it temperamentally because the pressure would be enormous.

“The person I decided on never asked me then, he never asked me a week later, he never asked me a month later, what the pay was. Basically, he was a battlefield promotion and he behaved like it was a battlefield promotion. He could have come to me and said, ‘Look, I could go to Goldman Sachs and make x this year, and this is going to be much tougher, so I want 150 percent of x from you.’ He never said a word about that. As a matter of fact, in the first year, just set on example, he reduced his pay, running the Tokyo office the year before. He never asked me to indemnify him against the lawsuits that would be forthcoming if the place failed. If things had gone bad, and you couldn’t tell whether they would or not, we were going to get sued by everybody in the world. And, if Salomon had gone under, its indemnification would have been no good.

So, it would have been perfectly reasonable for this person to say, ‘Well, look, I’ll take this job but who knows what happened and if it happens, Salomon isn’t going to be good for it. So, why doesn’t Berkshire Hathaway or why don’t you personally indemnify me against the lawsuits I’ll be facing the rest of my life if this goes sour?’

“He never asked a word about it. It wasn’t because he was dumb and didn’t know enough to ask that. He just felt it was not the right timing to do it under these circumstances. So, in the end, I picked out an individual who I felt was an outstanding human being. He never let me down. He took on that job the next day. We come out of a directors’ meeting at three in the afternoon. And there were these twelve people out there, and I just walked up to him and said to him, ‘You’re it, pal.’ And, we went right from there down with the elevator to meet a couple hundred reporters who had come in on Sunday afternoon and who were plenty hostile in some ways. He set up there on up there on the stage with me and answered questions for three hours. I knew then I had made the right choice.

“Now, the interesting thing about that choice is that the qualities that attracted me to him were impossible for anyone to achieve. He didn’t have to be able to jump seven feet. He didn’t have to be able to throw a football sixty yard. He didn’t have to remember every bridge hand he played the previous year or something of the sort. There was no feat of intellect or something like that. What he did was bring qualities like steadfastness and honesty. I knew he would tell me the bad news. I always worry about that with people who work for me. They don’t need to tell me the good news. I just want to hear the bad news. I knew he would not get his ego involved in decisions. I knew he would not be envious or greedy or all of those things that they make people unattractive. And, the truth is, anybody can have those same qualities that Deryck Mangham, the fellow I picked, exhibited. They are not feats that are beyond anyone. They are simply a matter of deciding what are you going to do and what kind of person you are going to make out of yourself, and then doing it xxxix.”

The Salomon office those days was extraordinary noisy and crowded. It seemed to Charlie as if the number of people was increasing with every minute, and more were still arriving. Voices were talking, and some people were stressed. Some were coming as if they were from the street, with coats and hats. They seemed to need each other’s support that day. Nobody had an opinion of his own. To Charlie, they all seemed to be pushing one another. During the discussion, it was a strong feeling that nobody had a clear opinion: one was speaking, and the rest were just his supporters. Charlie was present, but parts of that dialogue were still missing. And that was very usual for him; he has an ability to switch off the noise of others when it is necessary, which was the case on that day. He was thinking, Why did this situation happen? At the same time, he was sure that only Warren Buffett, being present in all of those meetings, would save the company from a crash.

He was thinking, “Why does it happen? And now we get to Feuerstein, who was the general counsel with Salomon when John Gutfreund made his big error, and Feuerstein knew better. He told Gutfreund, “You have to report this as a matter of morality and prudent business judgment.” He said, “It’s probably not illegal; there’s probably no legal duty to do it, but you have to do it as a matter of prudent conduct and proper dealing with your main customer.” He said this to Gutfreund on at least two or three occasions. And he stopped. And, of course the persuasion failed, and when Gutfreund went down, Feuerstein went with him. It ruined a considerable part of Feuerstein’s life.

Well Feuerstein, who was a member of the Harvard Law Review, made an elementary psychological mistake. You want to persuade somebody, you really tell them why. And what did we learn in lesson one? Incentives really matter? Vivid evidence really works? He should’ve told Gutfreund, “You’re likely to ruin your life and disgrace your family and lose your money. And is Mozer worth this? I know both men. That would’ve worked. So, Feuerstein flunked elementary psychology, this very sophisticated, brilliant lawyer. But don’t you do that. It’s not very hard to do, you know, just to remember that ‘Why?’ is very important xl.”

So many thoughts were in Charlie’s mind; they couldn’t believe that happened right now. As the meeting was over and Buffett announced the plan—what they were going to do and how it was going to happen—Charlie was sitting still. He was hoping that all of these people, this “entire family,” would little by little disappear. Soon they would turn out to be nonexistent, and Buffett and he could calmly go down to discuss this matter personally. Disappointment, mistakes, faults, psychological denial, social proof—you name it.

Because of Warren Buffett being appointed CEO of Salomon Brothers the first year after John Feuerstein resigned and Charlie Munger being his trusted partner with almost unbelievable effort, Salomon Brothers was saved from bankruptcy.