Set High Standards. Honesty. Discipline.

Set High Standards. Honesty. Discipline.

The Salomon Brothers crisis put Warren Buffett and Charlie Munger under intense pressure. The account emphasizes their concern for reputation as well as money, recalling Buffett’s warning: “Lose the money, and I will forgive you. Lose the reputation of the company, and I will be nasty [xxxvi].”

Salomon Brothers had been accused of submitting false bids to buy more Treasury bonds than one bidder was permitted to purchase. According to this account, chief executive John Gutfreund called Buffett about his resignation, leaving Buffett to step in and address the crisis.

The account connects the episode with Munger’s criticism of financial misconduct: “You are never going to have perfect behavior in the miasma of easy money. When the financial scene starts reminding you of Sodom and Gomorrah, you should fear practical consequences even if you would like to participate in what is going on.

“Investment banking at the height of this last folly was a disgrace to the surrounding civilization [xxxvii].

“You should have personal standards that are way better than the criminal law requires. Why should the criminal law determine your behavior? It would be crazy. Who would behave that way in marriage, or in partnership, or anything else? Why should you do it in your general dealing? I think this is a mess, and, of course, it’s a little dispiriting to find that many of the people who are the worst miscreants don’t have much sense of shame and are trying to go back as much as they can to the old behavior. The truth of the matter is, once you’ve shouted into the phone, ‘I’ll take x and y,’ and three days later, you have an extra five million—once that has happened, the people just become hopeless addicts, and they lose their bearings [xxxviii].

The author describes Buffett and Munger consulting each other and trusted advisers, with Munger traveling to New York to support Buffett at meetings. The episode illustrates the difficulty of choosing new leadership during a crisis and their stated commitment to standards beyond the legal minimum.