I recently read Warren Buffett’s authorized biography The Snowball. It was a chewy read, at just under 900 pages with copious footnotes and fine grained details about what he ate, parties he attended, and vacations he took, in addition to background profiles of many of the companies he bought and larger-than-life personalities he associated with.
The bits I found most interesting concerned Buffett’s concerns about corporate ethics. In general he sought to put his money behind individuals he felt he could trust, not only because he believed they could make money, but because of their ethics in business dealings. Of course, he didn’t always choose well. And sometimes he compromised—and later regretted certain choices.
In 1991 an illegal trading scandal rocked the investment banking house Salomon Brothers, in which Buffett (via Berkshire Hathaway) owned a significant stake and held a board seat. Federal regulators set in motion drastic penalties, which Buffett feared could force Salomon into bankruptcy and thus possibly destabilize the global banking system. Through a variety of steps Buffett was able to cushion the blow to Salomon, although a number of individuals employed there (understandably) lost jobs and compensation in the fallout.
Here are a couple of choice quotes to give you the flavor of Buffett’s perspective on the ethics of this situation.
On accountability, and personal responsibility. Buffett explained where Salomon CEO John Gutfreund went wrong after learning about the fraudulent actions of one of Salomon’s star employees, Paul Mozer:
“Here you have a fellow, Paul Mozer, who admits submitting false bids to the most important client and regulator in the world, the U.S. government. And then you know he’s tried to cover it up by dragging in a customer and trying to get that customer to cooperate with a cover-up so that the government won’t find out. None of that was Mr. Gutfreund’s fault at all. But when you hear about an action like that, it is very obvious in ten seconds that you pick up the phone and say, Mozer, you’re fired. Then you go right over to Jerry Corrigan [the lead federal regulator] and say, Jerry, you know this is the problem of running a pace with eight thousand employees. This guy went off the reservation, and I fired him as soon as I heard about it. What do you want me to do next?”
On transparency. Shortly before testifying to Congress about the steps Salomon was taking to remedy its infractions, Buffett peremptorily dismissed a room full of public relations people and lobbyists hired to support him, explaining:
“It isn’t that we’re misunderstood, for Christ’s sake. We don’t have a ‘public relations’ problem. We have a problem with what we did.”
I find myself wondering: Was Buffett being old-fashioned, or naive in his approach, by not evading or spinning more? Or was he properly attuned to the psychology of this moment, understanding intuitively that accepting responsibility for Salomon’s infractions was not only “the right thing to do”, but might help blunt the force of the repercussions? What do you think?