Hot Features
Premium
Register for Free to get streaming real-time quotes, interactive charts, live options flow, and more.
At 6.45 am Friday August 16 1991 John Gutfreund phoned Buffett at home in Omaha and told him he was going to resign as chief of Salomon. An hour or so later, once Buffett had reached his office in Kiewit Plaza, they had another conversation in which they agreed that Buffett would step into the breach to try and sort things out.
According to his close friend, Fortune Magazine writer and pro bono editor of Buffett’s shareholder letters for 40 years Carol Loomis, his motives for accepting the extraordinary difficult job of saving Salomon were, first he wanted to save the $700m Berkshire had put into it, but also he felt, as a director of a company in trouble, a responsibility to help its shareholders as best he could. He glanced around for another candidate, but it was very apparent that he was “the logical person”. Buffett half-jokingly told Berkshire shareholders in his letter that year that his job at Berkshire was not so onerous and therefore he could slip away to New York,
“Berkshire’s operating managers are so outstanding that I knew I could materially reduce the time I was spending at the company and yet remain confident that its economic progress would not skip a beat…[They] are all masters of their operations and need no help from me. My job is merely to treat them right and to allocate the capital they generate. Neither function is impeded by my work at Salomon.
“The role that Charlie and I play in the success of our operating units can be illustrated by a story about George Mira, the one-time quarterback of the University of Miami, and his coach, Andy Gustafson. Playing Florida and near its goal line, Mira dropped back to pass. He spotted an open receiver but found his right shoulder in the unshakable grasp of a Florida linebacker. The right-handed Mira thereupon switched the ball to his other hand and threw the only left-handed pass of his life – for a touchdown. As the crowd erupted, Gustafson calmly turned to a reporter and declared: “Now that’s what I call coaching.”
Given the managerial stars we have at our operating units, Berkshire’s performance is not affected if Charlie or I slip away from time to time. You should note, however, the “interim” in my Salomon title. Berkshire is my first love and one that will never fade: At the Harvard Business School last year, a student asked me when I planned to retire and I replied, “About five to ten years after I die.”
The key task for Buffett on that fateful August Friday was to regain the trust of the regulators. This meant that he should wait in Omaha for a phone call from Gerald Corrigan, president of the Federal Reserve Bank of New York. When it finally came Corrigan mentioned, assuming Buffett and the other directors knew, that he had imposed a ten-day deadline for a detailed report to be delivered to him. Buffett was non-plussed: what report? When they met in New York that evening Corrigan was not in a mood to be cordial and warned Buffett to be ready for “any eventuality”, which is very threatening language for a regulator as it might mean withdrawal of permissions to conduct business.
How to chose a manager
On the Saturday Buffett had the task of finding the new chief. He devised a simple but clever plan for this. The top 12 executives were invited to speak with Buffett individually for 10-15 minutes each. The key question Buffett asked was who they thought should become their boss. Their vote was overwhelmingly for the Brit Deryck Maughan, who had been head of the Tokyo office, far from the Wall Street shambles. He was regarded as a man of high integrity and competence; and had the advantage of not coming from the sullied trading side of Salomon, being a corporate financier accustomed to developing long-term business relationships based on trustworthiness.
Buffett later recounted his thinking in a talk to Columbia business students,
“Whoever went into the foxhole with me could stick a gun to my head. If they wanted to come around and say they got an offer from Goldman Sachs or something,
………………To read more subscribe to my premium newsletter Deep Value Shares – click here http://newsletters.advfn.com/deepvalueshares/subscribe-1
