1: Salomon Brothers CEO John Gutfreund was about to get fired.
The year was 1991. A major scandal had rocked the prestigious Wall Street investment bank.
And, it was all so unnecessary, Charlie Munger writes in Poor Charlie’s Almanack.
Charlie should know. He had a front-row seat to all the action as Vice Chairman of Berkshire Hathaway, then Salomon’s largest shareholder.
2: The scandal happened when Salomon’s traders submitted bids in the names of customers without their permission.
Donald Feuerstein was Salomon’s general counsel, i.e. the chief lawyer. He “knew that the CEO, John Gutfreund, should have promptly told the federal authorities all about Salomon’s trading improprieties,” Charlie notes, “in which Gutfreund didn’t participate and which he hadn’t caused.”
Instead, Donald told the CEO, “You’re probably not legally required to do that, but it’s the right thing to do. You really should,” Charlie writes.
“But it didn’t work,” he notes. “The task was easy to put off because it was unpleasant. So that’s what [John] did–he put it off.”
Big mistake.
Donald failed to apply some basic psychology, as outlined by Benjamin Franklin in Poor Richard’s Almanack: “If you would persuade, appeal to interest and not to reason.”
“All the general counsel had to do,” Charlie argues, “was to tell his boss, ‘John, this situation could ruin your life. You could lose your wealth. You could lose your reputation.’
“And it would have worked,” Charlie writes.
Why? Because “CEOs don’t like the idea of being ruined, disgraced, and fired,” he notes.
3: Getting better at getting better is what RiseWithDrew is all about. Monday through Thursday, we explore ideas from authors, thought leaders, and exemplary organizations. On Fridays, to begin 2025, I will be sharing some of Charlie’s wit and wisdom.
Charlie’s take-away from the Salomon scandal: “The ex-general counsel of Salomon is brilliant and generous, and he had the right idea. However, he lost his job because he didn’t apply a little elementary psychology.”
We can learn from other’s mistakes so we don’t have to repeat them.
If we do, we “can be especially useful at crucial moments when others fail,” Charlie writes. “And to the extent that we do become wise, diligent, objective, and especially able to persuade in a good cause, then we’re adding value.”
More next week!
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Reflection: Think back on a time when I successfully or unsuccessfully tried to persuade someone to do something. Did I appeal to reason? Or did I appeal to their interests?
Action: Look for an opportunity to persuade someone based on their interests.
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