Please read the following analysis paper written by other students on the case of "John Gutfreund
Please read the following analysis paper written by other students on the case of "John Gutfreund and Salomon Brothers Inc?. in the Useem et al text, chapter 7 and answer the following questions briefly. Please write down the question followed by your responses:
Gutfreund Loses Salomon Inc.
- Do you think Gutfreund did the right thing in resigning? Should he have stuck it out and tried to fix the mess he created? If he had not resigned, do you think he would have been forced out? Why or why not?
- What leadership attributes did Warren Buffett display in his handling of Salomon Inc.? Do you think Buffett handled the "reworking" of Salomon appropriately or was he too aggressive? How was he able to so quickly turn around Salomon so it did not have to file for bankruptcy?
- How should Mozer's actions have been handled? Who should have taken the appropriate actions (Gutfreund, Strauss, senior colleagues, someone else)? What major leadership failures led to Mozer's indiscretions falling through the cracks?
- If you were CEO of Solomon, how would you have handled the situation once informed of Mozer's misdeeds? Would you have waited on a press release until after things were figured out with the Fed? Or would you want to inform the public immediately to prevent a possible leak, and if so how would you tell the public about the company's misdeeds?
Running head: LEADERSHIP MOMENT CASE 7 Leadership Moment: John Gutfreund Loses Salmon Inc.
UMUC HCAD 670_9040_2165
July 24, 2016 BACON 1 LEADERSHIP MOMENT CASE 7 BACON 2
Executive Summary John H. Gutfreund is the CEO and chairman of Salmon Inc. in New York. In 1991, one of
Salmon?s bond trader, Paul Mozer, committed outsized biding in the month of February and May,
and Gutfruend is now faced with reporting the transgression with the federal regulators of the
Treasury auction. Gutfreund delayed reporting the offense to the federal regulators for three
months and it turn into a big public scandal that lead to him resigning. To ensure that Salmon
could rebuild their reputation in Wall Street, Warren Buffet was recommended to become the
acting CEO. Under his leadership, Salmon was able to restore their reputation because Buffet
used great judgement and remain cool under fire to make difficult decisions need for the firm?s
survival. This paper will discuss the differences in leadership style of Gutfreund and Buffet and
the action I would have taken if placed in the same situation. LEADERSHIP MOMENT CASE 7 BACON 3 Leadership Moment: John Gutfreund Loses Salmon Inc.
John H. Gutfreund is a brilliant bond trader and power banker, who is the chairman and
CEO of Salmon Inc., and is also known as the ?King of Wall Street? according to Business Week
magazine. Bond trading is the sustenance of Salmon?s operation, for it counts as a fifth of their
revenue. In 1991, Gutfreund and Salmon experience continuous success in the Treasury auctions
until Gutfreund was informed by John W. Meriwether that a bond trader, Paul Mozer, did two
improper bids, in February and May, during the U.S. Treasury auction on behalf of multiple
customers without their knowledge or consent. Gutfruend is now faced with reporting Mozer?s
illegal trading to the federal regulators or remain silent and hope that the regulators will not find
out, and confront Mozer about his future at Salmon.
Unfortunately, Gutfruend waited three months before reporting Mozer?s transgressions to
federal regulators, which lead to Salmon having to pay over $400 million in penalties and almost
risk the federal regulators to pursue criminal action, such as indictments. Due to shame and
public humiliation, Gutfreund resigned as the chairman and CEO, and appointed Warren Buffet
as his successor until a new permanent CEO is assigned. Gutfruend and Buffet had a friendly
relationship over the years because Buffet has accomplished great financial success in his own
company, Berkshire Hathaway in Omaha, and he uses Buffet as an advisor over the years.
Therefore, Gutfreund recommended Buffet to take his place because he admired Buffet?s
willingness to put consumers? welfare ahead of the company?s interest. Buffet, with the help of
Deryck C. Maughan, the head of Salmon?s investment banking, and Robert Denham, Salmon?s
general counsel, ran the firm and together they guided Salmon?s damaged business reputation
back to health until it was acquired by Travelers Group in 1997. LEADERSHIP MOMENT CASE 7 BACON 4
Key Leadership Issues There are two major issues with Gutfreund?s leadership style that facilitated Mozer?s
unauthorized bids: being indecisive and not exercising authority to ensure accountability with the
firm. Because Gutfreund fostered an organizational culture that high-stakes risk taking is the way
of doing business and rewarding those employees who represent this belief, Mozer did not see
his decision to deliberately ignore federal regulations would negatively impact the firm. For
example, Buffet?s found out through his own investigation that Salmon gave Mozer?s $10
million in bonuses prior to the 1991 incidences despite his various open feuds with federal
regulators regarding auction policies. I believe that if Gutfreund would have taken some form of
disciplinary action, such as suspension without pay or immediate termination, immediately when
he know of Mozer?s fatal error, that it would have instilled self-responsibility amongst the firm.
The lack of Gutfreund not exercising his authority allowed Mozer to make multiple outsized
bids, so there was no sense of professional accountability to prevent organizational liability.
However, in order to enforce accountability, management should be decisive in their leadership.
Decisiveness is an important attribute of a leader because it shows the leaders ability to
make decisions quickly and effectively, especially during a crisis. Gutfreund avoidance to report
Mozer?s indiscretions showed his indecisiveness and unwillingness to take action in a crisis.
Gutfreund knew the repercussions of not responding swiftly and still did not informed the other
board members or federal regulators until months later after the fact. I believe that if Gutfreund
had informed the federal regulators of the violations sooner and cooperated with their demands,
he could have remained as the chairnman and CEO and the penalties wouldn?t have been so high.
Nevertheless, Buffet took a more direct and honest approach, which save Salmon from making
another ?billion-dollar error in judgement? (Useem, 1998, p. 195). Despite Buffet being a more LEADERSHIP MOMENT CASE 7 BACON 5 aggressive leader than Gutfreund in handling a crisis, there are some advantages and
disadvantages to how he forged a new culture at Salmon Inc.
Leadership Strength and Weakness
Gutfreund did the right thing by electing Buffet as his replacement, for Buffet?s biggest
asset was his willingness to take action. Buffet understood that full cooperation with the federal
regulators would help them from not take any further criminal action, but mainly to keep Salmon
from permanently closing its doors and having to layoff thousands of devoted employees. Buffet
also did good in redesigning the organizational structure by forming a board compliance
committee, made self-monitoring of compliance the employees responsibility, and completed
much needed changes to departmental operational functions. By making these changes, Buffet
exercised his authority and made the employees accountable for the firm?s long-term business
future. Nonetheless, the action that Buffet took that could have negatively impacted the restoring
of Salmon?s credibility in the business market is micromanaging the staff.
One of the first course of action that Buffet did once he accepted his new position at
Salmon was dispatching an office memo that expected all employees to report any legal violation
or moral failures done on behalf of Salmon. This set the stage that all employee performance will
be reviewed and monitor, which created an environment of micromanagement. Research has
shown that micromanaging can result in employee disengagement and have negative impact on
employee morale. For example, Delgado, Strauss, and Ortega (2015) discussed the use of
micromanagement in the healthcare industry in the U.S. and discovered that micromanaging can
lead to employee disengagement due to a deplete sense of autonomy. The authors also found that
micromanaging can have a deleterious impact on employee morale because in crisis situations
employees may not be willing to sacrifice their own time or resources to address the problem LEADERSHIP MOMENT CASE 7 BACON 6 they believe that management should take full responsibility and credit for managing during the
crisis (Delgado, Strauss, and Ortega, 2015, p.772)
In examining the actions that Gutfreund and Buffet took leading up to and handling the
legal crisis at Salmon, I would have taken Buffets leadership approach. Once it was brought to
my attention that an employee?s action would lead to organizational liability, I would have
immediately addressed that individual and based on his/her response, will determine if he/she
would still have a future at the firm. For example, if the individual expressed remorse and was
sincerely regretful for their actions, I would demote the individual, with opportunity to advance
based on work performance, and sanction a financial penalty, such as no bonuses for the next few
years. But if the individual took no responsibility for his/her actions and boast about his/her
contribution to the firm?s success, I would immediately terminate his/her employment because
he/she will be a repeat offender. As a result, the disciplinary actions brought upon the individual
will set an example of what will happen if other employees fails to report any legal violation or
Like Buffet, I would have also changed the organizational structure and culture to make
sure that the staff is held accountable for their actions and understand its impact on their future at
the firm. I believe that authority needs to be exercised because without it incidents like Mozer?s
will become a habit if gone unpunished or not reprimanded. Additionally, I would have given
explicit cooperation, contributed to the completion of the investigation, and accepted
responsibility of my subordinate behavior to restore the firm?s reputation. As a leader, I set the
standard of professionalism and code of ethics. Therefore, I cannot expect high performance and LEADERSHIP MOMENT CASE 7 BACON 7 work to be completed based on a code of ethics of my subordinates if it is not demonstrated on
all professional levels.
In conclusion, Gutfruend?s lack of decisiveness and delayed report of Mozer?s outsized
bids to federal regulators cause him to resign as chairman and CEO of Salmon. Salmon also had
to pay millions of dollars in penalties that could have led to their demise. Nonetheless, Gutfreund
recommendation to was appoint Buffet as acting CEO until Maughan and Denham fulfilled their
leadership roles kept Salmon?s future alive. Buffet did a fantastic job of repairing Salmon
reputation with his willingness to act and cooperating with the federal regulators investigation.
But in hindsight, Buffet?s micromanaging style could have had negative impact on changing the
cultural code at Salmon because it could have led to employee disengagement and low employee
morale. However, I would have taken Buffet?s same approach to resolve the crisis facing Salmon
future because an example had to be made and set in order to instill appropriate professional and
code of ethics into the employees of Salmon to prevent future lability at the firm. LEADERSHIP MOMENT CASE 7 BACON 8
References Delgado, O., Strauss, E. M., & Ortega, M. A. (2015). Micromanagement: When to avoid it and
how to use it effectively. American Journal of Health-System Pharmacy, 72 (10), 772776. DOI: 10.2146/ajhp140125.
Useem, M. (1998). The leadership moment. New York: Random House Inc.
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