William R. Salomon was the last member of his family to run Salomon Brothers Inc., stepping down in 1978. Billy Salomon, now 77, remains honorary chairman of the firm co-founded by his father in 1910, but he no longer finds honor in the connection. "I feel quite sad and somewhat embarrassed over the current scandal," Salomon says. "I'd be very happy to have my name removed from the door."
Salomon hasn't asked Warren E. Buffett, the firm's new chief executive officer, for a name change. Nor is he likely to. Despite his mortification, it's evident that Salomon still identifies with the firm. Although he has no inside knowledge, Salomon believes that the wrongdoing involved only a few employees and fervently hopes that the punishment already meted out to Salomon Brothers--loss of face, loss of customers--will prove sufficient.
BITTER END. Salomon's sympathies do not extend to his handpicked successor, John H. Gutfreund, and to the three other senior officers who have been forced to resign. "They are exceedingly bright, able people, which makes their behavior all the more incomprehensible," he says. Salomon and Gutfreund fell out bitterly in 1981 over the sale of Salomon Brothers to Phibro Corp. Anticipating Salomon's opposition, Gutfreund closed the deal behind his back. Gutfreund's interest in the firm was cashed out at $32 million--three times what Salomon received. Although Salomon kept an office at the firm, he had little involvement in its affairs. Basically, he was ignored by his successors--the typical fate of Wall Street's grand old men during the headlong expansionism of the 1980s. When Salomon Brothers relocated in 1990, Billy moved out.
Although Salomon clearly disdains the high-profile socializing and lavish spending that seemed to preoccupy Gutfreund for much of the 1980s, he won't directly criticize his successor. Salomon does suggest, however, that the bond-bidding scandal is rooted in two radical departures--both engineered by Gutfreund--from the firm's traditions.
The first was Salomon Brothers' conversion from a private partnership to a public company through the Phibro deal. "As a general partnership, we had a marvelous esprit de corps," Salomon says. "Everyone had virtually all their money in the same pot and continually at risk to support the activities of the firm. But after it went public, people suddenly got access to all the wealth they had accumulated over many years. Individuals lost their balance, and the firm lost its cohesion."
The second dubious milestone came in 1990, with the adoption of a new compensation system--seemingly patterned after that of the infamous house of Drexel Burnham Lambert Inc. To foster communal spirit, Salomon Brothers had been unusual on the Street in refusing to pay commissions even to its brokers. Now, however, the firm's department heads get a percentage of the profits of their departments. "If you happen to work in the hot area for the year, you make zillions, and not much benefit accrues to the organization as a whole," says Salomon, his dander rising. "It's absurd!"
Salomon falls briefly silent. "No, it's not absurd," he says quietly. "But it certainly is dangerous, isn't it?"