The Lawyer Who'll Ride Herd On Salomon's Cowboys

Even before Warren E. Buffett announced he was booting out the general counsel at Salomon Brothers Inc., Robert E. Denham had "some inkling" that he might be getting a job offer. After all, the 46-year-old California lawyer has been at Buffett's elbow for the past 17 years. Denham had helped Buffett's Berkshire Hathaway Inc. buy Scott Fetzer and had engineered its investments in American Express, Champion International, and even the $700 million stake it purchased in Salomon in 1987.

Now, Denham faces a far different--and clearly more complex--task. And he will be operating not in the cozy obscurity of his Los Angeles law firm, Munger, Tolles & Olson, but in the harsh spotlight of Wall Street. As Salomon's top legal gun, Denham must respond to the avalanche of government probes and private damage suits stemming from Salomon's admittedly illegal bids at Treasury auctions.

TIGHT GRIP. Far tougher, Denham will be helping Buffett rein in Salomon's cowboy culture and revive confidence in its integrity. Denham's goal: "Make sure Salomon operates according to the highest of ethical principles."

The possible failure to follow the highest ethical principles may have been the undoing of Denham's predecessor, Donald M. Feuerstein, whom Buffett asked to resign. Feuerstein was told of trading irregularities in April and persistently advised senior management to report them to the feds. Salomon refuses to say why he was nixed. But according to Geoffrey C. Hazard, a professor at Yale Law School, the general counsel has "an ethical and legal duty" to report serious wrongdoing to the board of directors if management fails to act--and Buffett is on the board. Other experts maintain, however, that no such duty arises unless there's clear evidence of continuing wrongdoing and a coverup, far from certain in this case. Feuerstein declined comment.

Denham admits he doesn't know a lot about Salomon. But he's sure it will not become another Drexel Burnham Lambert Inc., the brokerage that fought the government--until it was forced to plead guilty to six crimes and pay $650 million. "There's only one right thing to do: come forward and cooperate," he says.

Denham's first priority is to get up to speed on the legal issues, and he's cramming like mad. A Harvard law school grad who won a prize as the top student in his first-year class, Denham has more than a few things going for him. He knows corporate and securities law. And he has picked up some trading insights while serving as longtime counsel to the Pacific Stock Exchange. His strongest card: the total trust of Buffett, whom he won over in the mid-1970s while still a "fairly junior" attorney at his law firm.

Coming from outside the Wall Street Establishment could even be a plus. As Stanford University Law Professor Joseph A. Grundfest, a former commissioner of the Securities & Exchange Commission, observes: "New Yorkers got us into this mess."

The father of two children, 15 and 20, Denham has moved to New York from Pasadena, Calif., leaving his wife, Carolyn, an academic administrator, temporarily behind. And while he likes books--Denham just finished Robert Reich's The Work of Nations--he's prepared to forgo pleasure reading because of the job demands. With Salomon's woes, that could be a long time.

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