The Lion In Winter

No question, John H. Gutfreund was a flawed manager. As chief executive of Salomon Inc. from 1983 to August, 1991, he made some big mistakes. Perhaps the worst was failing to inform the New York Federal Reserve Bank in 1991 when the firm found it had submitted a false bid in a Treasury note auction. Although he was never charged with wrongdoing, Gutfreund resigned from Salomon and agreed to pay a $100,000 civil penalty. Another major error was cutting a special pay deal with supertrader John W. Meriwether, which badly undermined the firm's compensation system--a problem that endures today. Nor was Gutfreund well-liked: A gruff man, he suffered fools badly and had no use for the press.

THE SMELL OF FEAR. Yet after 38 years at Salomon, Gutfreund left an out-sized legacy. He built Salomon Brothers Inc. from a small, parochial bond house into one of the preeminent capital-raising firms in the world. He told new recruits to come in every morning "ready to bite the ass off a bear."

He had vision and was passionate about the securities business. He was able to manage big egos. He was a trader who could gauge losses by the expression on a trader's face. "John could smell fear at 100 paces," says former Salomon currency trader Bill Lipschutz in an interview in the book The New Market Wizards. Gutfreund was liked by investment bankers because even as CEO, he was always ready to go out on client calls.

"Under John's leadership, much of the value of Salomon was created," says Richard Grand-Jean, a former Salomon Brothers managing director.

Today, Gutfreund, 65, is a long way from being "The King of Wall Street," as BUSINESS WEEK dubbed him in 1985. He works out of a small but well-appointed midtown Manhattan office and still dresses in proper bankers' pinstripes, answering his own phone after hours and fetching his own coffee. He keeps busy advising and investing in small companies with capitalizations of $50 million or so. "I'm old enough and disinterested enough that I'm not going to tell you you're the most beautiful girl in the world if you're not," he says. He serves as a board member of the New York Public Library and Montefiore Medical Center and as a fund-raiser for Oberlin College. On Apr. 22, he was to leave for Copenhagen for a meeting of the Trilateral Commission.

Yet Gutfreund has been unable to put the past behind him. On Apr. 18, he filed suit against Time Inc. for a factual error in Fortune. The magazine said that he "was barred from the securities business for life." In fact, he can't run a securities firm without special approval from the Securities & Exchange Commission. "I didn't do anything illegal and wasn't charged with doing anything illegal," he says. Fortune acknowledged the error.

Gutfreund is also fighting with Salomon over $27 million in benefits, stock options, and legal fees that he believes the firm owes him. He lost in an arbitration hearing and is appealing. More ominous is a $300 million lawsuit, filed by attorney Melvyn I. Weiss on behalf of some Salomon shareholders, that alleges fraud and breach of fiduciary duty by Gutfreund and three other former Salomon executives in the Treasury bid affair. Gutfreund's legal bills total $8 million, and he has learned to live on less. "I'm not poverty-stricken," he says, "but I'm delighted to be doing business and making a few dollars."

"GREAT PRIDE." Gutfreund doesn't like to dwell on Salomon's current turmoil. But he is still emotionally involved with the firm. Following a luncheon speech at the Metropolitan Club in New York recently, several Salomon traders whom he hadn't talked to in four years came up and embraced him. "I'm not exactly the kind of person who people come up to and kiss," he says.

These days, Gutfreund professes to be worried about Salomon. "I still take great pride in what we built," he says. "I am in pain when I see good people move on." He believes Salomon is in danger of losing its spirit. "The special quality of Salomon is not something that the management of today has thought about perpetuating or improving," he says. Of course, it was Gutfreund's own mistakes that contributed heavily to eroding that special quality. But given Salomon's current woes, his original contributions look a little more significant these days.

Before it's here, it's on the Bloomberg Terminal.