Sunday, February 24, 2013

Sir Deryck Maughan: The Dark Prince of 9/11

Am I the only one who finds Deryck Maughan's elevation to the knighthood by the Queen of England on January 1, 2002 to be suspiciously timed? Sir Deryck's reign at Salomon Brothers incurred some of the worst publicity of anyone on Wall Street, with his professional profile notable amongst those exemplars of excess as tenured at the school of lack.
Was it the Queen's sympathy at the loss of Salomon's New York offices, which occupied 24 floors in Building 7 of Larry Silverstein's World Trade Center complex, or a mercenary Cash for Honours award?
New York Magazine's Wall Street Weak In Review

June 12, 1995, New York Magazine, Vol. 28, No. 24Page 32Wall Street Weak, by Suzanna Andrews, (Text at Highbeam)

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June 12, 1995, New York Magazine, Wall Street Weak, by Suzanna Andrews, (Text at Highbeam)

Warren Buffett brought Deryck Maughan in to save Salomon Brothers. But Maughan has instead been forced to endure the loss of hundreds of millions of dollars, the mutiny of key executives, and a growing conviction among underlings that he's in way over his head. And then there's his wife...

What was remarkable about Deryck Maughan's appearance at Salomon Brothers's annual shareholders' meeting on May 3 was how little effort he made to conceal his mood. In private, Maughan has expressed bitterness and shock at what has happened to him during the past few months. Associates describe a man who is worn down to exhaustion, who has developed an almost Nixonian certainty that people are out to destroy him. To some in the audience that morning, the chairman and CEO of Salomon Brothers seemed strikingly depressed, and it hardly mattered, apparently, that everyone in the room was scrutinizing him. Warren Buffett, the celebrated Omaha multi-billionaire who is Salomon's largest shareholder and Maughan's patron, was sitting in the front row; Buffett's long-time confidant and Maughan's boss, Robert Denham, was seated next to Maughan on the dais. Arrayed in front of Maughan were some 250 shareholders. While Denham eagerly answered most of the questions from the audience, Maughan stared blankly into the middle distance, at times grimacing. When he did venture a response, his voice was tired and heavy, and when he finished speaking, he seemed to cave in, looking down a his hands before fixing his stare back into space.

In the past year, Deryck Maughan's blond hair has gone grayish and pouches have appeared beneath his eyes, signs of the tremendous pressure he's under. In January, Salomon announced that in 1994 it had lost some $963 million before taxes. While other top Wall Street firms were hard hit by last year's sharply lower trading and underwriting activity, none was as badly hurt as Salomon, the firm that Maughan has run for the last three years. The bad news didn't end there. In February, Salomon conceded that it had made a multi-million-dollar accounting miscalculation. And last month, Moody's downgraded billions of dollars of Salomon's debt, concerned about the firm's strength and management. Not since 199 1, when the firm nearly collapsed after admitting it had submitted false bids in Treasury auctions, has Salomon been in such disarray.

None of these crises, though, has shaken Salomon more deeply than the loss of confidence in the firm's 47-year-old leader. Since December, some two dozen top traders and bankers, including three members of the executive committee, have left. While Salomon has long been the most turbulent and backbiting firm on Wall Street, rarely before have so many people expressed such white-hot hostility for their CEO - almost to the point of mutiny.

That Maughan should have come to be so disliked seems almost unbelievable. When he rose to CEO in May 1992 - taking over the position vacated in 1991 by eighties totem John Gutfreund - Maughan was hailed as the man who would save Salomon's tattered reputation. His credentials seemed impeccable. In the four years Maughan had spent running Salomon's Tokyo office, he had transformed the operation into a major profit source. He had a reputation for integrity and for excellent management skills. In a firm where everyone seemed to be at everyone else's throat, Maughan had no enemies. A tall, nice-looking Englishman who had spent ten years in Her Majesty's Treasury, Maughan was an impressive figure in his Savile Row suits and his Anglo aloofness. Many at the firm - after years of being embarrassed by the Bonfire-worthy social antics of Gutfreund's wife, Susan - even found heartening portents in Maughan's wife, Va (short for Vaofua). She was a Samoan princess or the daughter of a Hawaiian bishop or a senator - if the details were murky, few people at the time seemed to care.

And Deryck Maughan had big plans. It was not enough merely to rebuild the parts of Salomon that had been gutted by the Treasury scandal. Like Gutfreund before him, Maughan wanted to take a firm that had always been a laggard in the classier business of investment banking and transform it into a global banking power.

Today, however, Maughan is blamed for having nearly brought the world's preeminent bond firm to its knees. The client side of the business, which includes the investment bank and trading on behalf of clients, lost $636 million last year. The London operation, which Maughan built up, lost hundreds of millions alone. Most surprising, however, were losses in the trading division, some of which the firm admits resulted from poor management controls.

Maughan's critics say that he was simply overambitious, taking a job that he didn't deserve. Others portray him as a man subject to more powerful personalities, most notably that of his wife, Va, and his boss, Warren Buffett. Still others wonder, however, if anyone in Maughan's position could succeed, and speculate that Salomon is doomed by its history and its vicious corporate culture. Says one former executive, "There are no good guys in this story."

Deryck Maughan has been stunned by the acrimony directed at him, by accusations of arrogance and incompetence. In his mind, say people who know him well, he believes that he is the only man who would want the job he has, and the only man who could do it. "I am the hardest-working man at Salomon Brothers," he reportedly boasted to the wife of one executive at a recent firm dinner. Yet he also comes across as unsure and strangely vulnerable in his attempts to draw people to him, telling one executive recently: "Salomon Brothers is strategically in a precarious position, and I don't know how the firm could survive in the next five to six years without making some changes, and I'm not sure we can do it." "There's a fragility about him," says one man who knows Maughan. "The other day, we were having lunch, and he looked at me with this bewildered expression and said, `If Salomon Brothers can't make money trading bonds, what can it do?'"

Despite the hostility they have for him, Salomon executives find Maughan personally riveting. They speak of him with some pity, casting him as a tragic figure whose flaws were made worse by circumstances and the ambitions of others. One man characterizes him as "investment banking's Hamlet," boasting and optimistic and yet curiously passive and melancholic.

Maughan has given rousing speeches to Salomon employees - filled with odd images of death ("by hemorrhaging") and war. But he is also rarely seen around the Seven World Trade Center offices, sometimes spending entire days hunkered down behind his desk. "He suffers," says one former executive. "It makes me fond of him. There's inner turmoil there." In person, Maughan affects a demeanor that is both pleading and aggressive at the same time. "He can look like a deer in the headlights," says one former Salomon executive, "and you sort of feel sorry for him."

Maughan has an ability, rare in a banker, to communicate in an intensely personal manner, exposing himself in ways that surprise those around him. As he once said, apropos of nothing: "I don't drive a fancy car, and I don't have a weekend house." And, more trenchantly, as he has told a reporter: "Visibility precedes death."

To understand what happened to Deryck Maughan, one has to go back to 1991 and the amazing hubris of Warren Buffett. On Sunday, August 18, Buffett forced the resignations of Salomon's top three executives: John Gutfreund, its chairman and CEO; its president, Thomas Strauss; and its vice-chairman and head of trading, John Meriwether. Five times in the preceeding six months, a Salomon trader had broken Treasury rules governing deficit-funding auctions, and had done so using the names of clients without their permission. When these executives learned of one of the transgressions, they did nothing. The Treasury was furious, and that day it barred the firm from its auctions - a move that threatened Salomon's status as the world's biggest dealer in government securities. Buffett made four instant decisions: He won the resignations of the three executives, called the Treasury secretary and got the government to partly rescind its order, took over as Salomon's interim chief executive, and named Deryck Maughan as his No. 2. Buffett's actions were widely heralded at the time, which was not surprising, as almost everything he does is widely heralded. Charmingly geeky, giggly Buffett's string of investment successes had earned him a net worth of more than 11 billion and turned him into a national celebrity. His company had made a $700 million investment in Salomon in 1987 - one in which it was guaranteed an income of" $63 million a year, with no downside unless the firm went bankrupt - and it was assumed that because Buffett had money to protect, he was the right man to take over the firm. Exactly what Warren Buffett knew about running a securities firm was not a question that was asked at the time.

Exactly what Buffett knew about Maughan was also not deemed worthy of discussion. Buffett had met Maughan only two days before he elevated him, and he had picked the Englishman after Maughan emerged as a consensus choice during one-on-one interviews views Buffett held, as he once put it, with "ten, twelve, maybe eighteen key managers" at Salomon. Today, some of those interviewed say Buffett spent only about fifteen minutes with each of them.

The men Buffett interviewed that day were in a state of shock bordering on panic. The year before, the government had effectively shut down Drexel Burnham Lambert, and there was widespread fear that it would do the same to Salomon Brothers. They were also stunned by the resignations of Gutfreund - who, if not always liked, was respected - and of Meriwether, who was revered. When they endorsed Maughan that day, they did so for lot of complicated reasons, but none of them did so believing that their votes would one day make him the firm's sole leader. The only two men who had been groomed to run the firm - Tom Strauss and, to a lesser extent, John Meriwether - were out of the running. Most of the rest had axes to grind with one another.

Conveniently for Maughan, people knew virtually nothing about him. He had been off running the Tokyo operation, and had been brought back to New York by Gutfreund to help run the investment-banking division only a month before the Treasury scandal broke. "He was the only one of us who was clean," says a former executive, "because he was the only guy who had not been in New York." In a firm where everyone's personal affairs are open to gossip, no one knew key details of Maughan's private life, including the fact - which shocks people when they are told about it today that he had previously been married. "He was inscrutable, and he came from this inscrutable background," says a former executive.

Maughan had one other advantage for a firm that badly needed to upgrade its image: "Deryck," a former executive says only half-jokingly, "could speak in entire sentences without saying fuck."

And Maughan had quite a nice story to tell about Tokyo. In the years that Maughan had spent there, he had taken a smallish unit and turned it into a 400-person behemoth that ranked among the top five securities firms in Tokyo, which was the hottest market in the world at the time. By the time he returned to New York, the Tokyo office was spewing cash, accounting for an estimated 15 to 20 percent of Salomon's bottom line. And Maughan wanted to make sure everyone at Salomon knew it. "Maughan," one former executive recalls, "made very aggressive presentations, and the tone of them always was - he had this machismo, which is weird in an Englishman - how well he had done."

But how well had he done, actually? There is some debate today about exactly what role Maughan played in Tokyo's success. There is no question that Maughan boosted Salomon's stature in the Tokyo market. "You have to give Deryck credit for the success in Japan; you have to. He was a very good manager," says Richard Grand-Jean, who was a department head in Tokyo and who objects to suggestions made by most people today that the credit for Tokyo belongs to another man - John Meriwether.

"Maughan rode the biggest market boom in Japanese history, and he rode John Meriwether," says a former executive. The bulk of Salomon Brothers's Tokyo profits in those days did indeed come from its trading operation - specifically from trading for its own account (not for clients) using a bond-arbitrage technique that Meriwether was famous for pioneering. Meriwether was not only head of the firm's worldwide trading operation during those years but also a hugely powerful member of its executive committee. Although Maughan did manage the Tokyo office, Meriwether made the key moves, people say, including the decision to inject some $300 million of capital into the Tokyo office, which had the effect of making Salomon Brothers, as Institutional Investor wrote in 1991, "too big and powerful to be refused."

Maughan, in other words, would not have succeeded without Meriwether. That was not, however, the story coming out of Salomon's offices in Tokyo, where the successes were attributed to Maughan alone. His press in Tokyo was fantastic - to a degree that made admittedly envious competitors suspicious. "There was no way that one man had done everything people were saying he had," says a man who worked at a rival firm at the time. "The press was obsequious." "He is such a master at manipulating the press," says one member of the Tokyo financial-press corps. "You'd call the tea lady at Salomon Brothers and you'd get a call from Deryck Maughan - mainly because he didn't want us to talk to anybody else. He was so flattering. But now people say that he did that to keep us away from other people at the firm, to seem like he was in total control." Inside Salomon, Maughan took a similar approach. He would rotate responsibilities to keep employees slightly off-balance. He played subordinates off one another in very subtle ways. "He had a very superior, cool, imperial style," says one. "It worked beautifully for him in Tokyo, but it didn't hold up in New York."

In all the bitterness that has since surfaced, though, it is difficult to remember that Maughan, back in New York, actually did a very good job as Buffett's No. 2. In tandem with Buffett, he worked hard to reassure regulators that Salomon Brothers was being cleaned up. He met with clients, persuading them to stay with the firm; and he helped reassure worried employees. And for all the troubles 1991 and 1992, Salomon was profitable. Externally, Maughan proved to be a dignified, reassuring face for the firm. Inside Salomon, he became an excellent emissary for Buffett. Buffett did not take over as chairman of Salomon Brothers only to save his investment. He came with a mission: to change Salomon in toto - its management style, its culture, and its compensation structure. What Maughan bought into when he accepted Buffett's offer to become Salomon Brothers's CEO in May 1992 was, in the words of a former Salomon trader, "Warren Buffett's morality play."

Things went smoothly for Maughan for his first few months in charge. He hired a new head of strategic planning, upgraded the budget system, reorganized staff - in general, imposing the kind of corporate-style management that Buffett had made so clear he envisioned for the firm. In December 1992, however, Maughan made what is now viewed as his first major mistake.

That month - after enduring his punishment of staying out of the securities market for three months - John Meriwether passed word that he was ready to return to Salomon Brothers. It was the moment that many top traders and executives had been waiting for, indeed expecting. To say that Meriwether was popular understates the magnitude of the feeling for him. His aggressive trading had helped to make Salomon Brothers the most profitable firm on Wall Street in the mid-eighties. He had a huge and loyal following among. the firm's traders and even among the snootier investment bankers. By 1992, the stories about Meriwether had taken on legendary proportions - he was so honest, people said, that he would return money to clients if they had made a stupid trade with the firm.

In late 1992, this love for Meriwether did not yet translate into open dislike of Maughan. Salomon employees were happy with Maughan as CEO, but they wanted Meriwether back as his partner and to run the firm day-to-day. John Meriwether did not return. Exactly what happened is not clear - but this is the moment when Maughan's support in the firm began to collapse. Maughan's backers say that he believes he did ask Meriwether to return but that Meriwether was more interested in starting his own company. Other senior executives say that Meriwether had no choice but to back off, given what Maughan offered him in a couple of formal cool meetings - a job that was in many ways less powerful than the one he'd had before he left.

On one level, the tension between the two men who had once worked together so closely was about strategy. Meriwether represented a vision for Salomon that had a powerful hold on many of the faithful: The company would embrace its strength as an immense trading machine and focus on betting its own capital, stripping away businesses and client relationships that were not essential. Maughan preferred a more ambitious, costlier strategy: investing to expand the firm's client and investment-banking activities around the world, enhancing its prestige and turning Salomon into a stable company rather than one whose earnings rose and fell with the markets.

Strategy, however, according to sources close to Maughan and Meriwether, was never really discussed in their meetings. The sub-text of the talks was power - specifically, how much of it Meriwether would have. Sources close to Maughan claim that he wanted Meriwether back, but few people in the top ranks of Salomon Brothers believe this. In any case, by excluding Meriwether, Maughan was free of the only man at Salomon Brothers strong enough to challenge him. "He was afraid," says one senior executive, "that John would end up running the firm." Upset by the treatment of Meriwether, five of Salomon's top executives bailed out in the next year to join Meriwether at the hugely successful hedge fund he had set up in Greenwich, Connecticut.

The defections had a deep impact on Maughan. Asked recently about Meriwether, Maughan reportedly responded with a revealing non sequitur. "Am I afraid of powerful people?" he asked rhetorically, before answering himself: "No. People can go ahead and say that I was born to wealth and power, but my life was being born poor in the north of England."

Even those who backed Maughan's strategy were galled that he thought he could run the firm by himself True, he had a boss - Bob Denham, the Texan who had been Warren Buffett's lawyer for twenty years and whom Buffett installed as chairman of Salomon, Inc., the holding company - but while he's widely liked, Denham was not seen as a man who knew much about running a securities firm. Almost immediately after the Meriwether contretemps, Salomon executives unleashed their special brand of bitterness on Maughan. He had clearly misjudged his support in the firm. If he had gotten the job because he had no enemies, he made the mistake of thinking it was because he had friends.

Maughan has always worn his outsiderom as part cross, part escutcheon. He was born in Consett, an iron-and-steel town in northern England. His father was a miner who began going down into the pits at the age of 12. When Maughan was young, his father opened a pub that Maughan and his mother helped run. At 18, he went off to the University of London on government scholarship, where he studied sociology and geography. He didn't go to Oxford or Cambridge, as one Englishman who used to work with him snidely notes, and this made him something of a square peg when he joined the British Treasury in 1969. (That feeling of marginality apparently still holds. "Deryck always pulled this working-class thing on us," a former Salomon executive says a bit snarkily. "People didn't have the language to deal with it - upper-crust English you could imagine, but who was trained to deal with this `son-of-an-English-coal-miner' stuff?")

Next to the Foreign Office, the Treasury is the most elite of the British civil services, and Maughan was one of only three men picked that year to join its ranks. Maughan had a distinguished career at the Treasury, where he worked on, among other things, international financial policy and held the post of private secretary to the head of the Treasury. Maughan was well-suited to this elite, somewhat arrogant bureaucracy, where people, as one former Treasury colleague puts it, "tended to sit in their rooms and write aggressive papers."

In 1979, he left the Treasury and joined Goldman, Sachs in London as a bond salesman, which surprised his peers. Says a man who worked with him at Treasury, "I think he decided he'd be smarter than the average bond salesman, not smarter than the best corporate-finance man, and that in bond sales he'd stand out." In 1983, Maughan went to work for Salomon in New York as the sales manager of its international bond products.

Maughan's first wife, Rose, is described by friends as a sweet, quiet Englishwoman. No one interviewed is clear about how or when he met his second wife, Va, whom he married in 1981, but Maughan's life, by many accounts, changed after he did. Va - the former Lorraine Hannemann - was working as a Pan Am reservation agent when she and Maughan met. (Ironically, John Gutfreund's wife, Susan, was famously a Pan Am flight attendant before they married.) Va was, according to old friends, as flamboyant and wild as Maughan was cool and reserved. Said by friends to have been the granddaughter of a Samoan tribal chief and the daughter of a Mormon minister (Deryck Maughan, through a spokesman, declined to confirm biographical details about his wife), Va Maughan grew up in Honolulu, one of seven children. Dark and almost as tall as Maughan's 6'3" she was, says one woman who knew her at the time of her marriage, "very striking." Says another: "When we walked into the room, men looked at her." Va Maughan was intense. "No one was more fun. She always told great stories, bigger than life," says one former friend, although, says another, "you never knew what was true and what wasn't." "Lorraine lived in Technicolor," a friend says of Va in her earlier incarnation. Intensely loyal to her friends, she could also be abusive to people whom she believed had crossed her.

Especially roommates. In Beverly Hills in December 1977, according to police records, Hannemann "hit and pushed down" her then roommate. The woman, who friends say has suffered all her life from a semi-crippling skeletal disease, was in the middle of moving out of the apartment they shared. When a male friend intervened, Hannemann, according to police, hit him with a coat hanger. The woman was taken to the hospital. Reached last week, the woman refused to comment, saying she feared retaliation. The victim apparently never pressed charges.

Another former roommate also says that she was assaulted by Hannemann when they shared an apartment in northwest Washington, D.C., in March 1980. ["whom he married in 1981", see above.] The woman, who refused to allow her name to be used in this article, says Hannemann became abusive upon returning from a trip and finding that the roommate had left her television on the wrong station. Hannemann, she says, pushed her, leaving bruises, and threatened to throw her out a third-story window. Again, police were called. Again, no charges were filed.

Far from hiding these outbursts, current and former friends say, Va Maughan reveled in her don't-mess-with-me image. Friends would sit openmouthed as Va boasted of such things as having a relative in the Japanese mafia.

At Salomon, executives say, Va Maughan took charge of her husband's career early on. In 1983, when he joined the firm, she led the negotiations on his compensation-and-perks package. She did the same when he moved to Tokyo in 1986, and in 1991, when he moved back to New York. These deals, executives involved now say, were among the richest Salomon had paid out. In Tokyo, for example, the Maughans had Salomon Brothers pay for one of the few houses in the city with a pool, a car and driver for Va, and first-class travel for her whenever they left the country. The Maughans' move to New York in 1991 - which included a lengthy stay in a suite in the Mark Hotel - set Salomon Brothers back $283,854 for the year, according to a proxy report. If it took people in New York several months to understand the Va factor - "because people in Tokyo were afraid to tell the stories when he was there," says one executive - even Maughan's competitors at other firms soon knew about his wife.

Today, current and former executives say that one cannot understand fully the hostility to Deryck Maughan without grasping the role that his wife has played. Traders joke about her after work on the plaza. The stories are whispered around the firm. Some of them involve the commonplace difficult-corporate-wife episodes. There are the reports of her berating support staff and of secretaries quitting or demanding to be reassigned. But some of the reports have shaken people at the firm, including an incident in which she reportedly refused to allow an executive in Tokyo to use her car and driver to transport his sick baby to the hospital.

It is the incidents with clients, however, that rile people the most. At a party that Salomon Brothers threw at MOMA in 1992, Va Maughan reportedly demanded that a woman whom she believed was inappropriately dressed leave. She turned out to be the girlfriend of an important client. Furious, the client threatened to stop doing business with Salomon. It was only through the intervention of a bond salesman, sources say, that the client was convinced to keep his business at the firm. And at a dinner to mark the opening of Salomon's Beijing office last summer, Va Maughan horrified executives by rearranging the seating at the last moment to accommodate friends of hers - leaving two Chinese officials who were archenemies seated together. Asked to comment on stories regarding his wife, Maughan, through a spokesman, would only respond: "This story is biased and filled with false and exagerrated statements."

Out-of-control First Wives are nothing new at Salomon, of course. Susan Gutfreund was heavily involved in the firm's entertaining. One Venice weekend she put together for clients cost Salomon $1 million, but bankers say this particular extravagance won Salomon $2 million worth of business. Va Maughan's antics, critics say, have had no such payoff. If Susie Gutfreund was an irritation, one executive says snidely, "at least she had good taste."

Furthermore, paranoid employees speculate that Va Maughan has had a hand in hiring and firing decisions. Deryck Maughan denies that his wife is involved in any Salomon business dealings, but the kibitzing has clearly hurt him. "When you allow a spouse to do what his spouse has done, it causes you to lose respect in an organization," says a senior executive. More than one executive has said that he has complained to Maughan. "I told him, I don't like how your other half is influencing things, and I don't like these standards of behavior,'" says an executive who recently left the firm. "When I made my thoughts known to him, it was awful. He just sat and looked at me like, How can you sit and tell me these things I don't want to hear?"

For a year after Deryck Maughan let John Meriwether get away, it looked to people on the outside as though Maughan were succeeding. The market was booming in 1993, and Salomon Brothers, like most investment banks, showed fat profits, earning a remarkable $827 million. The cash, however, papered over tensions that were building within the firm.

In his 43rd-floor office, Maughan seemed increasingly overwhelmed. He spent most of his time holed up in his suite and began to openly complain about the demands people made on his time. "Can one person do all of this?" he reportedly complained to top executives. "I can't do it all." When Maughan did get out, his style could be bizarrely imperial. At one lunch with the CEO of a Fortune 50 company, bankers had lined up a group of specialists to speak to the client about Salomon's services. Fifteen minutes before the lunch, Maughan had the specialists uninvited and decided to represent the firm himself. The lunch was a fiasco, says one banker who was involved. "He put himself on the spot. The CEO left looking at his No. 2 like, What a waste of time this was." For his part, Maughan tells colleagues he has met one-on-one with some 200 clients last year.

What troubled bankers most was how little Maughan seemed to understand his limits. "Deryck is no villain," says a colleague. "He's just arrogant. He inherited a poor situation and he didn't understand it, and he thought he was the solution." That may explain why Maughan, for all his complaints about overwork, never filled the post of president left empty when Tom Strauss, who ran daily operations for Gutfreund, was forced out in 1991.

In a major presentation in 1993, Maughan announced his vision of a "big squeeze" in investment banking in which only a tiny handful of banks were going to be globally competitive. Salomon was not in this group, and to get there, Maughan said, it would have to build up its investment-banking operations, and revamp its London operations and American equities business.

To an extent, Maughan has been successful in attaining these goals. The firm has improved its position in U.S. equities and has retained its preeminence in the worldwide bond markets. And the London operation - although it had significant losses - is in better shape than it was in the aftermath of the 1991 scandal. In terms of the larger strategy, though, Maughan has had problems.

The traders have been unimpressed with Maughan's bally-hooed move toward investment banking, and, former executives say, he has not been powerful enough to quell territorial squabbling among the investment bankers. "He didn't have the discipline to get it beyond a discussion with one or two parties," says a former executive. "The firm wasn't behind him."

If Maughan didn't have the support of most of his troops, he did, however, have Warren Buffett's - even after the losses of 1994 began to pile up. Buffett's former lawyer Denham - who seems thrilled to be in New York and overseeing Salomon - cheerfully backed Maughan within the firm, like a mother duck pushing a duckling into the water. "Bob has tried hard to support Deryck, to help him," says one executive.

In the middle of 1994, the two men, with Buffett's encouragement and guidance, devised a new plan for Salomon Brothers executives that would tie compensation more closely to the performance of individual divisions - and in the case of proprietary traders, actually dock their bonuses when they lost money. For some, compensation could be cut as much as 66 percent. It was a radical move for Wall Street. Contrary to reports about the ensuing fiasco, Denham and Maughan didn't change the pay structure because of Salomon's inarguably outrageous pay scales - in 1994, Salomon paid more in compensation alone than it earned in revenues. They pushed through compensation reform to make good on Buffett's pledge to curb Wall Street profligacy. Buffett had been irritated since 1990 - when he cast a dissenting vote on a super-generous pay plan - with the way Salomon, indeed all Wall Street, bankers were paid. (Last year, Maughan took home a modest, for Wall Street, $1 million.) There couldn't have been a worse time to put the plan together. Within weeks of the announcement, more of the bank's best people began bailing out, and in April Maughan and Denham were forced to put a small amount of money into the compensation kitty to pay off client-side traders and bankers. It was too little too late.

In theory, the plan was fair and just. Who wouldn't be in favor of rewarding people for doing their jobs well and returning money to shareholders? Under the old plan, after all, the head of London propriety trading reportedly received a $20 million bonus last year even though his operation lost $450 million. But Maughan's plan put Salomon in a dangerous position competitively. Doing the right thing - especially when no other firm is following suit - has usually proved to be a pretty dumb strategy on Wall Street.

If Maughan was already isolated, the plan cut him off completely. People complained that Maughan had spent little time soliciting other people's views. Even the executive committee, sources say, was only permitted to mark it up on the margins. "The basic part of the plan was presented to us as a fait accompli," says one recently departed executive. (Maughan denies this.) In October, when Maughan broke the news to his top 40 managing directors, recalls one man who was present, "there was a stunned silence."

Back at the may 3 shareholders meeting, audience members were shifting in their seats and Maughan was affecting his vacant scowl as Bob Denham finished up a particularly long answer to a standard-issue shareholder question. An elderly man with a thick southern accent rose to make himself heard. "You get the impression," he drawled, "the previous management knew how to make money. They may not have played by the rules, but they made money. Now it seems" - he elongated the words for dramatic and humorous effect - "the pendulum is swinging the other way." The audience, which until then had been oddly passive, erupted into laughter. "My question is, can a bunch of nice guys like you make any money?" There was wild applause.

Actually, they are making some money. After last year's drubbing, Salomon Brothers's earnings have moved back into plus territory. And Maughan, meanwhile, appears to still have Buffett's confidence, the feeling being that the changes Maughan has instituted will need years to yield substantive results (Buffett could not be reached for comment).

When the shareholders' applause died down, Denham responded with some boilerplate about having first-class clients and how honesty will out, but beyond a quick wince, Maughan showed no sign that he had heard the question. Another shareholder stood up with a query. And only then did Maughan return to the previous shareholder's challenge. "It's been a long time," Maughan finally said, without a trace of a smile and staring off at a point a few feet above the heads of the shareholders, "since I've been called nice."


January 11, 1988, New York Magazine, Hard To Be Rich, by John Taylor,

Source: New York Magazine
January 11, 1988, New York Magazine, Hard to Be Rich, by John Taylor,


December 9, 1991, New York Magazine, Vol. 24, No. 48, page 40, Saving Salomon,

February 13, 1995, New York Magazine, (148 pages) Vol. 28, No. 7, Wall Street Free Fall,

February 13, 1995, New York Magazine, Vol. 28, No. 7, Down and Out on $350,000 a Year, page 67,

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