imagine you are the CEO of Salomon Brothers, where serious andterrible ethical breaches harmed their stakeholders, especiallytheir employees. discuss what specific concrete steps you wouldtake to restore your company’s reputation if it’s been sullied(dirtied)? why are these steps important?
Following is "Salomon Brothers" case
Salomon Brothers Before its implosion in 1990, Salomon Brotherswas one of the premier global investment banks—perhaps the mostdirect competitor of the mighty Goldman Sachs. In December 1990,however, the head of Salomon’s government bond trading desk, PaulMozer, decided to test the regulatory resolve of the U.S. Treasury.Annoyed by the federal limits on the percentage of Treasury bondsany one firm could bid for in Treasury auctions—the ceiling was 35percent—Mozer devised a plan to evade the regulation. He submitteda bid for Salomon Brothers, and he submitted an unauthorized bid inthe name of one of his customers. The two bids combined represented46 percent of the auction—a clear violation of the rules. Mozerrepeated this several times and in April 1991, he described thetactic to four Salomon executives: Chairman John Gutfreund,President Thomas W. Strauss, Vice Chairman John W. Meriwether, andGeneral Counsel Donald M. Feuerstein. These executives told Mozerto stop his scheme but did not report him to the Securities andExchange Commission. In June, the SEC subpoenaed Salomon for itsauction records. In August, Salomon finally alerted the SEC toMozer’s activities. Immediately following the disclosure to theSEC, Mozer was suspended from his job; shortly afterward, the boardof directors asked the four Salomon executives to resign from thefirm and fired Salomon’s outside law firm. The board named one ofits own members, Warren Buffett, as interim chairman.61 Thepublicity generated by the Salomon scandal was devastating to thefirm and its shareholders. Its market value dropped by overone?third—$1.5 billion—in the week following the disclosure. Itsdebt was downgraded by various rating agencies, and major banksreevaluated Salomon’s loan terms. Because of the firm’s decreasedliquidity, its ability to trade was dramatically reduced. Inaddition to the immediate financial debacle, teams of SalomonBrothers personnel left the firm. Weakened by the bad press and thedefections of talent, Salomon Brothers managed to remainindependent until 1998, when it was acquired by the Travelers Groupand eventually it became part of Citigroup. This is just one moreexample of how personal hubris (on the part of Mozer) and refusalto report such hubris to the regulators (on the part of the firm’sexecutive team) can result in a death sentence, especially in thefinancial industry where reputation is everything.
