There's more to good business than laws or codes or wheezes from big swinging bankers
CHRISTOPHER FILDES
Warren Buffett became chairman of Salomon Brothers by accident. The big swinging bankers there (evoked by Michael Lewis in Liar's Poker) had tried to swing a fast one on the United States Treasury, and were caught. and were out — and since Berkshire Hathaway, Mr Buffett's company, was a major investor, he was left holding the baby. To the survivors he set out the old-fashioned standards he would now expect: 'Contemplating any business act, an employee should ask himself whether he would be willing to see it immediately described by an informed and critical reporter on the front page of his local paper, there to be read by his spouse, children and friends. We simply want no part of any activities that pass legal tests but that we, as citizens, would find offensive.' Then time moved on, and so did Mr Buffett, and a new generation of swinging bankers came to Wall Street and thought that his ideas about investment looked old-fashioned, too. Berkshire Hathaway searched for value and, when it found this, hung on to it, but stocks from the new world of dotcoms and telecoms offered something far better than value — they offered momentum. Besides, how could you measure value in a dotcom company which paid no dividends and had no earnings, no profits, no assets and as yet no sales? Well, you could find terms that flattered it. Bad terminology, so Mr Buffett warns us, is the enemy of good thinking: 'In golf, my score is frequently below par on a pro forma basis.'
Rewards for disasters
BY now events have made Warren Buffett's point for him: 'Shareholders have suffered billions of losses' (he says) 'while the chief executives, promoters and other highups who fathered these disasters have walked away with extraordinary wealth.' Some of their accomplices among the swinging bankers and of course, the auditors are now in trouble. Auditors, to Mr Buffett's mind, have been unduly compliant to their clients' wishes. They have clients who want their accounts to bury the costs of their stock options: 'Shameful,' he calls that. There is more to good conduct in business than complying with laws and codes and being nice to trees, and some ideas are so old-fashioned as to be ahead of the game.
THE Prudential needs a new chairman, for Sir Roger Hunt has been caught in the crossfire from Marconi and is leaving early. Given the Pru's unofficial position as the big investors' right marker, this post carries authority, in the City and out — so it may just be a fortunate coincidence that Ian Plenderleith will be free at the end of the month. He is an executive director of the Bank of England, sits on its Monetary Policy Committee, doubles as Government Broker and is the Bank's market supremo, once popping up at the Stock Exchange as deputy chairman to sort out a crisis. Now he seems to think that 37 years in Threadneedle Street is enough. If he is indeed on his way to the Pru, I hope he will cure it of its new habit of rewarding its top management with fancy contracts which could pay in millions. They provoked dissent and commotion this week at the Pru's annual general meeting, and rightly. This is not what the troops are entitled to expect from their right marker.
Bugging the castle
MAGNA Carta is law, just about, the Bill of Rights has not yet been repealed, but where financial misdeeds are suspected they might just as well be scrap paper. Now the Office of Fair Trading is asking Parliament for the power to creep into the Englishman's home and plant bugs, in case he is cooking up a cartel. Directors may soon face prosecution and jail for not knowing things that they ought to have known. The right to trial by jury is under review and may be abolished — that is, where the charge involves fraud. The Financial Services and Markets Act sets the regulator up as prosecutor, judge and jury. The Department of Trade and Industry's inspectors can disregard the laws of evidence, the witnesses must answer every question or be in contempt of court, and their answers can be used against
them at their trial — though this may now have fallen foul of the law on human rights. Suspected rapists, traitors or murderers are entitled to more protection at law than suspected fraudsters and insider traders. We are told that without these encroachments on civil liberty, it is hard to make charges stick. In that case I dare say that something is wrong with the charges. Fraud itself is not a criminal offence. Perhaps it should be. What I detect in all this is the unspoken thought that financial miscreants, real or imagined, guilty or not, have no friends and deserve no rights — so bug them.
K.C. and friends
I THOUGHT K.C. Wu was immortal. He was the City's senior banker, he was there at every party and he was already looking forward to his diamond jubilee. This week his friends crammed into Drapers Hall to remember the young clerk who, driven by an invading army out of China and then out of Burma, came to the Bank of China's London branch in 1944 and stayed there. 'He knew more people in the City,' said Sir Edward George, 'and more about what was going on than almost anybody else, including the Governor of the Bank of England.' I was at the anniversary party where Sir Edward's predecessor presented K.C. with a silver salver. He accepted it stylishly — 'You and I, Mr Governor, we are survivors' and then turned it over and peered at it: 'Made in Taiwan?' In Drapers Hall his daughter spoke for him: 'K.C. would have loved this.'
Bauer's Law
SOME great men leave laws behind them: Robert Boyle, Isaac Newton, Peter Bauer. Murphy, too, who taught us that if something can go wrong, it will. His law still prevails in African countries in spite of their friends' good intentions. One such friend, who was sent in to advise on a state railway system, found a jumble of incompatible locomotives and rolling stock, some of it built to the wrong gauge. He concluded that different suppliers had been paying commissions to different ministers. No doubt overseas donors and agencies had found the money. Bauer's Law: aid is a transfer of money from poor people in rich countries to rich people in poor countries.
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