The plans for retrenchment announced this week by Salomon Inc. were made only after a lengthy internal debate about the future direction of the giant securities firm.
More than one Salomon executive fretted that the New York company should not abandon its municipal bond and commercial paper businesses to involve itself more in the high-risk, largely unfamiliar world of merchant banking. But as the moment of decision neared, "it was clear which way things would go--the way the top man wanted it," said one observer, who asked not to be identified.
Chairman and Chief Executive John H. Gutfreund has usually had things his way since he joined what was a plodding old-line investment partnership 34 years ago. Triumphing over rival executives as over competing investment houses, he has shown himself a master of politics at an organization known for fractiousness and intrigue.
Now he faces what may be his biggest challenge, as he seeks to restore a Wall Street firm that is barely making money to the top profitability that it enjoyed as recently as a year ago. As he does so, he must keep an eye on Ronald O. Perelman, the Revlon Inc. chairman and corporate raider who has declared a desire to buy a large block of Salomon stock.
Gutfreund, 58, made his name at Salomon Bros. while still in his early 30s by diversifying the firm, then exclusively a bond trading operation, into bond underwriting. He competed with William E. Simon, the former Treasury secretary, to succeed William R. (Billy) Salomon as managing director.
It was clear Gutfreund would prevail by 1972, when Simon left Salomon to become deputy Treasury secretary. Gutfreund succeeded Billy Salomon in 1978.
In 1981, Gutfreund arranged Salomon Bros.' sale to Phibro, a much-bigger commodities trading concern led by Chief Executive David Tendler. As the years passed, Gutfreund sought to make the securities operations more important than its commodities arm; eventually, he became chief executive, and Tendler resigned.
Knowledgeable observers also saw Gutfreund's hand in the departure in July of Lewis Ranieri, the free-spirited supertrader who had led Salomon's mortgage and real estate units.
Ranieri, it became evident, was ousted because his independent style clashed with the desires of Gutfreund and others to exert a stronger central control over the organization.
Some speculate that Ranieri may also have opposed the move to merchant banking, and, as a popular figure at the firm, might have led opposition to the move.
One knowledgeable observer, comparing Salomon's organizational politics to the Politburo's, described Ranieri's ouster as "the party prevailing over the personality." Salomon "is run much more like the Kremlin than the Congress," this observer said.
Last year, Henry Kaufman, the economic forecaster, gave up his position as a Salomon board member and vice chairman partly because he disagreed with the new emphasis on merchant banking. Kaufman, who has spoken out against the heavy use of "junk" bond financing, remains head of the company's economics unit.
One former Salomon executive says the skills that made Gutfreund a good bond trader are also what has driven his seemingly effortless rise through Salomon's ranks.
"He can sense the psychology of the opposition," the former colleague says. "He waits, he reads what's going on in others' minds, and at the right moment, he moves. It works on the trading floor and in the board room."
Gutfreund also acts as Salomon's "outside" man. The Manhattan social life of Gutfreund and his second wife, a 40-year-old former Pan Am stewardess, have made them regulars in the gossip columns of the New York tabloids.
If Gutfreund has a weakness as a manager, it may be the longtime trader's lack of familiarity with the world of corporate finance and merchant banking, some say. And so far, he has failed to frighten away raider Perelman.
One former executive said Gutfreund's clumsy efforts to ward off the raider "aren't like the smooth Gutfreund I knew. This fight may show a new side of the man."