by Shane Parrish, Farnam Street Blog
In an interview with Jeff Cunningham, Warren Buffett hits on two principles that elude most of us.
Interviewer: I was reading a Lincoln quote the other day, âWith public sentiment, nothing can fail. Without it, nothing can succeed.â Of course, he was talking about what led to the Emancipation Proclamation. When I think about your world, 330,000 people who are employees of Berkshire Hathaway or its subsidiaries, how do you send the message that they are being scrutinized under the microscope by the media at all times?
Buffett: I send a message to their managers. Those 330,000 people work for maybe 70 or so CEOs and in turn work for me. My job is to have those 70 CEOs sending out the right message. Every two years, I write them a very simple letter. Itâs a page-and-a-half. I donât believe in 200-page manuals because if you put out a 200-page manual, everybodyâs looking for loopholes basically.
Page-and-a-half, itâs very hard for them to argue about what Iâm talking about. I tell them that my reputation, Berkshireâs reputation, is in their hands. Weâve got all the money we need. Weâd like to make more money but weâve got all the money we need. We donât have an ounce of reputation beyond what we need. We canât afford to lose it. We never will trade reputation away for money.
Theyâre the ones that are the guardians of that. I want them to not only do whatâs legal obviously, but I want them to judge every action by how it would appear on the front page of their local paper written by a smart but semi-unfriendly reporter who really understood it to be read by their family, their neighbors, their friends.
It has to pass that test as well. I tell them I donât want anything around the lines. I tell them thereâs plenty of money to be made in the center of the court. Iâm 84. My eyes arenât that good anymore. I canât quite see the lines that well. Just keep it in the center of the court. If they have any questions, call me.
As for advice on what to do when you face a problem âŚ
Interviewer: Even the occasional dust-up at Berkshire is big news. Iâll pick on Salomon only because itâs history now. Itâs got a lot of time to reflect on that. When you think about what you went through there, what advice do you have for a CEO whoâs on the media hot seat because of a similar situation?
Buffett: There are a couple pieces of advice on that. The first is that when you find out a bad news, correct that and if itâs necessary to report it, then the authorities report it to the media. The big problem with Salomon was not what a fellow named Mozer did which was to defy the US government, not ever a very good idea. But that could have been handled, but he reportedâŚHe didnât report it.
John Meriwether, his supervisor, picked up on it in late April of 1991 and went to the president, the chairman and the chief legal counsel of Salomon and said, âHereâs what this fellow Mozer has been doing.â They all agreed it was wrong. They all agreed it was reportable to the Federal Reserve promptly. Unfortunately, nobody did anything.
In the middle of May, Mozer went out and did it again. Now, youâve got a terrible problem because you knew the guy was a bad actor a few weeks earlier and he hadnât reported it and that compounded there. Then, youâre in a real pickle.
When you find bad news, I say get it right, get it fast, get it out, get it over. Get it right is important. When they questioned, Mozer had done it there. But the get it fast and get it out, they missed on.
Youâre going to get bad news. I got 330,000 people. I will guarantee you that probably dozens of them are doing something wrong right now. I just hope I find out about it early and the person below me finds out and lets me know if itâs bad enough and that they stop it.
You canât have a city of 330,000 without an occasional [laughs] crime of some sort. Itâs going to happen. Youâve got to do something about it fast when it does happen.
