Don’t be a lemming.
That, in short, is Warren Buffett’s warning to top executives at his company, Berkshire Hathaway Inc.
In a Sept. 27 memo, Buffett cautioned managers that many corporate scandals arise because questionable activity is accepted as normal behavior.
He said the rationale that “everyone else is doing it” is not acceptable. Rather, it should raise a red flag.
“Somewhere along the line they picked up the notion ... that a number of well-respected managers were engaging in such practices and therefore it must be OK to do so,” Buffett wrote. “It’s a seductive argument.”
The memo comes on the heels of the latest corporate scandal: the former chairwoman of Hewlett-Packard is being investigated on charges she violated state privacy laws when probing her board for leaks to the press.
Buffett acknowledged that it is inevitable that someone in a company the size of Berkshire Hathaway would give in to temptation. He called on his top executives to resist improper behavior and head off such behavior in their employees.
“Berkshire’s reputation is in your hands,” Buffett wrote.
Berkshire Hathaway owns a diverse mix of more than 60 companies, including insurance, reinsurance, carpet, jewelry, furniture, restaurants and utility firms. And it has major investments in such companies as H&R Block Inc., Anheuser-Busch Cos. and Coca-Cola Co.
Its companies employee almost 200,000 workers.
The recent ethics lesson is nothing new for Buffett.
“Every couple of years for the past 15 or 20 years, he has been sending out memos to our Berkshire subsidiaries,” Buffett’s spokeswoman Debbie Bosanek said Tuesday.
This is necessary, she said, because Berkshire Hathaway continues to acquire new companies and works with new people in top positions.
In the wake of corporate scandals at Enron and Worldcom, Buffett took his message to the rest of the corporate world. At the Forum for Corporate Conscience in March 2003, he spoke with business leaders about how to restore the public’s faith in corporate America.
“You can lose a reputation that took 37 years to build in 37 seconds,” Buffett told corporate leaders. “And it might take more than 37 years to build it back.”
When scandals hit home — at Salomon Inc. in 1992 and at General Re Corp. in 2005 — Buffett cleaned house.
He took the helm at Salomon after it was revealed that the company repeatedly submitted false bids during Treasury auctions. Salomon soon came clean about its misdeeds and restructured its management.
When Berkshire-owned General Re was implicated in an accounting scheme at American International Group, Buffett fired the General Re executives involved. He also testified before federal regulators.
Through it all, Buffett has followed a truth-in-business philosophy. As he said after the Salomon scandal, “You’ll never get tangled up if you just basically lay it out as you see it.”
He stressed that again in the Sept. 27 memo: “Let’s start with what is legal, but always go on to what we would feel comfortable about being printed on the front page of our local paper.”