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Collection: Warren Buffett - #308 'How To Judge Whether A Company Has Ethics?'



After reading this story on Enron, I would like to ask you the following question.

How does an entry-level employee in a large company find out if her employer operates with a long-term perspective, and with honesty and integrity?


Well, that’s a very good question. I’m not sure I’m going to have an equally good answer. It —

You know, you pick up signals — or frequently, you can pick up some signals — about what is going on at the top of a business if you’re at a lower level. But I would say it would be very easy to be fooled on that subject.

Charlie and I would tend to be looking at things that they do in public in relation to their investors and the promises they make, and all of that sort of thing. But I think that might be tough for people, and it wouldn’t always give you a great guide.

I’ve — we’ve been suspicious of companies, for example, that place a whole lot of emphasis on the price of their stock.

I mean, when we see the price of a stock posted in the lobby of the headquarters or something, you know, things like that make us nervous. But I’m not so sure that’s, you know, that that would be enormously helpful.

So I guess you just have to sort of pick up from coworkers, publications, pronouncements of the leaders, the sort of culture that was being presented to them and the world, and, you know, you might get suspicious about it.

But I don’t think I have a really good answer for that, do you Charlie?


No, it’s obviously easy when you’ve got a caricature of a person like Bernie Ebbers or Kenny Lay. I think it’s easy to say that you’ve got almost a psychopath — (laughter) — in charge.

But what would fools you is a place like Royal Dutch. If I’d been asked to guess —




— major companies with sound, long-term cultures, and a good engineering values, and so forth, Royal Dutch would have been near the top of my list.

And to have the oil reserves phonied for years, and internal reports of people who were tired of lying.

If it can happen at Royal Dutch, believe me, it can happen a lot of other places.


Yeah, Charlie and I would not have spotted it at Royal Dutch by any of the means that we normally use.

In fact, we — as Charlie said, we might have used that as an example of some place that was almost certainly above reproach. And then you do read the emails and all that.


But we don’t learn, because I would still expect that Exxon’s figures were fair.



I think you — what was — what transpired in the 1990s, you know, was this gradual — and later on, not so gradual — embracing at the top of the feeling that anything goes.

You know, I don’t — I’m not going to speculate as to the motives at the top of Shell.

But there was so much going on where people saw the fellows — in most cases fellows, unfortunately — that were at their clubs, that they saw at other corporate meetings, were respected business leaders, they saw just one after another that were really cutting corners in one way or another.

And, you know, situational ethics can take over in that. People do, I think, they sink faster to a lower prevailing morality than they rise to a higher prevailing morality.

But they do move in the direction of what they perceive to be the prevailing morality of those around them, in many cases. And certainly the corporate world in the late 1990s, particularly, it was extreme on that.


~ Please visit the site above for full video of Berkshire Hathaway Annual Meeting.


[YAPSS Takeaway]

If it can happen at Royal Dutch, believe me, it can happen a lot of other places. ~Charlie Munger

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