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Honesty is Still the Best Policy

Guest post by: Pia Lord

Article Overview: Warren Buffet Business Principle # 12 deals with candor in reporting about the important things in appraising business value. Read the actual Principle in the Berkshire Hathaway Annual Report. Below is a discussion of the ideas inherent in the principle of being forthright and candid about giving facts about how your business is doing. Every business can apply this principle in reporting to shareholders. Candor is not always easy but it wins out in the end.

Honesty is Still the Best Policy



When covering on a story, reporters are bound by professional ethics to be objective and tell the story from all sides, facts only, without personal bias.

Accounting principles also demand that truth be stated when recounting the year in numbers.

At Berkshire Hathaway, according to the Owner Related Business Principle #12, Warren Buffett emphasizes that the standards that they hold in terms of reporting accounting figures to shareholders are the same that they would want you to hold in return if you were the CEO and the tables were turned.

Also mentioned is the idea that they do not “favor” any shareholders over any others. In terms of leveling the playing field, and keeping on friendly terms with all shareholders, this is a good policy to follow. Your shareholders can not get mad at you if you do not play favorites.

Candor and accuracy about the good and the bad is what this principle emphasizes. Telling the story about the year in numbers like it is, is not always easy. Many companies, do not have such rosy balance sheets, and risk ruin or perhaps sharholder/investor desertion if they frankly tell the truth about the earnings of the company. When a company “misses it quarterly earnings estimate” sometimes the brokers that are recommending the stock for a “BUY” will change the recommendation to a “HOLD” or to a “SELL” on the First Call stock recommendations. (This used to be called a First Call Consensus). Of course companies don’t want to be down graded in terms of recommendations or in terms of star ratings either ( by MOODY’S or Standard & Poor’s.

But in the long run, when all is said and done, having an honest good night sleep is much better than staying up at night worrying about whether you will be “discovered” by cooking your books or by being dishonest to your fellow shareholders or even to yourself.

It is of course self evident that honesty and accuracy are two of the best characteristics that describe the way that we should all conduct our affairs, financial and otherwise. Nobody said it was easy.

At tax time, only the IRS has the last laugh if we do not do so.

Read the Berkshire Hathaway Annual Report 2009. The Berkshire Hathaway Annual Convention has been announced.

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Article Tags: annual report, berkshire hathaway, business principle, business value, candor, honesty, important things, shareholders, warren buffet
Referred by: http://jaykubassek.com



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