82 THE WARREN BUFFETT WAY
who behave like owners tend not to lose sight of the company’s prime
objective —increasing shareholder value —and they tend to make rational
decisions that further that goal. Buffett also greatly admires managers
who take seriously their responsibility to report fully and genuinely to
shareholders and who have the courage to resist what he has termed the
institutional imperative—blindly following industry peers.
All this has taken on a new level of urgency, as shocking discoveries
of corporate wrongdoings have come to light. Buffett has always insisted
on doing business only with people of the highest integrity. Sometimes
that stance has put him at odds with other well-known names in the
corporate world. It has not always been fashionable in business circles to
speak of integrity, honesty, and trustworthiness as qualities to be ad-
mired. In fact, at times such talk might have been disparaged as naive
and out of touch with business reality. It is a particularly sweet bit of
poetic justice that Buffett’s stand on corporate integrity now seems to
be a brilliant strategy. But his motivation is not strategic: It comes from
his own unshakable value system. And no one has ever seriously accused
Warren Buffett of being naive.
Later in this chapter, we look more deeply into Buffett’s responses to
these issues of ethical corporate behavior, particularly excessive executive
compensation, stock options, director independence and accountability,
and accounting trickery. He tells us what he thinks must be changed to
protect shareholder interests and gives us ideas on how investors can eval-
uate managers to determine whether they are trustworthy.
RATIONALITY
The most important management act, Buffett believes, is allocation of
the company’s capital. It is the most important because allocation of
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When you have able managers of high character running busi-
nesses about which they are passionate, you can have a dozen or
more reporting to you and still have time for an afternoon nap.^2
WARRENBUFFETT, 1986