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Warren Buffett: More Morality in Business Needed
Warren Buffett, the world's second richest person and chairman of insurance and investment company Berkshire Hathaway Inc., has spoken out for morality in business in a strongly-worded memo to his top managers.
Buffett, known as the "Oracle of Omaha," the city where Berkshire is based, came down hard on "accounting gimmicks" such as stock options backdating in the memo, a copy of which the insurer provided Tuesday.
"The five most dangerous words in business may be 'Everyone else is doing it'," said Buffett in his note to Berkshire managers dubbed "the All-Stars" because of their performance. "A lot of banks and insurance companies have suffered disasters after relying on that rationale."
The U.S. Securities and Exchange Commission has said it has more than 100 investigations underway to determine if companies manipulated the prices of stock options given to key executives. U.S. prosecutors have filed criminal charges against former executives at two companies.
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Typically such options were backdated or timed to when the stock price was lower in order to take advantage of a rally in the shares and lock in a risk-free gain for the option holder. About 30 percent of companies that issue stock options manipulated their grants at some point in the past decade, according to one study.
Buffett said his managers should start with what's legal and then go on to "what we would feel comfortable about being printed on the front page of our local paper."
He warned that with over 200,000 employees, "somebody is doing something today at Berkshire that you and I would be unhappy about if we knew of it." But he said Berkshire, which owns auto insurer Geico Corp. and reinsurer General Re Corp., could protect itself by "jumping on anything immediately when there is the slightest odor of impropriety."
"Berkshire's reputation is in your hands," he concluded.
(c) Reuters 2006. All rights reserved.
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