According to Buffett, your leadership could be in trouble with this missing element.
Back in 2005, Warren Buffett and Bill Gates held a Q&A at the University of Nebraska-Lincoln. A student in the audience asked Buffett how he would know that his management team is making ethical decisions that would parallel his own.
Buffett offered up advice in the form of a "test" that many managers today would probably fail.
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"I ask the managers to judge every action they take -- not just by legal standards, though obviously, that's the first test -- but also by what I call the 'newspaper test,'" explained Buffett.
Basically, if an article "written by a smart but pretty unfriendly reporter" appeared in a local newspaper about a decision or action you made, and your family, friends, and neighbors read it, how would you feel about it?
"It's pretty simple," says Buffett. "If it passes that test, it's okay. If anything is too close to the lines, it's out."
Buffett's newspaper test, if you pass it, can take you far because in business, if your reputation fails, game over.
"We have all the money we need," the billionaire said. "We'd like to have more, but we can afford to lose money. But we can't afford to lose reputation."
Buffett's reputation line was not a fleeting one-time remark to pass off to a student. It's a life lesson he's lived by as the chairman and CEO of Berkshire Hathaway. "It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently."
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Don't risk your reputation This statement from Buffett is about staying true to your values, even in challenging and stressful situations. Business is full of tough decisions, so it's really important to keep your head in the heat of the moment.
Buffett certainly leads by example. He built his own reputation over years of diligent effort. From a teenager with a paper route and talent for selling soda for extra pocket money to a self-made billionaire with a vast and varied portfolio of astute ideas and investments, he understands the value of hard work.
He also fully understands that all smart leadership and business decisions are founded on the bedrock of integrity. Because without integrity, let's face it, it's nearly impossible to gain a good reputation.
MARCEL SCHWANTES
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The newspaper test is a decision check Buffett asks his managers to apply. Before acting, imagine a critical reporter writing a front-page story about the decision, read by your family, friends and neighbors. If you would be comfortable with that story, the action passes. If it feels too close to the line, it is out. The test sits on top of the legal standard, not in place of it, and it works because it forces a manager to judge the action by how it looks from outside.
Buffett has said his company can afford to lose money but cannot afford to lose reputation. Money lost in one year can be earned back in another. A reputation takes decades to build and can be destroyed in a few minutes, and once customers, partners and employees stop trusting a business, the money stops following. In his view reputation is the asset every other asset depends on, which is why he treats a hit to it as the one loss that is not recoverable.
Use it at the moment a decision feels uncomfortable. Write the headline a hostile reporter would use, in one sentence, and read it back. If the honest headline is embarrassing, do not take the action, even if it is legal and profitable. Managers can also use it in team reviews: when a proposal comes up, ask what the story would say about who benefited and who was harmed. Over time the habit becomes a shared standard the team applies without being told.
A legal decision is one the law allows. An ethical decision is one that also holds up against the values the business claims and the expectations of the people it serves. Many actions are legal and still damage trust: aggressive fine print, quiet price changes, a sales claim that is technically true. Buffett's point is that legality is the first filter, not the last. A business that stops at the legal test will eventually pass something its customers will not forgive.
Integrity decides whether people follow a leader when nobody is checking. A leader with a reputation for honest dealing gets faster agreement, more candid information from staff, and the benefit of the doubt when something goes wrong. A leader without it has to verify everything and is told what people think is safe to say. The practical result is that integrity lowers the cost of running a team, because trust replaces supervision, and it is the foundation Buffett points to for every other leadership skill.
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