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Deal with ethical lapse before it gets larger


WHEN WARREN BUFFETT speaks on investment matters, people listen. When he speaks on business ethics, managers ought to listen, and listen closely.

The chairman of Berkshire Hathaway Inc. recently sent a letter regarding business ethics to his senior managers. In it, he said that "the five most dangerous words in business may be 'Everyone else is doing it."' While he was referring to such practices as backdating stock options, Mr. Buffett's warning can certainly be taken to include other business practices as well.

He noted that given the company's size, the odds are that "somebody is doing something today at Berkshire that you and I would be unhappy about if we knew of it." In fact, Berkshire, Mr. Buffett wrote, should be "jumping on anything immediately when there is the slightest odor of impropriety."

No doubt he wished that had happened when some former executives of his General Reinsurance Corp. unit engaged in a complex finite reinsurance transaction that drew the attention of securities regulators and federal prosecutors. That does not, however, by any means detract from the wisdom of Mr. Buffett's words.

Ethical conduct has to be at the heart of any business transaction. The excuse that "everybody else is doing it" is worse than no justification at all.

As the property/casualty industry has learned all too painfully in recent years as it has been rocked by bid-rigging scandals, failure to jump on situations that emit the even "the slightest odor of impropriety" can have unpleasant consequences. Mr. Buffett's warning underscores the simple fact that the best way to prevent a slight odor from becoming a big ethical stink is to deal with it at first whiff.