I recently had a fascinating discussion with Lawrence Cunningham, author of The Essays of Warren Buffett: Lessons for Corporate America. The 3rd edition of this business classic has just been released.
Cunningham, professor of law at George Washington University, is one of the sharpest students of Warren Buffett in the world, and his insights are potentially quite valuable for investors and business leaders alike. Below is perhaps the most important lesson from my discussion with professor Cunningham.
A common Buffett word is unpopular on Wall Street
Cunningham actually put all of Buffett's Berkshire Hathaway (BRK.A -1.78%) (BRK.B -1.89%) shareholder letters into a word cloud, and discovered that the word "mistake" was one of the most common ones used.
Curious, I searched several annual reports from some other leading financial firms for the word "mistake" and guess what I found?
- AIG's 2008 annual Report: 0 mentions.
- Bank of America's 2009 annual report: 1 mention in boilerplate text over 600+ pages in.
- Citigroup's 2008 annual report: 0 mentions.
- JP Morgan Chase's 2012 annual report: 1 mention on page 315 of the PDF in relation to legal disclosures.
- Fannie Mae's 2008 annual report: 2 mentions in a section on pension plan administration saying that no committee member is personally liable for even mistakes of judgment and the corporation will indemnify and hold harmless any employee, officer, or director. This feels like the opposite of admitting a mistake. Instead, the company is saying that it is going to protect its employees regardless of how poor their decisions are.
I think it's fair to say that these companies could have used the word "mistake" just a bit more regularly, when writing about their recent history. Then again, it shouldn't surprise us all that much that they didn't use that word.
A word cloud created from JP Morgan’s 2011 shareholder letter.
The best organizations can admit to and learn from their mistakes, while poorly led firms will avoid mentioning them no matter what. If a company is unwilling or unable to acknowledge a mistake, how could it possibly learn from it?
Click here to read the entire transcript of my fascinating interview with professor Cunningham.
