Worthwhile Returns

I received an e-mail from a close friend and ex-college roommate who was excited that I had started this topic about the value of integrity in business. For 2 decades, he's served his company which promotes integrity as their key principles. However, he felt 'uneasy' about the mention of returns and I've taken an excerpt of his response:

Clearly, upholding one's Integrity is not the be$t way to maximize return$, but it is a great way to maximize the happiness of all involved in a corporation while being financially feasible.

Note that I copied his e-mail feedback verbatim, including reference to '$.' Another colleague whom I highly respect for his technical capability recently told me how he avoided the business side of things since he thought that the only way to succeed is to be good at 'BS' (he wasn't referring to a Bachelor of Science degree).

I'd like to thank my friends for getting us to focus on the other important factor of ROI which is on 'returns.' More specifically, what are worthwhile returns on the practice of integrity? My friend was rather skeptical about economic return$ and I would agree to a certain degree. He also alluded to other intangible returns which I would categorize as worthwhile returns. However, in the business of commerce, the measure of success is evolving, but clearly defined by our stock markets.

I'm confident that few would argue the track record of Warren Buffet and Charles Munger, Chairman and Vice-Chairman of Berkshire Hathaway, Inc. I've taken an excerpt from a Goldman Sachs report of the historical outperformance of Berkshire stock versus the Standard and Poor (S&P) index:

The annual percentage increase in the price per share of the Berkshire Class A Common Stock exceeded the annual percentage increase in the S&P Index by 1.5, 0.1, 11.1, 13.5, 13.8, and 17.1 percent over the 1, 3, 5, 10, 15 and 20-year periods, respectively, ending December 31, 1997.

Incidentally, Berkshire's compounded annual return according to the report was 35.51% for the 20 years ending June 17, 1998. Not bad for a company that practices good corporate governance and value integrity in business. I've taken an excerpt from the 2005 Annual Report and Buffet's famous Owner's Manual:

Berkshire’s long-held acquisition strategy is to purchase businesses with consistent earning power, good returns on equity, able and honest management and at sensible prices. Businesses with these characteristics typically have market values that exceed net asset value, thus producing goodwill for accounting purposes.

Buffet outlines 13 Owner-related business principles in his Owner's Manual. The 12th principle refers to their views about communications:

We will be candid in our reporting to you, emphasizing the pluses and minuses important in appraising business value ... We also believe candor benefits us as managers: The CEO who misleads others in public may eventually mislead himself in private.

My message is simple: you have several choices in life. One can take you to a path of great wealth. The other, albeit more difficult path, leads to wealth measured in economic and non-economic terms were "worthwhile returns" continue to accrue beyond our Earthly existence.