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 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.
The article One Word You'll Rarely Hear on Wall Street originally appeared on Fool.com.
Buck Hartzell owns shares of Berkshire Hathaway, Berkshire Hathaway, and American International Group. The Motley Fool recommends American International Group and Berkshire Hathaway. The Motley Fool owns shares of American International Group, Bank of America, Berkshire Hathaway, Citigroup Inc , and JPMorgan Chase & Co. and has the following options: Long Jan 2014 $25 Calls on American International Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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