The Buffett Newspaper Test: What It Means and Why It's Important

Transparency and consequences can be powerful leadership deterrents. For the board and CEO and their personal brands, the critical question is, what will key decision-makers in their organisation do in situations when no one is watching?

When the subject of ethical and responsible business behavior arises, Warren Buffett advises managers to evaluate every action they take — and not just by legal standards, but also by what he calls the “newspaper test.” When managers have any doubt about whether a decision or action is right or wrong, they should imagine how they would feel if it were reported the following day in the local newspaper, with the assumption that the write-up is authored by a smart but unfriendly reporter and read by the manager’s family, friends and neighbors. Buffett’s bottom line: If your decision or action passes this test, it’s OK; if it doesn’t, it’s not.

This test isn’t just about transparency. It’s also about consequences, as illustrated by another well-known Buffett quote: “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.”

The test itself is not a morality play. It’s more about the reality of losing one’s legacy and the specter of permanent damage to one’s personal brand. That reality alone makes the Buffett test one of preserving and sustaining reputation and the right to play.

We frequently see examples of individuals failing the Buffett test, such as using sales practices that deviate from a company’s core values; cutting corners on safety to reduce costs, accelerate speed to market or generate more revenue; installing software to defeat environmental emissions tests; leveraging one’s professional stature to sexually harass a subordinate; circumventing established internal controls to engage in fraud; and using offensive, racist language for years in personal emails. These are but a few examples and, whether those involved are C-level executives, rainmakers, industry luminaries or rank-and-file employees, eventually, the chickens come home to roost. Exposure is inevitable.

Given discovery is just a matter of time, there are many reasons why smart people fail the test. For those who aspire to act ethically and responsibly, decision-making processes are the ultimate reflection of how corporate values manifest themselves into action. For boards and their CEOs, this conversation is about preserving their personal brands and recognising that their respective legacies are inextricably tied to the corporate brand itself. Thus, for the company’s leaders, incorporating the Buffett test into the thinking of decision-makers is a reputation play.