The 1 Thing Rich People Can't Afford To Lose, According to Warren Buffett
Wealthy business people often have a reputation of being unscrupulous among the general public. While perhaps a bit cynical, the thought among some is that only those who are willing to do anything can get ahead, even if it means making unethical choices.
But not all rich people think the same way. In fact, one of the most famous billionaires of all time, Berkshire Hathaway CEO Warren Buffett, takes the opposite approach. According to the fifth-wealthiest person in the world, the one thing that rich people can't afford to lose is their reputation.
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Here's exactly what Buffett means by that and how he implements it both for himself and for the managers in his company.
Buffett responded to a question about how to make ethical business decisions at a 2005 Q&A session at the University of Nebraska-Lincoln, where he shared the stage with fellow billionaire Bill Gates.
Buffett's strategy is to prioritize integrity and build a solid reputation. Once you have this reputation, you're seen as a person worthy of doing business with.
The Oracle of Omaha's strategy both for himself and for his managers is to use the 'newspaper test.' In addition to conforming to legal standards, Buffett's test is to evaluate actions based on how they 'would feel about any given action if they know it was to be written up the next day in their local newspaper.'
In Buffett's scenario, he imagines the article would be 'written by a smart but pretty unfriendly reporter' and read by their family, friends and neighbors.
'It's pretty simple,' he said. 'If [the decision] passes that test, it's okay. If anything is too close to the lines, it's out.'
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'We have all the money we need,' Buffett said, referring to himself and Gates. 'While we'd like to have more, we can afford to lose money. But we can't afford to lose reputation. Not a shred.'
It's clear that Buffett prizes reputation above all else. In another one of his most famous quotes, Buffett said, 'It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently.'
Buffett doesn't value reputation just to be a good guy. He also sees genuine economic value in a good reputation — and his belief is backed up by actual research. According to FINN, a Belgian research company, there's a direct link between financial performance and reputation — to the point that a good reputation can literally place a line of credit at a bank.
Whether it's laziness, a good business practice or simply human nature, people and businesses alike tend to do more business with people they like and who have a good reputation. In many cases, a reputation is even enough to prevent people from doing their own financial due diligence, for better or worse. This means that a good business reputation can literally translate into economic gain, making it a prized asset.
When one of the most popular, successful business people in the world said that reputation is everything, it's prudent to listen. Buffett said that while rich people can afford to lose some money, they can't afford to lose their reputations, on both a personal and a business level. As Buffett emphasizes, it takes years to build a reputation but only moments to lose it, so protect yours like the precious asset that it is.
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This article originally appeared on GOBankingRates.com: The 1 Thing Rich People Can't Afford To Lose, According to Warren Buffett
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