Wednesday, October 11, 2006
Posted by Jeff Lipshaw
The Wall Street Journal reported on a memo Warren Buffett sent to the managers at Berkshire Hathaway in connection with the recent backdating scandals. In a statement that seems to place him among the "soft positivists," the Sage of Omaha counseled "let’s start with what is legal, but always go on to what we would feel comfortable about being printed on the front page of our local paper, and never proceed forward simply on the basis of the fact that other people are doing it." Indeed, Mr. Buffett observed that the five most dangerous words in business are "everybody else is doing it."
I've used this "Detroit Free Press" test as a means of counseling, but I wonder just how one applies the standard nowadays. "Everybody else is doing it" is certainly a powerful means of rationalization, and I've argued elsewhere that law and lawyers, if nothing else, are ably equipped to rationalize otherwise judgmentally-challenged decisions. Does the "front page" test provide a workable standard? Would well-meaning people ever apply a different one? Isn't the problem that nobody really knows, except in the easiest cases, how a decision plays on the front page? And is the standard the front page of The Economist, or the Omaha Herald? Or a sound bite on CNN? Are you okay with a decision that looks bad on page one, but may become more defensible with in-depth coverage?
What Mr. Buffett is really advocating is not, I think, a reduction to the least controversial common denominator, but to a Main Street kind of horse sense. Perhaps it is time to revisit Frederick Schauer's Playing by the Rules: A Philosophical Examination of Rule-Based Decision-Making in Law and Life, particularly the discussion of rules as entrenched generalizations - where generalizations (i.e. rules) control in circumstances that no longer serve the justification for the generalization. I think the "front page" standard is less likely to become an entrenched generalization than much of what passes for prescription in the corporate governance area these days (director independence being one, as to which Usha Rodrigues speculates over at Conglomerate), but it doesn't take long for reification to set in even on horse sense maxims.