How Warren Buffett delivers bad news

(Image credit: Time.com)
Few mortals escaped the stock market's swoon in 2008, not even the revered Warren Buffett, whose Berkshire Hathaway conglomerate suffered its worst year ever with an $11.5 billion loss.

Last week, the investing world pored over Buffett's new letter to shareholders to glean insights into what 2009 holds for the economy.

I read it for a different reason: to learn how he delivers bad news to the public. Below are five lessons I pulled from the letter, many of which we've discussed here before. To read the entire letter, click here.

1. Executive accountability. Buffett assumes responsibility for many of Berkshire Hathaway's mistakes in 2008. "I made some errors of omission, sucking my thumb when new facts came in that should have caused me to re-examine my thinking and promptly take action...The tennis crowd would call my mistakes 'unforced errors.'"

2. Candor. See above, and Buffett's predictions for 2009. It is not encouraging, but his candor is a sign of his respect for his audience and customers. "Most of the Berkshire businesses whose results are significantly affected by the economy earned below their potential last year, and that will be true in 2009 as well."

3. The facts, plain and simple. Buffett backs up his assertions with facts, adding to the credibility and trustworthiness of his message. Even the bad news - Berkshire Hathaway's disappointing performance in 2008 - is verified for the reader.

4. Belief in the mission. Buffett reminds his audience that in good times and bad he has four simple goals: maintaining Berkshire's "Gibralter-like" position, recruiting and nurturing good managers, acquiring new revenue streams, and expanding his subsidiaries' competitive advantage. Imagine how much easier it is to communicate one's goals when they don't change with the market winds.

5. Perspective. Buffett reminds his audience of Berkshire Hathaway's long-term success. "Over the last 44 years (that is, since present management took over) book value has grown from $19 to $70,530, a rate of 20.3% compounded annually."

Finally, he frames the economy's troubles in the context of America's long-term economic prosperity. "Real standard of living for Americans improved nearly seven-fold during the 1900s...Though the path has not been smooth, our economic system has worked extraordinarily well over time...America’s best days lie ahead."

We could all do worse than follow Mr. Buffett's lead when delivering bad news. As one analyst said, "[Buffett] admits when he is wrong. You don't get that candor from other CEOs. That's why his credibility is so high."

Let's hear from you. Should he have said more?

Ten rules for communicating in a crisis

The line of organizations delivering bad news recently has been a long one. The ripple effect from the financial market crisis continues to spread, affecting non-profits, real estate, hospitals, energy companies, governments, and much more. Having spent many years starting at the tip of the media's spear, we are often asked for our time-tested rules for communicating in a crisis. We have outlined them below for your consideration.

1. Tell the truth.
Warren Buffet said it best: “It takes 20 years to build a reputation and five minutes to ruin it.” The press and the public have an uncanny ability to uncover the truth in a crisis, so it better come from you. Deliberately spreading false information is the easiest way to damage—perhaps permanently—your company’s reputation with the press and the public.

2. Don’t just respond to crises—plan for them.
Forward-thinking companies identify their vulnerabilities ahead of time, anticipate challenges to their reputation, and plan accordingly. A strategic crisis planning exercise—one that identifies stakeholders, designates messengers, and outlines tactics in advance of a crisis—can be the single-most effective means for mitigating a crisis.

3. Define your audience.
Ask yourself whose opinion truly matters in a given crisis. Perhaps opinion leaders at major news organizations are your target audience. Maybe it's your customers. In other instances, it may be shareholders or small-town community leaders. Identify the audience that matters to you, and develop your communications plans around them.

4. Sharpen your message.
Few things are as ineffective as a rambling spokesperson or a long-winded press release. Before communicating publicly, develop a simple yet compelling message that speaks directly to your target audience and repeat it relentlessly.

5. Make news on your terms.
Far too many organizations go silent when a crisis hits. Doing so virtually guarantees your reputation will be defined by critics. When a crisis emerges that will test your reputation, respond quickly and decisively on your own terms.

6. Be sympathetic.
Organizations that appear poised and concerned about the public welfare generally succeed; those that appear impatient or indifferent to the concerns of the public generally do not.

7. Mind your own ranks.
Internal communications can be the difference when communicating in a crisis. Your employees represent your company at home and in the community. Keeping them informed during challenging times demonstrates leadership, maintains morale, and eliminates confusion and uncertainty.

8. Bring in reinforcements.
Getting beat up in the press? Help your cause by recruiting reputable, outside voices to defend your company. A public statement from a respected elected official, statesman, community leader, or even a local celebrity can help isolate your critics.

9. Don’t take it personally.
Reporters aren’t paid to give you good press or to be your friend. They are paid to ask tough questions and to be fair in their coverage. If you think a reporter’s coverage has been inaccurate or unfair, let that media outlet know. But don’t lose your composure - especially in public - just because they ask hard questions and report hard facts.

10. Know your ground rules.
Always assume your conversations with a reporter are on-the-record—whether in your office or by happenstance in public. There is a time and place for off-the-record discussions, but make sure you and the reporter are clear about what is fit for print.

Some of these rules may sound like common sense. Indeed, they are. But news of the past few months demonstrates that even the most accomplished executives can lose sight of common sense in the fog of crisis. The question is where your reputation will stand when the fog finally clears.

If you have questions about communicating in this challening economic environment, give us a call or send us an e-mail.