Warren Buffet is a world renowned investor; he is the chairman and CEO of Berkshire Hathaway who is valued at sixty-six billion dollars. How does someone like Warren Buffet maintain his streak of successful endeavours; the answer is quite simple, reputation management. This is one of Berkshire Hathaway’s most prized asset; it may be intangible but powerful nonetheless.
Researchers have discovered that a solid name built by reputation management can have a real monetary value. A few studies demonstrate that a well known reputation can in fact replace a line of credit. Warren Buffet is aware of this and he would gladly pay a premium for a good reputation. He doesn’t only pay more for businesses with more integrity, he is also willing to pay to maintain or increase his own name.
It was in 1972 when Warren Buffet was interested in a company called Wesco. During the time, Wesco almost purchased another company but Buffet stated that the price was too high. Eventually the CEO of Wesco pulled out of the Merger and cleared a path for Berkshire to takeover but the way it was done was unprecedented. Wesco’s price fell to $11.00 a share, which was normal according to the circumstances. That price was a steal for anyone to purchase but Warren Buffet thought it wouldn’t be fair to purchase Wesco at this price since he was the cause for Wesco’s drop in stock price. He decided to purchase Wesco at $15.00 a share. The entire business world and the SEC were confused to what Buffet had done. The question that was raised is, “why would anyone in business pay more than the valued or asking amount?” Warren Buffet explained how this helps to build integrity for both sides of the transaction. The premium he payed has an economic value since integrity helps to build a good reputation in various dealings with other companies. At the time, many people within the industry didn’t understand Buffet’s strategy but as time went on and how Berkshire continued to grow, people finally started to comprehend his Wesco purchase strategy.
The name he created for Berkshire Hathaway is the reason why entrepreneurs seek out investments from them and this leads to more prospects for Berkshire. The integrity is what gives them the advantage when they are in a bidding war. They are able to purchase a company at a lower price than the rival bidder(s). This was proved with the acquisition of RC Wiley, a home furnishing company in 1995. The rival bidders were offering $200 million for the entire company but RC Wiley sold it to Berkshire Hathaway for $175 million. RC Wiley technically paid $25 million to be acquired by Berkshire Hathaway. This is how powerful a good name can be, it can force other companies to take a financial hit.
Reputation is the single greatest tool that anyone can easily overlook. A good name can lead to a company wide culture of trust, loyalty, and admiration but companies and entrepreneurs can easily destroy their name. That is truly the scariest factor about reputation, it can take you years to build a solid name but only seconds to destroy it. Warren Buffet is strong but a fair person and he’s said, “lose money for the firm, and I will be understanding. Lose a shred of reputation for the firm, and I will be ruthless.”