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Warren Buffett's annual letter to his shareholders was released Saturday. Wow!
Being honest is so liberating. It's especially liberating when you know the ones you come out to will not judge you harshly or use your honesty against you; that they will still believe in you despite your setback or miscalculation.
For leaders, that comes after establishing a credible body of good work that allows others to put your errors into context. You are not consistently error prone, the majority of the time you get it right, but sometimes you fail.
Buffett is a case in point. By and large, Buffett gets things right-his forty-four billion dollar net worth proves that. But sometimes he swings and misses. The refreshing part is that he never holds back on admitting his blunders.
Buffett predicted last year, for example, that the housing industry would begin its recovery within the year and would help fuel economic growth.
We wish. Buffett said he was "dead wrong." That he was right about.
He also spent about two billion dollars buying bonds offered by an energy utility in Texas. These bonds are now worth eight-hundred and seventy-eight million dollars, a loss of over 1.2 billion dollars in value. He says that there is a chance they'll lose the rest of it too.
His quote? "However things turn out," he wrote, "I totally miscalculated the gain/loss probabilities when I purchased the bonds. In tennis parlance, this was a major unforced error by your chairman."
Indeed, some of the companies Berkshire Hathaway has purchased under Buffett's leadership produced below average and even poor returns. For this he blames his poor listening skills, specifically when it comes to trusting the opinion of Vice Chairman Charlie Munger.
"I try to look out ten or twenty years when making an acquisition," says he, "but sometimes my eyesight has been poor. Charlie's has been better; he voted `no' more than `present' on several of my errant purchases."
We should always admit our mistakes because the blame-game in business simply delays the solution and costs us money. This is especially true for leaders.
Too, when as a leader you can admit to being wrong, the admitted error will confirm your humanness to your employees, take away the mystique of untouchableness and establish you as one who is approachable. This is more important than you may realize for a leader.
(If you are not approachable, then you will never get your team's best ideas. This shallows the idea pool for you to draw from, which, in turn, stunts the future of your business. Shall I go on? )
Truly confident people can admit when they're wrong. Insecure people don't unless their backs are to the wall and they are outed.
There are few things worse than being led by an insecure leader. That's one thing Berkshire Hathaway doesn't have to worry about.
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