Trust-but-verify

[Guest longinvestor]

For some years now, Munger and Buffett have chirped about how trust has paid off over the mistrust typical in large traditional organizations. The world has heard those famous words about the ruthlessness that will follow losing a shred of…

 

A question was asked about how Berkshire avoids bad behavior of the kind that the world saw at WFC, KO, AXP etc. Buffett shared this bombshell of a trust-but-verify regime in place at Berkshire Hathaway. To date, I thought it was the local newspaper’s job to keep everyone honest. Now we hear that there is a hotline to Omaha that any of the 300K+ employees can call in to. The calls are routed to one named person, who then reviews each call. Most of the mundane ones (body odor etc.) are sent back to the subsidiary for resolution.

 

Now here is the bombshell; there have been a few which were serious enough that later brought about big changes at the sub! (Read, chief fired).

 

For all these years, it has been incredulous to think that unfettered trust could work in this world we live in. Now, we have it here, the ultimate trust-but-verify scheme. Surely, this is a far less costly regime than typical corporate structures. Arguably, there is so much verification that there is little trust.

 

Here are some thoughts and questions about this,

- When do they escalate versus simply re-direct to the sub?

- How do they avoid lynching?

- What does due process look like?

- What is the subsidiary chiefs’ perception of this?

- How exactly is whistle blower protection ensured?

- Once moved on, what mechanism is there to forget the complaints?

&

- Most importantly, how does the next guy do with this?

 

Still chewing on this. Thoughts ??

 

[Jurgis]

Great questions. Don't know the answers.

 

I'd think this is not easy to implement well.

[SharperDingaan]

Long time ago I had this conversation with a long retired consiglieri over a glass of Chianti.

As it’s an inherent problem in their business, how did they deal with it? 

 

When you see it, it’s not isolated – there’s a supporting culture.

Nothing particularly wrong in that; but remind everyone who they work for.

 

The fishes; there’s variation in how it’s applied, but the messages are clear. Ultimately there’s a bounty, and a ‘permitted’ short position.

When it’s over both the target and the whistle-blower are no longer part of the organization, and the whistle-blower walks as an example.

 

10% commission. Reinterpreted as re-possession being nine tenths of the law.

 

The man died peacefully in his sleep at 94.

 

SD

 

[Guest longinvestor]

Long time ago I had this conversation with a long retired consiglieri over a glass of Chianti.

As it’s an inherent problem in their business, how did they deal with it? 

 

When you see it, it’s not isolated – there’s a supporting culture.

Nothing particularly wrong in that; but remind everyone who they work for.

 

The fishes; there’s variation in how it’s applied, but the messages are clear. Ultimately there’s a bounty, and a ‘permitted’ short position.

When it’s over both the target and the whistle-blower are no longer part of the organization, and the whistle-blower walks as an example.

 

10% commission. Reinterpreted as re-possession being nine tenths of the law.

 

The man died peacefully in his sleep at 94.

 

SD

;D ;D ;D

[longtermdave]

The fishes; there’s variation in how it’s applied, but the messages are clear. Ultimately there’s a bounty, and a ‘permitted’ short position.

When it’s over both the target and the whistle-blower are no longer part of the organization, and the whistle-blower walks as an example.

 

10% commission. Reinterpreted as re-possession being nine tenths of the law.

 

This part was too opaque for me. Can you add some detail? How would someone short in a business like you're describing? I assume "walks" means "survives"? The commission goes to...the surviving members?

[LC]

my interpretation of SD speak is: the permitted short is the amount the whistleblower (and the guy he's calling bullshit on) makes. the whistleblower walks means he leaves the company.

 

shit happens in other context too. here's a story: Founders A,B,C all with their hands in the till. Feds find out, Founder C is the unwitting fall guy. Feds rake him for everything. Pre-SOX so he's spending a little bit of time making friends at camp. Few months later the Feds approach him: want to get back at A & B? "Come back in a week"

C has to go talk to the crew. Whistleblower laws are different in different contexts. He explains the situation, the crew gives him the OK. A & B get raked too.

 

The civilized route is to play nice from the start so everyone gets their fair due/

[Guest longinvestor]

my interpretation of SD speak is: the permitted short is the amount the whistleblower (and the guy he's calling bullshit on) makes. the whistleblower walks means he leaves the company.

 

I'd say whistleblower walks means he is paraded publicly as a warning to the next fish. 

[longtermdave]

my interpretation of SD speak is: the permitted short is the amount the whistleblower (and the guy he's calling bullshit on) makes. the whistleblower walks means he leaves the company.

 

I'd say whistleblower walks means he is paraded publicly as a warning to the next fish.

 

Maybe I read it a little too darkly? I think he's talking organized crime, and somebody's dead.

 

This is like trying to interpret a poem, about investing, or something.

[SharperDingaan]

The fishes; there’s variation in how it’s applied, but the messages are clear. Ultimately there’s a bounty, and a ‘permitted’ short position.

When it’s over both the target and the whistle-blower are no longer part of the organization, and the whistle-blower walks as an example.

 

10% commission. Reinterpreted as re-possession being nine tenths of the law.

 

This part was too opaque for me. Can you add some detail? How would someone short in a business like you're describing? I assume "walks" means "survives"? The commission goes to...the surviving members?

 

Much of the power to these things is in their brevity - imagination does the talking for you.

 

Were this a public market, the regulator would let the whistle-blower short the company - before he/she gave the dirt to the press. The  expectation being that ultimately the whistle-blowers name will get out - but he/she will be so rich that they will never need to work again; the prospective profit on the short (and coming severance) being well above whatever bribe might be offered to remain quiet. The market solution to a market problem.

 

In their business - agreement that you will be your bosses replacement, there will be a blind eye for a period, following which you will retire with a monthly pension; and enjoy the organizations protection, while your children go to the best schools (Harvard, etc.). The other guys sleep with the fishes. Pretty clear message.

 

10% collection fee to whoever returns the money. The organization would like it back, and the more you steal - the harder it becomes to keep it. Whether it's by hacking an account, or a little more old fashioned; no questions asked.

 

I had the impression that it works very well.

 

SD

 

   

[longtermdave]

The fishes; there’s variation in how it’s applied, but the messages are clear. Ultimately there’s a bounty, and a ‘permitted’ short position.

When it’s over both the target and the whistle-blower are no longer part of the organization, and the whistle-blower walks as an example.

 

10% commission. Reinterpreted as re-possession being nine tenths of the law.

 

This part was too opaque for me. Can you add some detail? How would someone short in a business like you're describing? I assume "walks" means "survives"? The commission goes to...the surviving members?

 

Much of the power to these things is in their brevity - imagination does the talking for you.

 

Were this a public market, the regulator would let the whistle-blower short the company - before he/she gave the dirt to the press. The  expectation being that ultimately the whistle-blowers name will get out - but he/she will be so rich that they will never need to work again; the prospective profit on the short (and coming severance) being well above whatever bribe might be offered to remain quiet. The market solution to a market problem.

 

In their business - agreement that you will be your bosses replacement, there will be a blind eye for a period, following which you will retire with a monthly pension; and enjoy the organizations protection, while your children go to the best schools (Harvard, etc.). The other guys sleep with the fishes. Pretty clear message.

 

10% collection fee to whoever returns the money. The organization would like it back, and the more you steal - the harder it becomes to keep it. Whether it's by hacking an account, or a little more old fashioned; no questions asked.

 

I had the impression that it works very well.

 

SD

 

 

 

Thanks, that's clearer now.

[DooDiligence]

Доверяй, но проверяй

 

"The Russians like to talk in proverbs. It would be nice of you to know a few. You are an actor – you can learn them very quickly."