Ed Rempel, a Certified Financial Planner (CFP) and Certified Management Accountant (CMA), has written guest post regarding lessons learned from the Conrad Black debacle.
Warren Buffet said: "In looking for people to hire, you look for three qualities: integrity, intelligence, and energy. And if they don't have the first, the other two will kill you."
The story of Conrad Black, as told in the media, is of a very intelligent and energetic manager that used his skills to benefit himself and his cronies, instead of the shareholders. They continually reorganized the maze of companies in their empire in order to increase their control and pay themselves huge non-compete fees. During the period he ran the Hollinger, he managed to get 95% of the profits to flow to himself and his buddies.
The other lesson is that this kind of behaviour is rarely caught by the legal system or securities regulators. This is because the line between greedy and criminal is a very fuzzy line.
In Black’s case, he was essentially found innocent of all the major crimes such as racketeering, which are hard to prove. In the end, he will be in jail mainly because he tried to cover it up by destroying documents.
This seems to be the norm. Managers that cheat the average investor usually are not charged or found guilty. Even Martha Stewart was not found guilty of insider trading but of lying about it. The main consequence is that they get known for only being in it for themselves and people stop hiring them.
How can we apply this lesson to our every day investing? Just one question – how do you know that the managers in your investments have integrity?
Whether you are picking individual stocks, mutual funds, hedge funds or hiring private investment managers, you are essentially hiring managers that are running the company or fund you are investing in. Whether or not they have integrity and are working in your best interest is critical to your investment return.
Does the management of the fund or company you are investing in have integrity?If you would like to read more articles like this, you can sign up for my free newsletter service below (we will not spam you).