Have Ethics to Drive and Police Yourself
Munger argues that firms should refuse some actions even when they are legal. A code of ethics gives people a standard against which to judge their conduct beyond the minimum required by law.
THE IDEA
Have Ethics to Drive and Police Yourself
Charlie: “I will see if I will have time for it.” He was thinking, “Firms should have the ethical responsibility to police themselves. Every company ought to have a long list of things that are beneath it even though they are perfectly legal. All of these money managers, frauds, mistakes, rewards, self-serving bias. Buffett and I, we don’t claim to have perfect morals, but at least we have a huge area of things that are, while legal, beneath us. We won’t do them. Currently, there is a culture in America that says that if it does not send you to prison, then it is ok xlviii.”
Mr. Brown was thinking, “Charlie wants to imitate his grandfather’s ideas and high standards, but who am I then? Am I born to be the total opposite of Charlie Munger? I know I have it from my father’s violent passions. There is no doubt I am totally uneducated, piling up money, speculating, predicting, and following my own emotions. But I have a great mind, and I am successful. I am settled down in this house like my father. I am fond of my money. I made ten million this year. This is my passion, sitting on my moneybags, because for me passion is everything, and you make everything into passion. I started to read myself; nobody forcing me to do so, and to educate myself at the same time. Should I try to read World Book Encyclopedia at last? I really know nothing of the fundamentals. Maybe I will ask Charlie to give me a list of his favorite books.”
They passed through the main entrance of the building in the Hamptons where Mr. Brown was living with his family; it was a great hall with numerous pictures. Mr. Brown was walking in front; Charlie followed him.
When to use it
A business evaluating whether to use aggressive tax avoidance strategies that are legal but might harm public trust.
A financial manager considering whether a high-commission recommendation serves the client’s interests when a lower-cost alternative is available.
An individual reflecting on their daily habits—such as gossip, exaggerating résumé details, or cutting corners—and aligning them with their stated values.
A regulatory body designing compliance frameworks that emphasize ethical culture rather than just rule-following.
FROM THEORY TO EVERYDAY LIFE
In practice
Standards beyond legality
Munger argues that a company should identify lawful practices it still considers beneath its standards. For example, a firm evaluating an aggressive tax strategy might consider its effects on public trust alongside whether it is permitted.
Mr. Brown's Self-Reflection
Mr. Brown questions his priorities after hearing Munger’s remarks. He thinks about his attachment to money and considers reading more. The scene depicts self-questioning, leaving open what he will do about it.
A MOMENT TO REFLECT
Put it to work.
In your own work or life, what actions do you take that are legal but feel ethically questionable? How would you create a personal list of 'things beneath you'?
How does the concept of self-policing apply to your organization? Does it have a code of ethics that goes beyond legal compliance?
Think of a time when self-serving bias influenced a decision you made. How could a commitment to higher ethical standards have changed the outcome?
CONTINUE THE CONVERSATION
Source texts
- The Art of Being Rational Charlie Munger