Warren Buffett's Chilling Warning To Employees: 'Lose A Shred Of Reputation For The Firm And I Will Be Ruthless'

Legendary investor Warren Buffett is best known for stocks he has bought over the years and his gains for Berkshire Hathaway Inc BRKBRK investors. He's also known for quotes that can be applied to investing and life.

Here's a look back at Buffett's take on the importance of reputation.

What Happened: Buffett has many highlights during his lengthy career leading Berkshire Hathaway, but one of the lower moments almost occurred due to an investment in investment bank Salomon Brothers.

Berkshire bought a 12% stake in the company in the 1980s and a scandal at the firm over treasury bonds almost took the company under and led to Buffett stepping in as interim chairman and CEO of the company.

In September 1991, Buffett testified before the House Commerce subcommittee in Washington D.C. and shared that he asked every Salomon Brothers employee to be their own compliance officer.

He also asked for two key demands from employees with the first one being that they obey all rules and ask themselves if they're willing to appear on the front page of the newspaper and have their work accomplishments read by their spouses and kids.

If they followed this rule, Buffett was pretty confident they could ignore his second demand.

"Lose money for the firm and I will be understanding. Lose a shred of reputation for the firm, and I will be ruthless," Buffett said in the hearing.

Salomon Brothers was later acquired by Travelers Group, netting a profit for Berkshire Hathaway and showing how Buffett helped saved the company.

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Why It's Important: Buffett has used the Salomon Brothers case as an important learning lesson over the years when discussing the newspaper test and the value of reputation.

Salomon Brothers knew one of their employees was a bad actor and didn't report and kept trying to shove the story away, before coming within inches of destroying the company, Buffett once said.

Buffett said all the company had to do was pick up the phone and report the trading activity but instead former Salomon CEO John Gutfreund, who was once called the "King of Wall Street," destroyed his career.

One of Buffett's most important lessons he tells his managers revolves around the concept of reputation.

"We can afford to lose money, even a lot of money. We can't afford to lose reputation. Even a shred of reputation. Let's be sure that everything we do in business can be reported on the front page of a national newspaper," Buffett said in another interview.

In the interview, Buffett mentioned that Berkshire Hathaway had been named one of the most admired companies in the world, something that took 37 years to accomplish.

"We could lose it in 37 minutes and that's the message."

Buffett said that once reputation is lost, you may not get it back.

"Can lose it in five minutes."

A strong focus on reputation could be among the reasons why Berkshire Hathaway has stood the test of time and Buffett has been able to spot good CEOs and companies to invest in.

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