so we can die with our eyes wide open now
or escape our fate and certain death together.
First, she warns, we must steer clear of the Sirens,
their enchanting song, their meadow starred with flowers.
I alone was to hear their voices, so she said,
but you must bind me with tight chafing ropes
so I cannot move a muscle, bound to the spot,
erect at the mast-block, lashed by ropes to the mast.
And if I plead, commanding you to set me free,
then lash me faster, rope on pressing rope."
So I informed my shipmates point by point,
all the while our trim ship was speeding toward
the Sirens' island, driven on by the brisk wind.
-The Odyssey, Book XII
Warren Buffett is justly famous for his ethics. Here is an early example, taken from "The Snowball":
"I said, 'Well, but bonds should have this in there.' That was the first bond issue I ever sold, and I put a few things in there that the underwriters had no interest in whatsoever. But I had thought a lot about bond issues over the years. And I had thought about how bondholders get taken" . . .
"One of the things I put in was that if we didn't pay the interest on the bond for any reason, the bondholders took over voting control of the company, so they didn't have to get Mickey Moused by bankruptcy and all that kind of stuff" . . .
The second unusual provision was that the debentures paid eight percent but, depending on the earnings of the company, could pay up to an additional one percent.
And Buffett added a third provision. Because he felt that the bonds would be sold mainly to people who knew him or his reputation, he wanted the bonds to be redeemable if he sold enough stock in DRC that he was no longer the largest shareholder.
"And nobody had ever stuck anything like this in a covenant. I said, 'You know, they're entitled to have this in there. They may not want to redeem them but they're entitled if they want to. They lent money to me, basically.'"
Like Odysseus, Buffett knew the value of tying himself to the mast. He knew that the best way to guarantee good behavior--in this case not taking advantage of your lenders--was to force yourself to behave well. He also knew, not by coincidence, that by publicly and unilaterally forcing himself to behave well, he sent a strong (but accurate) signal to others about his integrity, a signal that, as we all know, has served him well.
Your consigliere has a correspondent, a new hedge fund manager with an excellent pedigree. When raising capital for his fund he imposed such onerous terms on himself and his limited partners (all designed to force long-term thinking) that he raised only a fraction of what he could have had his terms been more mainstream. I must confess that when I heard about this my ears pricked up and I started salivating like Pavlov's dog, though at that point I knew little about his investing prowess. Whether he can invest like Buffett, time will tell. But I believe that forcing yourself to behave well is so important that I can predict with confidence that he'll do better than average, and he'll certainly do way better than he would have without tying himself to the mast.