Netflix, Inc. (NFLX), Johnson & Johnson (JNJ): What Businesses Can Learn From the Case of Ryan Braun

Madoff started investing money — mostly from family and friends — because he thought he’d be good at it. Allegedly, things were going just fine until 1987, when he started running out of arbitrage opportunities. When the market crashed and folks started calling for their cash, Madoff began falsifying his returns.

Back then, the assets he was handling weren’t that big. But once word got out that Madoff could spin a profit, even in down times, billions of dollars were handed over.

Had Madoff come clean back in 1987, his investors might have been angry that he had a down year, but eventually, they would’ve gotten over it. Instead, Madoff began lying… and lying… and lying, until the lie could no longer be kept secret. Exploiting others’ trust like that is as close to unforgivable as you get in finance.

Companies that get it
Fortunately, there are companies and leaders out there that understand the importance of immediately owning up to mistakes.

Johnson & Johnson (NYSE:JNJ) is one of the most trusted brands in medicine. That might not be the case if the company hadn’t quickly pulled Tylenol off the shelf in 1982 when seven people died after ingesting cyanide-laced pills.

Even today, Johnson & Johnson (NYSE:JNJ) deals with recall issues. The company has been forced to recall 40 different products since 2009. These incidents cost the company billions of dollars, but there’s no price you can put on trust. While recalls force a momentary hiccup in revenue, a loss of consumer trust would be a deathblow for Johnson & Johnson (NYSE:JNJ).

Or take a look at Warren Buffett. When he announced that David Sokol would no longer be a manager at Berkshire Hathaway Inc. (NYSE:BRK.A), he also quickly let it be known that Sokol was involved in some shady trades surrounding the company’s purchase of Lubrizol.

As Buffett came to know more about the Sokol affair, he was an open book. And for that, investors were willing to quickly forgive and forget the situation.

No matter the circumstances, the lesson is clear: To err is human and forgivable; to lie about your errors, a much more grievous offense.

The article What Businesses Can Learn From the Case of Ryan Braun originally appeared on Fool.com is written by Brian Stoffel.

Fool contributor Brian Stoffel owns shares of Johnson & Johnson and Berkshire Hathaway. The Motley Fool recommends Berkshire Hathaway, Johnson & Johnson, and Netflix. The Motley Fool owns shares of Berkshire Hathaway, Johnson & Johnson, and Netflix.

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