Warren Buffett - quite regularly at his annual meetings - observes that almost 400 thousand people work at Berkshire - in other words a medium sized city.

In those 400 thousand people (as in any medium sized city) there are almost certainly people doing things that they should not and things that you would not want to see on the front page of the local paper. They are selling products that rip off customers, they are doing things that threaten the reputation of Berkshire.

It is unreasonable in any large company to expect that there is no corporate mischief, no customers that are being misled, no staff doing things that are wrong.

But you can expect the management to monitor staff behaviour and to create incentives to do the right thing and to appropriately deal with staff that do the wrong thing. You should also expect them to compensate customers who fall victim and that compensation should be expensive.

Warren Buffett will also endlessly talk about the things he is doing to ensure that integrity is what is rewarded at Berkshire.

The Sydney Morning Herald today led with a headline that in leaked letters to consultants, Dr Ken Henry (then Chair of National Australia Bank) had said that bad things were being done - even as they spoke - at National Australia Bank (NABZY). To quote:

[Dr Henry is] confident that there are products currently being sold now that they will need to remediate in the future ([and he] highlighted an example of SMSF borrowing to invest in managed funds).

This looks pretty like the thing that Warren Buffett said about Berkshire. And it was said - as the context makes clear - to have the consultants who were hired to help in remediating the matter. In other words the admission is what is required to fix the problem.

A while ago I went to look at the lending practices of the Australian banks and I am confident that all four big banks had bad processes, and ripped off customers. As I have stated elsewhere I think that National Australia was the least bad of a bad lot. But it clearly had things to fix.

I still think NAB has things to fix. So does Westpac (WBK), CBA (CMWAY) and ANZ (ANZBY) [in that order I believe]. Stating it and acting on it is a necessary part of the process.

That Ken Henry actually stated it and presumably to a consultant he had hired to help reflects well, not poorly on him.

PS. I also think alas that Dr Henry is right. The mis-selling scandals cost British banks billions of pounds. PPI mis-selling alone was above 20 billion pounds. There has been so much mischief at Australian banks that this issue is certain to bite them in the future. Dr Henry clearly identified the issue and wanted to do something about it. He should be applauded.