Business magnate, investor and philanthropist. Those are just three of the many descriptions one can attribute to Warren Buffett. The man is the most successful investor of the 20th century, and he is also the chairman, CEO and largest shareholder of Berkshire Hathwaway, an American multinational conglomerate holding company headquartered in Omaha, Nebraska.
Among the companies Berkshire wholly owns are GEICO, Dairy Queen, Fruit of the Loom, Helzberg Diamonds and Kraft Heinz Company – just to name a few. The company also has significant minority holdings in American Express, The Coca-Cola Company, Wells Fargo, IBM and Restaurant Brands International.
Given the diversity of the companies Berkshire owns, how does Warren Buffett control and lead such a company? After all, it’s the fifth largest company in the whole world, according to Forbes Global 2000.
The Leadership Style of Warren Buffett
Buffett has employed a laissez-faire or free reign approach to managing his company. It’s a style that allows employees to carry out tasks without much guidance from leaders. Much freedom is given to the employees to make the right decision about what they are going to do. In other words, they are expected to solve problems on their own.
For other employees, they almost always have a senior member of the team looking over their shoulders. But that isn’t the case for Warren Buffett. He gives the people who work for him a lot of leeway and freedom. As to whether or not that approach has proven fruitful, just look at what his company has accomplished over the years.
According to Alice Shroeder, author of The Snowball, Warren Bufffett and the Business of Life, Buffett employs a hands-off management style because “he knows that people perform best when given autonomy.”
Buffett’s company, Berkshire, operates as a holding company which purchases other companies. Shroeder believes that Buffett’s style works because the firms he has been purchasing already have experienced CEOs who are self-sufficient and are focused on profitability. In other words, Buffett gets out of the way and let’s them do their job.
Marshall Goldsmith, co-author of What Got You Here Won’t Get You There, says that Buffett’s style is balancing over-management and under-management. The former demoralizes talented workers while the latter results in problems when leaders aren’t qualified for the job.
For Schroeder, the laissez-faire leadership style thrives at Berkshire because “each company has its own culture.”
Given that Buffett’s company has been successful, why don’t other leaders follow his suit? For Schroeder, a laissez-faire management style isn’t for everyone. She says it takes finesse to pull off and also to be sensitive to people and to be comfortable in allowing leaders be themselves.
Not Everything Will Be Bright
In 2000, Berkshire expanded its building products business by acquiring Benjamin Moore & Co in December. The company formulates, manufactures and sells architectural coatings in the US and Canada. There was a point when the company experienced a sales decline, particularly in 2009 during the housing slowdown. Buffett understood that because business goes through recessions and booms, and revenue is dependent on whether houses are selling or not. This is best summed up in what Buffett told former Benjamin Moore CEO Denis Abrams: “If your results look like a straight line, something is off.”
The Leadership Wisdom of Warren Buffett
Buffett’s annual letter to shareholders of Berkshire Hathaway is always something to look forward to. A lot of people dig deep into it looking for investing tips, ideas on who might succeed him and wisdom regarding life and business. In 2015, the 50th edition of that letter came out and it was filled with information on the history of conglomerates, and even fun stuff like how to get the giant root beer float for dessert at Piccolo’s.
Known as the Wizard of Omaha, the Oracle of Omaha or the Sage of Omaha, Buffett isn’t scared to share his insights with those who want to learn from his perspective on management and leadership. Here are some little snippets of wisdom from the annual letter to shareholders:
1. Focus on the business, and not on growing staff.
In the letter, Buffett detailed that Berkshire’s total number of employees is up 3% from the previous year. But he notes that the gain wasn’t made at the headquarters where 25 people work. For Buffet, there’s “No sense going crazy.”
2. Ensure that board members relate to shareholders.
At Berkshire, board members are paid token fees rather than large amounts of money for their work as directors. Buffett’s board is also set apart from other companies because Berkshire doesn’t carry liability insurance to protect their board members. In the words of Warren Buffett: “At Berkshire, directors walk in your shoes.”
3. Benefits come from splitting the CEO and chairman role.
Buffett is not fond of having the CEO and chairman be the same person. He wants his son, Howard, to succeed him as a non-executive chairman. That way, it would be easier to make changes should the wrong CEO be employed and there arises a need for the chairman to move forcefully.
4. Think of the company and not yourself.
Buffett wants Berkshire’s next CEO to be a “rational, calm and decisive individual” and someone who “knows his limits.” In other words, Berkshire isn’t a place for an ego-driven CEO who is motivated by a large paycheck. Buffett says, “a Berkshire CEO must be ‘all in’ for the company, not for himself.” In addition, he added that “character is crucial” because “a CEO’s behavior has a huge impact on managers down the line.”
5. There is no room for arrogance, bureaucracy and complacency.
Fighting off all three should be a necessary skill for any leader. According to Buffett, when these three metastasize, “even the strongest of companies can falter.” He even cited General Motors, IBM, Sears Roebuch and US Steel to drive home his point.
6. Trust is important.
Buffett puts trust in the managers of the many companies owned by Berkshire. For Buffett, the trust that he and Vice Chairman Charlie Munger put on their managers have allowed them to produce more “than would be achieved by streams of directives, endless reviews and layers of bureaucracy.”
7. Experience is perhaps the only best teacher.
Buffett mentioned in the letter that two of his investment managers Todd Combs and Ted Weschler will manage one of the company’s businesses. The role will make them better investors through hands-on experience.
8. Admit mistakes yet stay humble.
Buffett admitted that he “made a big mistake with this investment by dawdling” in regards to the delayed sale of Tesco shares. He also makes mention that some of his managers are better at running the business than he is.
9. Praise the people who work for you.
Although a letter to investors, Buffett also gave praise to his managers. He didn’t just use the collective “we” but mentioned specific individuals. And he didn’t just stop at managers as he even praised a former secretary who organized the annual meeting of the company.