Charlie Munger, Warren Buffet’s partner, has an excellent letter which details the operational principles of Berkshire Hathaway which has led to it’s phenomenal growth success historically but it is highly unlikely that it will be repeated by an imitator in the new business economic environment. I have a link to the detailed original letter at the end of this blog article.
Warren Buffet was successful for all the reasons cited in Charlie Munger’s letter but I will briefly summarize the most important reasons for his success and they are things which new entrepreneurs should take into consideration when they are running their own diversified organizations.
Warren was and is thrifty in the old fashioned sense with money. He currently has a cash reserve or a traditional savings account of about 60 billion dollars. With this cash reserve he has weathered hard financial swings in interest rates and difficult economic times because his debt is minimal and for all practical purposes non existent. He doesn’t have to pay lenders fluctuating interest rates because he is virtually debt free and purchases almost all his subsidiaries with cash so he has no “mortgage” payments to worry about. He owns the subsidiaries free and clear and his credit rating is excellent!
Second in importance is perhaps the loyalty he demands and also gives to the talented hand picked CEOs of subsidiaries and asks them for backup replacement suggestions in case they themselves are no longer able to run the subsidiary. Warren has a long term investment view of business and is not interested in the whims and hype of short term investments for large profits with corresponding high risk.
Wise financial management comes first and the quality of talented hand picked human CEOs to run the subsidiaries is of secondary importance. CEOs are treated justly with fixed compensation not dependent on volatile profits or losses benefiting or injuring the subsidiary. There is no threat of mandatory termination of a job or retirement based on age so job security is guaranteed the CEO as long as they are mentally and physically fit enough to run the organization.
Thirdly Warren grants considerable autonomy to the subsidiaries and there is no bloated bureaucracy at headquarters. He does not believe in the principle that one set of rules should govern all the subsidiary financial and organizational structures but is a believer in diversified approaches or rules which work best for each subsidiary specialty.
The most impressive leadership qualities of Warren are that he always gives an honest appraisal of the financial and organizational facts to shareholders and any other interested party. He allocates as much time as is necessary to answer all shareholder questions in sometimes lengthy sessions. In effect, you get no BS from Warren. He is a straight shooter and honest and truthful to the core.
As a truly great leader one of Warren’s first priorities is to set aside quiet time for thinking, reflection, researching or reading to continue to expand his knowledge base and keep him current with business trends.
Warren has taken time out and schmoozed with or mentored other business greats like Bill Gates who is one of his greatest supporters.
If I inspired some curiosity then fulfill it by reading the link which gives more details of a successful 50 year company.
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