Warren Buffett on management, boards + CEOs

Warren Buffett celebrated his 93rd birthday Aug. 30. For 45 of those years, the chairman and CEO of Berkshire Hathaway has penned letters to shareholders, many of which contain his thoughts on boards, CEOs and management.

Since 1965, Omaha, Neb.-based Berkshire Hathaway has delivered a 19.8 percent compounded annual gain in market value. The company owns Geico, Clayton Homes and Dairy Queen, with stakes in Coca-Cola, Apple, Kraft Heinz Co. and American Express.

While health systems may differ in many ways from a holding company, Mr. Buffett's straightforward management principles tend to transcend specialization. Below, find nine excerpts from his letters to shareholders pertaining to governance, CEOs, culture and the management of people and results. The letters in full, dating back to 1977, can be found here

1. "I'd like you to know that almost all of the directors I have met over the years have been decent, likable and intelligent. They dressed well, made good neighbors and were fine citizens. I've enjoyed their company. … Nevertheless, many of these good souls are people whom I would never have chosen to handle money or business matters. It simply was not their game. They, in turn, would never have asked me for help in removing a tooth, decorating their home or improving their golf swing. Moreover, if I were ever scheduled to appear on Dancing With the Stars, I would immediately seek refuge in the Witness Protection Program. We are all duds at one thing or another. For most of us, the list is long. The important point to recognize is that if you are Bobby Fischer, you must play only chess for money." [2019]

2. "Berkshire's CEOs come in many forms. Some have MBAs; others never finished college. Some use budgets and are by-the-book types; others operate by the seat of their pants. Our team resembles a baseball squad composed of all-stars having vastly different batting styles. Changes in our line-up are seldom required." [2010]

3. "When you have able managers of high character running businesses about which they are passionate, you can have a dozen or more reporting to you and still have time for an afternoon nap. Conversely, if you have even one person reporting to you who is deceitful, inept or uninterested, you will find yourself with more than you can handle." [1986]

4. "Every day, in countless ways, the competitive position of each of our businesses grows either weaker or stronger. If we are delighting customers, eliminating unnecessary costs and improving our products and services, we gain strength. But if we treat customers with indifference or tolerate bloat, our businesses will wither. On a daily basis, the effects of our actions are imperceptible; cumulatively, though, their consequences are enormous." [2005]

5. "We would rather suffer the visible costs of a few bad decisions than incur the many invisible costs that come from decisions made too slowly — or not at all — because of a stifling bureaucracy." [2008]

6. "CEOs who recognize their lack of capital-allocation skills (which not all do) will often try to compensate by turning to their staffs, management consultants, or investment bankers. Charlie [Munger, vice chairman of Berkshire Hathaway] and I have frequently observed the consequences of such 'help.' On balance, we feel it is more likely to accentuate the capital-allocation problem than to solve it." [1987]

7. "Cultures self-propagate. Winston Churchill once said, 'You shape your houses and then they shape you.' That wisdom applies to businesses as well. Bureaucratic procedures beget more bureaucracy, and imperial corporate palaces induce imperious behavior. At Berkshire's 'World Headquarters' our annual rent is $270,212. Moreover, the home-office investment in furniture, art, Coke dispenser, lunchroom, high-tech equipment – you name it – totals $301,363. As long as Charlie and I treat your money as if it were our own, Berkshire's managers are likely to be careful with it as well." [2010]

8. "CEOs seldom tell their shareholders that they have assembled a bunch of turkeys to run things. Their reluctance to do so makes for some strange annual reports. Oftentimes, in his shareholders' letter, a CEO will go on for pages detailing corporate performance that is woefully inadequate. He will nonetheless end with a warm paragraph describing his managerial comrades as 'our most precious asset.' Such comments sometimes make you wonder what the other assets can possibly be." [1987]

9. "In addition to being independent, directors should have business savvy, a shareholder orientation and a genuine interest in the company. The rarest of these qualities is business savvy – and if it is lacking, the other two are of little help. Many people who are smart, articulate and admired have no real understanding of business. That's no sin; they may shine elsewhere. But they don't belong on corporate boards." [2003]


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