Lessons from 60 years of managing great managers
Warren Buffett and Charlie Munger have been unusually consistent about one thing: how they treat the people who run Berkshire’s businesses.
“Another thing that’s interesting is how little turnover we have. The number of managers that we’ve had to replace in the last ten years are very few. We don’t have a retirement age… Without a retirement age, and with people working because they love their jobs, we get long tenure out of our managers. They like the money as well, but their primary motive is that they really like accomplishing what they do in their jobs… I would argue that’s a huge plus.”
“We have no human relations department, no legal department, no investor relations, no public relations, we don’t have any of that. We’ve got a bunch of all-stars out there running businesses.”
Buffett’s starting point is simple: get very good managers, let them stay a very long time, and don’t build a big headquarters to manage them.
“Some people bat left-handed, some people bat right-handed. Some people stand deep in the batter’s box, some crowd the plate. They all have different styles. And the styles of our managers have proven successful in their own businesses. So, we don’t try to superimpose any system from above… We like paying for performance. That is kind of a fundamental tenet.”
“We don’t have a headquarters culture that’s forced on the operating businesses. The operating businesses have their own cultures. And in every case I can think of it’s a wonderful culture. We just leave them alone.”
Different managers run their businesses in different ways. As long as the record is good, Berkshire does not try to standardise style. The one thing they are explicit about is paying for performance, and only for what is under the manager’s control.
“There are more problems with having the wrong manager than with having the wrong compensation system. It is enormously important who runs Procter & Gamble, Coca-Cola, or American Express; any compensation sins are generally of minor importance compared to the sin of having somebody that’s mediocre running a huge company.”
“You need a lot of good operating managers, and you need somebody at the top who allocates capital well and who makes sure you’ve got the right operating managers.”
The main risk is not the pay plan. It is having the wrong person in charge of a valuable business.
“The important thing we do with managers, generally, is to find the .400 hitters and then not tell them how to swing. The second thing we do is allocate capital.”
“Our managers know their businesses and they know how to run them. And if they didn’t, we’d do something about the manager, we wouldn’t try and build a bunch of systems.”
Once they have the right people, Berkshire’s job is to leave them alone to run their businesses and to allocate capital from the top, not to design more processes.
“I think culture has to come from the top. We work all the time at trying to behave with other people as if our positions were reversed.”
“Almost every business has problems, and we’d just assume the manager would tell us about them… We give very little advice to our managers, but one thing we always do say is to tell us the bad news immediately.”
Culture, for them, is how the top behaves and how problems are handled: treat people fairly, and surface bad news quickly.
On Monday
If you work with managers (or are one), pick one business you’re involved in and write down:
Who is actually running it today?
Is the main issue here the “system”, or is it the person in charge?
Are they being measured and paid on what they truly control?
Do they feel trusted to run it in their own style, and to bring bad news early?
Buffett and Munger’s view is clear: talent is scarce, styles can differ, and the biggest leverage is getting the right managers in place and then not telling the .400 hitters how to swing.
Best,
Harsh
I share what I’m learning as a business builder.
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