Boston University

MET AD 643 O1 Project Communication Management

Summer 2019

Individual Assignment

The Oracle of Omaha: Leadership and Communication Management Style of

Warren Buffett

Sanaz Sadeghian

Master of Project Management: U17125103

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Table of Contents

1. Abstract …………………...……………………………………………………………..3

2. Introduction …………………….…………….………………………………………….4

3. Organizational Culture of the Company ………………………………………………...5

4. Leadership Philosophy ………………………………………………………………….6

5. Lesson Learned ………………………………………………………………………….8

6. References ……………………………………………………………………………….10

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 Management is doing things right,
but leadership is doing right things.
Peter Drucker

Abstract

Peter Drucker once said Management is doing things right, but leadership is doing right things. Well,
Warren Buffett is definitely a leader. Warren Buffett has been Chairman and CEO of Berkshire
Hathaway, a general investment company, since 1965. Before that he headed various private investment
partnerships. Over a period of 47 years, under Buffett's leadership, these companies have outperformed
broad market indices by an average of 11.16% per year. In 42 of the 47 years, he has outperformed the
market. In this paper, we look at possible reasons for this and examine the leadership and communication
style, namely whether or not Buffett is simply a leadership anomaly. We also describe some philosophies
used by Buffett and look at some challenges he faced as well as resolved with his leadership and
communication skills.

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 Introduction

Warren Buffett may have been born with business in his blood. He purchased his first stock when he
was 11 years old and worked in his family’s grocery store in Omaha. His father, Howard Buffett, owned
a small brokerage, and Warren would spend his days watching what investors were doing and listening
to what they said. As a teenager, he took odd jobs, from washing cars to delivering newspapers, using
his savings to purchase several pinball machines that he placed in local businesses.

His entrepreneurial successes as a youth did not immediately translate into a desire to attend college. His
father pressed him to continue his education, with Buffett reluctantly agreeing to attend the University
of Pennsylvania. He then transferred to the University of Nebraska, where he graduated with a degree in
business in three years.

After being rejected by the Harvard Business School, he enrolled in graduate studies at Columbia
Business School. While there, he studied under Benjamin Graham – who became a lifelong friend – and
David Dodd, both well-known securities analysts. It was through Graham's class in securities analysis
that Buffett learned the fundamentals of value investing. He once stated in an interview that Graham's
book, The Intelligent Investor, had changed his life and set him on the path of professional analysis to
the investment markets. Along with Security Analysis, co-written by Graham and Dodd it provided him
the proper intellectual framework and a road map for investing. Before working for Benjamin Graham,
Warren had been an investment salesman – a job that he liked doing, except when the stocks he suggested
dropped in value and lost money for his clients. To minimize the potential of having irate clients, Warren
started a partnership with his close friends and family. The partnership had unique restrictions attached
to it: Warren himself would invest only $100 and, through re-invested management fees, would grow
his stake in the partnership. Warren would take half of the partnership’s gains over 4% and would repay
the partnership a quarter of any loss incurred. Furthermore, money could only be added or withdrawn
from the partnership on December 31st, and partners would have no input about the investments in the
partnership.

By 1959, Warren had opened a total of seven partnerships and had a 9.5% stake in more than a million
dollars of partnership assets. Three years later by the time he was 30, Warren was a millionaire and
merged all of his partnerships into a single entity.

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 Organizational Culture of the Company

Berkshire Hathaway has over 80 business units and has continually outperformed the S&P 500 Index
under Buffett’s leadership. The company is highly decentralized as business units receive very little
oversight from headquarters. This is unusual, especially for a company of this size (it’s larger than GE,
GM, and IBM).

In a recent article in the Harvard Business Review, the CEOs of Berkshire Hathaway’s operating units
agreed that there were 3 key aspects of the corporate structure that allowed them to be successful:
autonomy, long-term orientation, and company culture.

Autonomy to Run Your Business

Warren Buffett gives his business units complete autonomy to operate how they see fit. As long as each
unit meets its financial targets, Buffett does not interfere.

When we acquire a company, it’s up to the seller’s discretion as to whether or not they want to still be
in the business. Regardless if the founder decides to stay, the business unit leader will run the company
how they want to. We will provide support and resources when needed, but will not be involved with
the day-to-day running of the business.

Long Term Orientation

Buffett has no interest in the short game. He invests in companies for the long-term and asks his business
unit leaders to look a few years into the horizon to plan ahead.

Sustainable, long-term growth doesn’t happen overnight. If we want the business to be successful year
after year so we have our leaders think about the future and look at implementing organic growth
initiatives, acquiring new businesses, or entering new markets.

Strong Company Culture

The culture at Berkshire Hathaway emphasizes integrity, acting ethically, long-term orientation, and a
focus on the customer. This all flows from Warren Buffett and he ensures that it is dissipated throughout
the organization.

Having a strong corporate culture is extremely important. Leaders should put employees first because
people matter. You can have the greatest strategies in the world but if you don’t have the right people in
place to execute those strategies, then it’s all for nothing. I also believe in focusing on the customer

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because solving their problems and listening to their needs is what drives the business forward. That,
along with the long-term orientation, has created a winning culture.

Leadership Philosophy

1. Go against the grain

Warren Buffett has made his success by sticking to his values and investing his money in areas that fly
directly in the face of intense market pressures to follow the crowd. For example:

 Buffett invested heavily in the Washington Post in 1973 when the US was heading into a
crisis stemming from the OPEC oil cartel and the Vietnam War backlash. Even after
suffering another 25% drop in the stock price, he sat still, while the rest of Wall Street hit
the panic button. Some 40 years later the original $10 million investment was worth well
over $1 Billion.

Results like these would give any money manager confidence to blaze his own trail, but neither Warren
Buffett nor Berkshire Hathaway management had a track record of this type of success at the time. It is
probable that most fund managers would have looked at these investments as the height of poor decision
making.

2. Face failure head-on

If the above-listed stellar stock purchase had truly gone south, the very size of the purchases compared
to the rest of the capital under Warren Buffett's command could very well have caused a severe crisis of
investor confidence. This could have led to the demise of Berkshire Hathaway.

Luckily, the story ends happily.

This does not mean that Warren Buffett's ability to pick winners has been perfect. In his letter to
Berkshire Hathaway stockholders, he details the results of all investments made on behalf of the
investors.

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He unabashedly discusses the good, the bad, and the ugly. This trait of sharing his failures openly and
publicly is a sign of real strength and leadership qualities.

Buying a dying business in a dying domestic industry and pivoting the business to eventually make it
one of the most successful entities on earth takes an incredible amount of grit, determination, and talent.
Sure, Warren Buffett by his own admission made a costly error, but his clear vision for success led the
business out of a death spiral and into the upper echelon of success.

3. Be humble

In the late 1990s, Berkshire Hathaway was conspicuously absent from the tech sector where even
unsophisticated day-traders were creating gigantic wealth almost overnight. When critics started to
circulate the opinion that Warren Buffett was causing his investors to miss out on the wealth being
created, he openly stated that he didn't "invest in businesses he could not understand" and he flat out
admitted that he simply didn't understand high tech business models.

It is unimaginable that anyone else with such a high public profile would have basically admitted to the
world that he couldn't understand something, even if this was indeed the case.

But those who looked deeper into this quote soon realized that Warren Buffett was really saying that NO
ONE should have been able to understand what was happening. The reason is that the world was in the
grip of a bubble and many did not realize it, just as many people in Holland did not understand how the
price of their oh-so-precious tulip bulbs was truly determined in the 1600s.

In the end, the lessons learned from the Great Tulip Mania of 1637 were largely forgotten by the majority
as will the lessons from the Dot Com bubble. However, great leaders will take time to survey the entirety
of the landscape instead of just analyzing the trees in front of them. This is precisely what Berkshire
Hathaway did for its investors during that time of frenzy.

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 Lesson Learned

1.Getting really,really good at something and exploit it to the maximum advantage

People get distracted in life. If we want to have outsized success, we need to hone in on a specific skill
set and become extraordinary at it. If Buffett had spent the past five decades also trying to launch a chain
of restaurants or attempting to become a world-class novelist, he probably wouldn't have had a modicum
of the influence, wealth, and reputation he does today. Even geniuses who excel in multiple areas, like
Benjamin Franklin, did not do so concurrently, but rather, focused on different areas at different times
in their lives.

Figuring out what we can do better than everyone else is the key to success. Sam Walton and Ray Kroc
were better operators and executors. Steve Jobs and Walt Disney were better showmen and
visionaries. Whether our objective in life is to become an opera star or build a Fortune 500 business from
the ground up, develop a "laser-like focus", as Buffett himself has called it. Knowing what we want,
when wanting it, and how we are going to get it. Out-execute everybody.

2.Reputation is a form of Capital that should be nurtured and protected

I think if we become known for our integrity and fair dealing, we'll find ourselves on the receiving end
of a lot of grace and a lot of opportunities that otherwise wouldn't have presented themselves. Buffett
took advantage of this every chance he could. Even during the leveraged buyout craze of the 1980s, he
wouldn't engage in unfriendly takeovers because he wanted to cast himself in the light of a friendly white
or gray knight; the rich, nice guy with the checkbook who shows up and rescues you from the pirates
wanting to raid your ship.He had a vision for the type of reputation he wanted and cultivated it every
step along the way. It became a brand; an image.

When we look into his life and study it deeply, we will see that the avuncular façade masks a shrewd,
ruthlessly brilliant man with an IQ that is off the charts and a tendency toward avarice (which, ultimately,
benefits society since he's giving 99% of it back to improve civilization). He will let businesses fail. He
will abandon his friends if it risks his reputation capital. He will put the needs of himself, and Berkshire

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Hathaway, above all other considerations. He is no fool. He knows exactly how to attain, increase, and
take maximum advantage of power through financial, political, and social means.

3.Surrounding ourselves with the Right People and Create a Culture That Rewards the Behavior
We Want Emulated
The heavy lifting is done by Berkshire Hathaway's operating subsidiaries. Those businesses, many of
which would be in the Fortune 500 if spun-off, are run by CEOs who show up to work each day. They
manage truly global enterprises that produce billions and billions of surplus wealth that then gets shipped
to Omaha twice a year. Though occasional problems pop up, which is bound to happen in a firm of its
size, Buffett's talent for attracting great executives, making them want to win, and staying loyal to the
business is too important to casually dismiss. In many businesses, the quality of the people doing the
work is of the utmost importance to profitability. Get better people, enjoy better results.

Likewise, we have to be on the lookout for perverse incentives. We have to avoid creating compensation
or recognition systems that cause employees, contractors, or other parties to engage in immoral,
unethical, illegal, or otherwise questionable behavior. We have to understand that we get more of what
we subsidize, so we have to subsidize wisely.

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 References

1.Abey Francis (2013). Case Study: The story of Warren Buffett. Retrieved from MBA Knowledge Base.

https://www.mbaknol.com/investment-management/case-study-the-story-of-warren-buffett/

2.Robert F.Bruner (2008). Warren E.Buffett , 1995. Darren Case No. UVA-F-1160.

3. Chan, Leo H. and Chan, Johnny and Wolfe, Edward R., Using 'The Essays of Warren Buffett: Lessons
for Corporate America': A Note. Journal available at SSRN: https://ssrn.com/abstract=636641

4. Lawrence A. Cunningham (2015). The philosophy of Warren E.Buffett. Retrieved from The New
York Times.

5.David Larcker and Brian Tayan (2015). What’s like to be owned by Berkshire Hathaway. Harvard
Business Review. https://hbr.org/2015/12/what-its-like-to-be-owned-by-berkshire-hathaway

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