High-Performing Investment Teams: Berkshire Hathaway
Warren Buffett, chairman and CEO of Berkshire Hathaway, and Charlie Munger, the company’s vice chairman, are famous for their investing prowess. But little is said about their “soft skills,” their ability to lead and build a great culture. “Buffett is underrated for his people skills. He is the best judge of human talent there is,” says Rich Santulli, who heads NetJets, a Berkshire Hathaway company that leases fractional shares of aircraft. “People want to work for him.” As a longtime fan of this dynamic duo, I think it is time their soft skills are recognized.
Buffett and Munger exhibit the key behaviors that are also evident in the best investment firms. No surprise that two men as bright as Buffett and Munger have learned over the years that these key behaviors reduce the sludge in an organization and allow for improved decision making − both in speed and accuracy.
Buffett says, “We have less overhead and faster decision making than any other place of our size in the world.” How does Berkshire Hathaway do it? By eliminating the corporate sludge that gums up the works in an organization. It manifests in behaviors like these:
- Gossiping
- Lying
- Breaking agreements
- Becoming defensive
- Feeling entitled
- Withholding key information
All of these behaviors are fear based and lead to distrust, which slows down communication and compromises decision making. Buffett is clear that trust is the key lubricant that keeps Berkshire Hathaway running smoothly. He has often said, “I only do business with people whom I like, trust, and admire.” Munger is equally fanatic about being trustworthy and looking for business partners who are trustworthy.
Here are the key behaviors that we have observed at the Focus Consulting Group in the best investment firms and how Buffett and Munger endorse the same behaviors at Berkshire Hathaway.
1. Choosing Curiosity over Defensiveness
Research from many sources indicates that top executives have
learned to choose curiosity over defensiveness. Buffett and Munger
realize that this skill is critical, and they stress its importance
frequently in their communications. “Warren and I are very good at
changing our prior conclusions,” says Munger. “We work at developing that
facility because without it, disaster often comes.”
With curiosity, the goal is learning. With defensiveness, the goal is winning and being right. Buffett and Munger seem to understand this fundamental difference. “The curious are also provided with much fun and wisdom long after formal education has ended,” they say.
2. Choosing Candor Over Withholding
Candor is a second behavior practiced by top teams. Candor means
telling the full truth, revealing all the relevant information, seeing
reality accurately, differentiating between fact and fiction, and holding
one’s opinion lightly. Both Buffett and Munger endorse candor: “Our
guideline is to tell you the business facts that we would want to know if
our positions were reversed. Candor benefits us as managers: The CEO who
misleads others in public may eventually mislead himself in private.”
At the Focus Consulting Group, we would also argue that much corporate drama − conflict and fighting − is the result of people forming an opinion and then holding to it tightly. Buffett and Munger are wise to this folly, noting that it leads to poor decision making. Munger says that in a typical debate, “Either position is OK. But being totally sure on issues like that with a strong, violent ideology, in my opinion, turns you into a lousy thinker.” Decision making at the world-class level is achieved by building the trust that allows team members to be perfectly candid.
3. Choosing Responsibility Over Blaming
We advocate a culture in which people are encouraged to take
responsibility. When things go wrong, these people don’t point fingers.
They instead ask themselves, “What did I do − or not do − that
contributed to the poor outcome?” Buffett says it plainly: “There’s no
way you can live an adequate life without making many mistakes.”
Investment pros, like baseball pros, must understand that they will
strike out many times in their careers. The key, according to experts
like Munger and Buffett, is not the result − a hit or miss
− but the quality of the swing.
4. Choosing Authenticity Over Politics
High-performing teams reduce or eliminate manipulation and
politics. Don Graham of the Washington Post, a longtime friend of
Buffett, says, “Buffett has extraordinary ability to state things clearly
and make them simpler.” Munger says of Buffett, “No side of his
personality is hidden. What you see is exactly what you get.” This sort
of authenticity reduces posturing and politicking and promotes authentic
and straightforward behavior.
All corporate drama involves the “conflict triangle.” The triangle is based on the idea that there are three common roles that people assume in life:
- The villain (“Somebody is to blame, and I’m going to find that person.”)
- The victim (“Poor me. Everyone is always doing things to me.”)
- The hero (“I’ll save the day…tah dah!”)
Buffett and Munger avoid the triangle by assuming personal responsibility. Munger once was asked to give a one-word explanation for his success. He said, “rational.”
5. Choosing Genius (Passion) Over Mediocrity (Safety)
Another behavior practiced by the top investment teams is “genius” − the ability to identify one’s sweet spot and spend 80 percent of the time working there. Consider the way Buffett describes the importance of passion: “Each of you will have to figure out where your talents lie. And you’ll have to use your advantages. But if you try to succeed in what you’re worst at, you’re going to have a very lousy career.”
Activities that are outside of the genius zone tend to be energy drainers. Buffett and Munger seem peppy even at their advanced ages (late 70s and early 80s, respectively) because they gain energy by doing activities they love. Neither ever talks of retiring.
6. Choosing Appreciation Over Entitlement
Another behavior of successful investment leaders and teams is
the choice to be appreciative instead of resentful. The latter comes from
a mindset of entitlement.
Buffett and Munger appear genuinely appreciative of the lives they have created for themselves. Munger quotes the philosopher Alfred North Whitehead on this topic: “No one who achieves success does so without acknowledging the help of others. The wise and confident acknowledge this help with gratitude.” Buffett and Munger seem genuinely happy taking each day as it comes, enjoying the journey rather than focusing on the outcome.
People who choose appreciation spend more time being grateful for what they have rather than envious of what they don’t have. “I cannot recommend envy enough if you desire misery,” Munger says.
Summary
A good team, whether an investment team or crime-fighting team,
must be in sync with each other, and those beliefs and behaviors held in
common must be based on honesty and trust. Buffett and Munger are such a
team, and so is Berkshire Hathaway. Clearly, it isn’t success that breeds
top-notch behaviors but top-notch behaviors that breed success.