I am a fortunate man. Since 1997, I have had the privilege of doing what I love—assisting great companies hire equally great people, aiding struggling companies in recruiting ideal executives and employees to turn things around, and helping growth companies continue their acceleration with carefully curated executive and management teams.
Along the way, the greatest lessons I’ve learned are about people, in particular the characteristics of highly successful business leaders. What intrigues me most is how these individuals unfailingly lead teams and entire companies through perennial uncertainties generated by everything from war, social upheaval, and political partisanship to inflation, recession, market bubbles, and, even, everyday living be it in “normal” periods or during something like a global pandemic.
Arguably, the C-suite collaboration between Berkshire Hathaway’s chairman Warren Buffett and vice chairman Charlie Munger represents one of the best examples of such leadership, so I recently reread all the company’s shareholder letters dating back to 1977. Of the many leadership lessons they share in these public missives, five of them speak to me the most as a company founder and leader who has made a business out of helping clients build effective executive teams.
1. Go into Business with People You Trust and Admire
In a special shareholder letter celebrating Berkshire Hathaway’s 50th anniversary, Buffett explains that he and Munger had a lot in common long before going into business together. Although they didn’t know each other at the time, they grew up in Omaha “a few hundred feet” from each other and worked at the store owned by Buffett’s grandfather. Once introduced as adults, they “hit it off” right away.
Their mutual respect is evident in how they describe each other and their assertion that they never argue even when they disagree. Buffett on Munger: He has “a wide-ranging brilliance, a prodigious memory, and some firm opinions.” Munger on Buffett in his own 50th anniversary letter: “Buffett’s decision to limit his activities to a few kinds and to maximize his attention to them, and to keep doing so for 50 years, was a lollapalooza.”
2. Listen to Others’ Opinions and Value Their Roles
Before their C-suite collaboration within Berkshire Hathaway began, Buffett admits to looking primarily for so-called cigar butt investments, i.e., businesses with one last gasp whose “bargain purchase” filled that final puff with profit before burning out. Although Buffett enjoyed “reasonable success” this way, he listened when Munger insisted that this was “the wrong foundation on which to build a large and enduring enterprise.” The ensuing result of “buying wonderful businesses at fair prices” rather than “fair businesses at wonderful prices” is a company now valued at more than $750 billion.
Another reason their collaboration has worked so well for so long: They recognize and value everyone’s respective roles. Or as Buffett puts it, “Berkshire has been built to Charlie’s blueprint. My role has been that of general contractor, with the CEOs of Berkshire’s subsidiaries doing the real work as sub-contractors.”
3. Build and Embed a Company Culture You Believe In
While Buffett credits Munger for being the architect of their investing blueprint, the latter praises Buffett for establishing the company’s management system and policies, aka “the Berkshire system,” which is guided by 15 clear tenets. First among them, “Berkshire would be a diffuse conglomerate, averse only to activities about which it could not make useful predictions.” In other words, from the outset of their collaboration, they knew exactly what type of company they were building.
Critically, it was a company culture they believed in wholeheartedly. The sixth tenet ensured everyone else associated with the organization would too: “Berkshire’s Chairman would reserve only a few activities for himself,” which included being “an exemplar in a culture that would work well for customers, shareholders, and other incumbents for a long time, both before and after his departure.”
Few can argue with Buffett’s description of these efforts: “a culture, distinctive in many ways from that of most large companies, that we have worked 50 years to develop and that is now rock-solid.”
4. Safeguard Company Reputation
Buffett concluded the 2010 shareholder letter by sharing the memo he sent to Berkshire Hathaway managers that same year, and it reveals why culture is so important to he and Munger at the company’s helm. Culture begets reputation, and reputation is everything.
He exhorts managers to immediately address even “the slightest odor of impropriety” among their ranks because company culture depends on their response, in both word and deed, to such behavior. According to Buffett, “Culture, more than rule books, determines how an organization behaves.”
Making it clear that tolerance of questionable or illegal activity could damage Berkshire Hathaway’s reputation, Buffett repeated his frequent refrain: “We can afford to lose money—even a lot of money. But we can’t afford to lose reputation—even a shred of reputation.”
5. Seek, Attract, and Retain Top Talent
In the 1986 shareholder letter, Buffett emphasized that he and Munger really only had two jobs, one of which was “to attract and keep outstanding managers to run our various operations.” He goes on to describe these managers in detail:
- They have demonstrated talent that spans a wide variety of business circumstances.
- They love what they do.
- They relish the thrill of outstanding performance.
- They unfailingly think like owners.
- They find all aspects of their business absorbing.
Whether legacy managers or external executive hires, Buffett noted that the best thing he and Munger could do to retain them was not to get in their way. He returns to this theme often, including in 1990 saying, “Our job is merely to identify talented managers and provide an environment in which they can do their stuff.”
The Continuous Mission for C-suite Collaboration
Although I’ve been a vicarious student of Buffett and Munger throughout my career, reacquainting myself with their leadership lessons on my 25th anniversary in the recruiting business has been a valuable refresher. In particular, it has reaffirmed the philosophy that guides how we build our team at Focus Search Partners and how we recruit top talent for our clients:
- We value three critical commonalities: curiosity, intellect, and drive.
- We believe in encouraging everyone to grow and we celebrate each other’s success.
- We live our own company culture and take the time to understand every client’s culture.
- We strive to surround high caliber professionals with equally or higher caliber colleagues to ensure reputational excellence.
- We offer competent and capable people challenging opportunities and arm them with the resources to be successful.
Buffett and Munger might be a one-of-a-kind story, but fortunately, they willingly share their blueprint for success. It’s worth a read for anyone on a mission to replicate this duo’s enduring and prodigious C-suite collaboration.
Want to learn more about how we build teams that grow companies? Contact Focus Search Partners today.
By Paul Frankenberg, Founder and Managing Partner of Focus Search Partners