Lexington - Warren Buffett is one of the most respected - and wealthiest - investors and managers in business today. In recent years, with Madoff-like scandals and frustrations with Wall Street bonuses, these two qualities are rarely seen in one individual. Buffett is certainly exceptional in many ways.
There have been many books written about Buffett, most often focusing on the investment strategies that have ranked him consistently among the top 10 wealthiest individuals in the world. A new book, Warren Buffett On Business: Principles from the Sage of Omaha, provides an in-depth look not at Buffett's investment success, but at his business management principles and practices.
Author Richard Connors, who taught courses on Warren Buffett at Washington University, has compiled a detailed look at this success story by using Buffett's own words. Connors carefully and thoughtfully has put together Buffett's letters written to shareholders over four decades according to a variety of topics and ideas.
The result is a fascinating look at Buffett's views and practices on communication, time management, crisis management, executive compensation, and a wide range of management principles and practices. It is a superbly crafted book that makes Buffett's valuable insights as accessible as they are remarkable.
Reading Buffett's letters to shareholders, it quickly becomes apparent that he is an exceptional communicator.
"We will be candid in our reporting to you, emphasizing the pluses and minuses important in appraising business value," Buffett wrote. "The guideline is to tell you the business facts that we would want to know if our positions were reversed."
"We also believe candor benefits us as managers," he wrote. "The CEO who misleads others in public may eventually mislead himself in private."
For example, in regards to annual reports, Buffett said that he kept a mental picture of his sisters, "Dear Doris and Birdie," in mind when communicating with shareholders.
"I envision them as people who have a very significant part of their net worth in the company, who are bright but who have been away for a year and who are not business specialists," he wrote.
Accounting methodology that is unclear or vague should be suspect, Buffett said, because it often means management is hiding something. References to EBITDA, for instance, "make us shudder - does management think the tooth fairy pays for capital expenditures?"
Buffett's candid views on executive behavior and compensation run counter to the numerous CEOs that have made the news in the last few years. "The job of CEOs is now to regain America's trust - and for the country's sake, it's important they do so. CEOs must embrace stewardship as a way of life and treat owners as partners, not patsies," he wrote. "It's time for CEOs to walk the walk."
Buffett spoke out against "shareholder abuse," in corporate America and calls on shareholders, particularly large institutional ones, to demand a rethinking of executive compensation.
Corporate culture is vital to success, Buffett said, as shown by his own company, Berkshire Hathaway. Both managers and shareholders have fun, he insisted. They maintain low overhead, don't have quarterly goals and budgets or a standard personnel system. With a strong corporate culture, it is easier to use "simple and common sense."
This leads to a type of managerial freedom that is rarely enjoyed in other corporations that enforce institutional constraints. In part, this comes from Berkshire's long investment horizon. Too many companies, Buffett said, focus on the short term.
The book includes numerous stories about Buffett and his business, including GEICO, The Pampered Chef and International Dairy Queen, among others. Among the most interesting is the story about his purchase of the Nebraska Furniture Market in 1983 for $60 million.
The Nebraska Furniture Mart was started by a woman who walked out of Russia, boarded a peanut boat and landed in Seattle with little more than a tag around her neck. She spoke no English. After a move to Omaha, she saved $500 to start her own business. Because "she cared and she was smart," she grew her company into the largest home furnishing store in the country in a town of only 700,000 people.
Buffett has described his business principles as "simple, old and few." Warren Buffett On Business is an interesting and inspiring 40-year story of how "simple, old and few" can be incredibly effective.