Five Lessons on Values From Warren Buffett
How to gain competitive advantage through values
The man who turned $19 invested in 1965 into $146,186 today, Warren Buffett, is probably the most successful investor alive.
Clearly, he understands the art of investing and the finer nuances of finance. Yet in his Golden Anniversary annual letter to shareholders he and his partner, Charlie Munger, spend more time discussing the values that brought about the success than you will see in other annual reports.
The reason is simple. The values have created what every company is seeking and few achieve – lasting competitive advantage. They seem to have kept the common diseases of bureaucracy and complacency of large corporations at bay.
The values have established a partnership with shareholders, defined a highly successful management style and made Berkshire Hathaway the preferred buyer of many successful businesses.
The values are different from the run-of-the-mill values you’ll encounter on most company websites – words like integrity, accessibility, innovation, integrity etc. for at least five reasons:
- They are not merely words on a wall to be interpreted by everyone. They are principles with a fixed meaning over time. For example, to avoid bureaucracy extreme autonomy is given to the CEOs of subsidiaries. They are expected to manage on their own. Berkshire has around 25 people at headquarters – other conglomerates of that size would have more people handling the coffee dispensers. Likewise, the temptation to set up committees to share best practice has been resisted, no system-wide bonus schemes implemented
- They are not made up by a committee – they were set early by Buffett and Munger and are not changed or re-defined at will – the same shareholder principles, for example, have been stated 30 years in a row in the annual letter to shareholders. These principles are etched in stone
- They have practical implications. For example, Berkshire wants to be user friendly and a prospective seller of a large business will get a prompt yes or no – and complete confidentiality because only two or three people will ever hear about an offer that does not materialize in a deal. This attracts good sellers who care about the well-being of their employees and their company even under a different owner – a clear competitive advantage
- They regulate only the most important behaviors and interactions. Berkshire Hathaway offers no management expertise to its subsidiaries – that’s handled exclusively by the management teams. This obviously attracts good managers – another competitive advantage
- They are developed with a win-win mindset. Warren Buffett promises his managers to be useful or stay out of the way. For this reason, almost all contact is initiated by the CEOs of the subsidiaries. This helps him keep the classic CEO-risk of overreaching at bay
Photo: Pete Souza / Public Domain
Steen Reeslev is the managing partner of This Is Touch – a company providing television airtime for corporations in the growth markets of Latin-America, Asia, and Africa. Previously he was senior vice president responsible for Group Relations at A.P. Moller-Maersk. This Is Touch is based on experience from A.P. Moller-Maersk. The company produced a large number of films on all aspects of the business. The high quality of the films gave access to airtime on television in more than 30 markets.