Every senior manager makes a critical decision every day of his or her working life. Mostly, the decision is unconscious, but is no less vital for
The issue is simply stated with three questions:
What work do I delegate to other people?
How do I control their performance?
Two friends provide a most remarkable case study of two totally contrasting sets of answers – the world’s two richest men, Bill Gates and Warren Buffett. The software czar has kept his fingers in every pie and has ruled the actions of his delegates by constant and fierce interrogations – which have often reversed their decisions.-
WHOLLY OWNED COMPANIES
The wholly owned companies managed by these people hold assets worth twice as much as Buffett’s marvellous stock portfolio – in which seven major holdings from Coca-Cola to the Washington Post are dominant. The seven cost $4.4 billion: they were worth, at end-1998, $32.1 billion, out of a total share portfolio of 37.3 billion. The wholly owned assets, however, come to $80 billion, and the companies concerned employ 47,566 people, which is 60% more than Microsoft’s roster.
In one sense, Buffett makes no distinction between the two types of investment. Whether you are buying all of a company, or just a fraction, you should, he believes, be vitally concerned with the same criteria:
- Is the company simple and understandable?
- Does it have a consistent operating history?
- Does it have favourable, and predictable, long- term prospects?
- Is the management competent and honest?
- Is the underlying business undervalued?
The need for predictability and understanding rules out companies like Microsoft. Buffett doesn’t understand the technology and has no intention of learning how. And Gates, even before he nearly missed the Internet boat, saw clearly that the technology has a mind of its own.
It’s hard to argue with his idea that managers must be judged only by what they personally influence. The only contrary argument is where divisions relate directly to each other.
This humane, collegiate approach is incomprehensible to many managers. The key to Buffett’s ability to live up to his own credo is confidence in others.
- You are not doing a first-class job, and will not do so unless I apply considerable pressure.
- You will run your operation the company way (and my way), not your way.
- I want you to keep me fully informed all the time, and will intervene forcefully if I don’t like what you tell me.
- If you bring me bad news, you may well be fired.
- You will only run this business, or part of a business, for a short time and will be judged on your short-term results.
The great superiority of Buffett’s system (or lack of it) is self-evident. A climate of confidence and freedom must surely generate better performance than one of suspicion and control. Yet in some ways, suspicion and control have ruled Microsoft – and its results have been sensationally successful. How can this paradox be resolved?
One answer is that both Buffett and Gates believe in financial incentives, making their managers extremely rich. Buffett doesn’t like to use stock options, but his purchase prices have the same effect: the man who sold Buffett a company called Dexter Shoe in 1993 now owns Berkshire shares worth $1.5 billion. Even Buffett’s generous bonus schemes – sometimes hitting six times the salary – can’t compete with such rewards.
The secret is to treat the unit manager as a CEO in his or her own right. Don’t impose targets, for a start, but let them tell you what they are going to achieve and how. Second, don’t have a fixed idea of how long people (or yourself, for that matter) should stay running an operation. If they are happy and doing an excellent job, only move them if you both feel they are not living up to their full potential: or you have another, more important post for which they are ideal.
As Thinking Managers has elsewhere advised, you should always have a reservoir of able internal candidates for any such promotion. Characteristically, Buffett delegates this aspect of his responsibility, too. Thus, his top managers were asked to ‘send me a letter updating your recommendations as to who should take over tomorrow if you became incapacitated tonight. Anything you send me will be confidential’.
SUBORDINATES AS EQUALS
That, you may be sure, rarely happens at Microsoft or most other companies. It means treating subordinates as equals, as grown-ups who know their businesses and their people and who can be trusted with anything – from accounting honestly for their expenses to thinking about succession. Trust is what ultimately distinguishes the Buffett and Gates styles.
For the long haul, Warren Buffett’s way must be best. As an associate says, ‘somehow Warren has been able to keep a diverse cast of characters working harder for him than they did for themselves. I see it every day – and I still don’t know how he does it’. Having read all the above, though, you will have a good idea of the maestro’s magic methods. Use them.