Sunday, December 18, 2005

Buffet on management

One of the main parts of my job is to figure out, when I'm sitting across the table from John Smith and I'm going to hand him a check for $50 or $100 million, I have to decide whether he's going to get out of bed the next morning. And it's very important to me that he is just as interested in running his business, and he thinks of it as his business, the next day, and the next year, and the next decade, as he was when he owned it all himself. With a lot of people, there's no way to buy that. You can't set up an incentive compensation scheme that accomplishes that because they've already got all the money they need. You really have to make a judgment as to whether they run their business because they love business or because they love money. If they love money, we don't have a chance. We can pay them a lot of money, but they've already got a lot of money. They never need to come to work another day in their life after they sell out to us, and yet virtually all of them works harder now than they've ever worked before. The main reason for this is that they're that type - that is the way they're put together.

Secondarily, we try to provide an environment for them which is exactly like what we'd want if we were running a business. The main thing we would want is we would not want a lot of second guessing, we would not want a lot of home office meetings, we would not want a lot of supervision from some group Vice President at headquarters. We just would not want a lot of nonsense. We would like to run our own business in our own way. If you were a great golfer, and let's just say, going back to my generation, you were Arnold Palmer, you'd basically play golf because you like to play golf. But if he was playing golf, and we were doing it for money, and in some way I owned him, and I kept saying ¡°why don't you use a four iron instead of a five iron, and why don't you aim a littler further to the right¡± after a while he'd wrap the club around my neck. And rightly so. If you get really talented people, you've got to give them a chance to do their own thing.

Excerpt from "Three Lectures by Warren Buffett to Notre Dame Faculty, MBA Students and Undergraduate Students"


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