Effective Leadership

Effective Leadership

Warren Buffet.

Warren buffet is a well-known American business mogul, investor and philanthropist. He is the C.E.O, Chairman and the largest shareholder of Berkshire Hathaway, an American investment conglomerate. Buffet was named as one of the most influential leaders in 2015 by the times magazine. He was ranked as the world’s wealthiest person in 2008 and as the third wealthiest in 2015 by the Forbes Magazine. His exceptional success at Berkshire Hathaway, together with the numerous accolades he has received, makes Warren a great resourceful person subject to examination in this paper.

Background and Early life

Buffet was born to Howard and Leila Buffet on 30th august 1930. His father, Howard was a stockbroker by profession and also served as a U.S congressman while his mother was a stay alone mom, (O’Loughlin, 2003). At an early age, Buffet demonstrated his prowess in numbers by adding up large columns of numbers in head, a gift that has proven valuable in his unrivalled success in the investment sector. His first experience in the investment sector came when he was only eleven. He bought stock of “Cities Service Preferred” worth $114, though the value of the stock fluctuated, Buffet demonstrated patience and held on to the stock, which he later sold at $120.

When he was 13, buffet was already running his own business as a paper boy and running his horseracing tip sheet business. Buffet joined Woodrow Wilson High school in Washington D.C. At the school, Buffet continued with his entrepreneurship spirit where with a friend, they bought a used pinball machine, within a few months, the business grew and they were able to buy more pinball machines. They later sold the business for $1200 (O’Loughlin, 2003).

College Education and early career

Buffett joined the University of Pennsylvania at the age of 16 to for a business major, where he stayed for two years then joined the University of Nebraska to complete his business course. Buffett later joined Columbia Business School to study under Graham, an acclaimed economist and investor. He earned his master’s degree in 1951 then joined Buffet-Falk & company where he sold securities for three years. Buffet then worked for his Columbia mentor as an analyst at Graham-Newman corp.

Businesses, investments, and accomplishments.

In 1956, Buffet went back to his hometown, Omaha, where he founded the firm, Buffet Partnership limited. Applying the skills learned from Graham, Buffet was successful in identifying undervalued stock and he soon became a millionaire. In 1960, Buffet identified Berkshire Hathaway, a textile company and began accumulating stock. By 1965, he had assumed control of the company, (O’Loughlin, 2003). Buffet dissolved Buffett Partnership in 1969 to concentrate on his acquired Berkshire Hathaway. He phased out the textile division, instead started expanding the company by purchasing assets in sectors such as;

Buffet demonstrated his prowess in identifying undervalued stock when he purchased the Salomon Brothers in 1987 whose later value skyrocketed with Buffet earning a fortune. Through his investments, Buffet has been able to join the boards of different companies as a director. The companies include Coca-Cola, Gillette, Citigroup global markets and Grahams Holdings.

• Media- The Washington post
• Insurance- GEICO, General Re, NRG, Berkshire Insurance.
• Oil and Gas- EXXON

In early 2015, Buffet made the largest acquisition of his career by buying out Portland, Oregon based Precision Castparts at about $32.5 billion. This demonstrates that Buffet remains an investor to reckon with despite having been in the investment scene for more than a half a century. Outside the business and investment sector, Warren buffet is a renowned philanthropist and humanitarian, in 2010, Warren Buffet together with Bill Gates pledged to give away a huge portion of their fortune towards charity. Buffet pledged to give away 99% of his fortune and has already given away almost $23 billion so far, (O’Loughlin, 2003).

Personal Traits and strengths

Warren Buffet has a set of personal traits that have enabled him to enjoy tremendous success in his leadership of the Berkshire Hathaway investment group. Warren Buffet’s traits demonstrate through his lifestyle and his business decisions includes;

Warren’s lifestyle demonstrates humility at its best. Despite being the third richest person in the world, he still lives in a three bedroomed house he bought more 50 years ago, He has no stone fence around his house and he has been driving himself. He has pledged 99% of his fortune towards charity. The fact that buffet gives his donations through the gates foundation is a further display of humility, he suggests that he wouldn’t be good at philanthropy and lets the Gates do it for him instead. His level humility is exceptional and has resulted in better employee relations and performance. (Heller, 1999)

• Humility

Frugality

Although he has amassed a massive fortune, Buffet displays an extraordinary level of frugality. He is so good at making money but surprisingly, he seem to have a little interest in spending. Buffet earns a salary of $100,000 a year for the past 25years. His frugal nature has greatly worked for him as a leader. The recent economic downturn clearly highlights the importance of this quality. From a personal level to the capacity as a business leader, the ability to save prudently and cut on costs opens up doors for opportunities, (Tanner & Abdih, 2009).

Patient

“Holding periods for stocks now average less than a year. Fifty years ago, they were about seven years. We were better off then” (The Wall Street Journal). Buffet learnt the art of patience when dealing with stock, at an early age, when he was 11, Buffett purchased three shares of Cities Service Preferred for $38 a share. The stock lost value to $27, so when it rose to $40, he hastily sold it for a little profit.  He regretted the decision when Cities Services gained $200 a share. His patience has been pivotal to his financial success. Business leaders should be able to demonstrate a great level of patience with an understanding of the fact that great businesses are not built overnight but through patience and perseverance, (Ulrich, Zenger, & Smallwood, 1999).

Risk taker

To be a great business leader, one has to be able to display a great level of risk taking. For one to succeed as a stock investor, one has to be a bold risk taker. Buffet’s ability to take risks makes him standout and contributes to his current status as the wealthiest and most successful investor. Buffet demonstrates this trait when he bought the struggling Salomon Brothers in 1987, later, his decision to take the bold step to buy up the company proved a wise one and he earned a fortune when the value of the company shot up. Despite his willingness to take risks, through the years Buffet has developed the ability to carefully analyze the investments and avoid those ventures that potentially carry excessive risk, and thus invest in low risk scenarios, (Heller, 1999).

Buffett says that public opinion poll is not a substitute for thought. There is no doubt that a huge part of Warren Buffett’s success can be attributed to his ability to think independently and to be his own man. He is a one of the rare people who are not swayed by public opinion but are able to make their own independent judgment. To be able to think independently, especially in the greatly risky in the investment world, is a great and rare trait that has made warren Buffet on of the best investors of all time. (Lewis & American Association of School Administrators, 1993)

• Independent Thinker

Human is to err, and Buffet is a human too. Although Warren Buffet has enjoyed massive success, he has also made some bad decisions along the way. In mid-90’s, Buffet bought stocks of Dexter shoe company for $400 million. Later the company went under and Buffet together with the shareholders of Berkshire lost the money. Though he lost a large sum of money, Buffet gained a valuable experience in making investment decisions. No one is mistake free and therefore great business leaders should embrace the possibility of making errors in their leadership, and strive to learn from the mistakes.

• Ability to learn from mistakes

Communication is an essential trait for any business leader today, (Charteris-Black, 2007). Warren Buffet demonstrates good communication skills in his leadership at Berkshire Hathaway. His annual letters to Berkshire subsidiaries demonstrates his mastery of the art of communication. Buffet has a remarkable ability to listen and to carry on with conversations. When Gates first met Buffet, they had planned for a half an hour long meeting only for the meeting to take ten hours. This is a demonstration of Buffets ability to hold and maintain fruitful conversations. His executives have often remarked that meetings with Buffet usually leave them motivated and inspired. (Lewis & American Association of School Administrators, 1993)

• Good communications skills.

Buffet has kept doing his work passionately throughout the years. Even though he is in his late eighties, his passion and dedication towards Berkshire has been unwavering. Buffet is convinced that loving what one does and doing the work passionately gives one a competitive edge and always results in better performance and returns. He is against taking up jobs that one doesn’t like just to make the resume look better.

• Passion

Warren Buffets Leadership style

In this kind of leadership, there is no direct employee supervision. (Kurt Lewis, 1939) Warren Buffet gives subsidiary heads lots of freedom and leeway to make independent decisions. He says “hire well and manage little”

• Laissez faire leadership style

“We tend to let our many subsidiaries operate on their own, without our supervising and monitoring them to any degree. Most managers use the independence we grant them magnificently, by maintaining an owner-oriented attitude.” (Berkshire 2010 annual report)

Buffet employs this hands-on leadership style as he knows that people work best when given freedom to make decisions independently. Despite the good results of the laissez-fare leadership style, it has its disadvantages. Warren admits “we are at times late on management decisions” (Yukl, 1989).

Buffett is a charismatic role model that leads from the front. He has continually demonstrated his transformational leadership style as the leader of Berkshire Hathaway. In 2007, during the recession, when companies were laying off workers, Buffet chose to retain his workers, and kept motivating them to do better. His actions paid off as the Berkshire reported an increase in earnings. Warren Buffet is a good motivator. He pushes his employees to their best. Through his annual letters to Berkshire business divisions, he always has inspirational words to his business executives and employees. This has greatly helped to raise the employee’s productivity, keep the employees focused and sustain the growth that Berkshire has gone through over the years (Ulrich, Zenger, & Smallwood, 1999).

• Transformational Leadership

A good leader should be able to seek opinion from others and make decisions after considering every possible suggestion. Buffett is a democratic leader. He tries to learn from all and values each opinion and suggestion forwarded to him. He also gives room for his employees to come up with new ideas, (Charteris-Black, 2007). He shows great respect to the work of his employees and gives credit to individuals for the exceptional work done. Buffett’s democratic leadership has enabled him to sour into great heights in the investment field and also gain great admiration, respect and following.

• Democratic Leadership

Possible area to improve

Warren Buffett through the years has proven to be a gr business leader, clearly evident through his huge success at Berkshire Hathaway. Despite his remarkable success, Buffett still has room for improvement. One possible area that Buffett could improve on being able to control Berkshires expansion and acquisitions. Berkshire has rapidly expanded through the years through acquisition of other companies. Whereas expansion is a good thing, the urge to expand has at times led to poor judgment on Warren’s side. This poor judgment has resulted to him buying bad stocks that have resulted in great losses for Berkshire. Buffett admits that some of the subsidiaries in the manufacturing and retail sector have not been performing well; (O’Loughlin, 2003), this is attributed to buffets failure to make good decisions in the acquisition of companies and his failure to take his deputy’s counsel.

Conclusion

Warren Buffett is a phenomenal leader; his leadership traits and styles are exemplary and should be emulated by all aspiring business leaders. Through Berkshire, Buffett’s legacy will always remain even in his absence.

References

Charteris-Black, J. (2007). The communication of leadership: The design of leadership style. London: Routledge.

Heller, R. (1999). Effective leadership. London: Dorling Kindersley.

Lewis, A. C., & American Association of School Administrators. (1993). Leadership styles. Arlington, VA: American Association of School Administrators.

O’Loughlin, J. (2003). The real Warren Buffett: Managing capital, leading people. London: Nicholas Brealey Pub.

Ulrich, D., Zenger, J. H., & Smallwood, W. N. (1999). Results-based leadership. Boston: Harvard Business School Press.

Yukl, G. A. (1989). Leadership in organizations. Englewood Cliffs, NJ: Prentice Hall.

Tanner, E., & Abdih, Y. (2009). Frugality. Washington: International Monetary Fund.