Tag Archives: Berkshire Hathaway

Niccolò Machiavelli: The Prince

For the last of our solo* Management Thinkers… and Doers, we turn to a thinker on leadership and a politician supreme. His thinking has influenced 500 years’ of politicians, and has been influencing managers since the term came to have a real meaning in the mid 19th Century.

Niccolò Machiavelli arguably saw far into his future, and his writings hold genuine nuggets of wisdom and debate for today’s generation of managers.

Niccolò Machiavelli 1469-1527

Niccolò Machiavelli 1469-1527

Short Biography

Niccolò Machiavelli was born in Florence, in 1469. At the time, Italy was just a set of small, frequently warring, states. Florence was ruled by the powerful Medici family, so despite his patrician roots, there were few opportunities for a talented young man. However, the regime changed and when, in 1498, Florence became a republic, Machiavelli secured a senior administrative post as Secretary of the second Chancery.

He served Florence for 14 years in roles we may now recognise as collectively politician, civil servant, and diplomat. During this time, he travelled widely around European courts and met with powerful people.

However, in 1512, after another of Italy’s persistent small wars, and with Papal politics underwriting them, the Medici’s regained control of Florence, and Machiavelli’s career in public service came to an abrupt end. But before the tedium of exile came a short interlude (that probably seemed very long) of imprisonment and torture.

After his expulsion, Machiavelli turned to writing and very soon (1513) produced the book for which he is best known, Il Principe, or The Prince. A large number of other political books followed, along with dramatic and historical works. After another 14 years of working his land and writing in the evenings, Machiavelli died, at the age of 58, in 1527.

His name and his work, however, persist 500 years on. I wonder how many of our contemporary thinkers on politics and leadership will achieve that.

Themes from The Prince that Touch on Modern Management

I’m not the first to think of this idea. In an out-of-print book called Management and Machiavelli, Anthony Jay examines just this. Let’s look at three areas where Machiavelli’s writing offers us some food for thought.

I am not, by the way, inclined to think he necessarily offers us the ‘right’ answers. After all, although he did not use the phrase ‘the end justifies the means’, he is very much associated with that level of political pragmatism. And we all know where that can lead in the wrong hands.

And finally, before I kick off onto three themes, I want to emphasise that Machiavelli’s conception of a ‘Prince’ is not one of a royal personage, with hereditary rulership rights. Instead,  it is one of a modern ruler who takes their place by election or power; rather like the modern day rulers of our corporations.

Personal Leadership

Above all, Machiavelli believed that skillful leadership is crucial for any endeavour to thrive. And yes, he does suggest that if you can’t have both, it is better to be feared than loved. But he also plays down the importance of luck and knowledge. He says it is often easy to gain power, but harder to hold onto it, and for that you need to be shrewd. Political acumen is still very much an essential part of managerial leadership.

But he also emphasises the importance of a well organised and well-practised team, so for him a shrewd organiser will trump a charismatic leader or a technocrat any day.

Corporate Structure

This is not to say that he didn’t see a role for technocrats. He was, after all, one of them himself. In the debate, still very current, between centralisation and decentralisation, he sees a need for skilled bureaucrats to go into the parts, and run them quasi-autonomously, because of the communication challenges the late mediaeval rulers faced.

However, there are limits to this quasi-atonomy. Machiavelli favoured bureaucratic structures where place-men run components of the distant territories, over federal structures of self governing territories. In the latter, he sees too much scope for these small leaders to build a power base and overthrow the overall ruler. In the bureaucratic structure, it is easier for the prince to exert control, and effectively divide and rule.

Two modern day examples illustrate these choices.

Berkshire Hathaway is a highly federal corporation. Each of its many divisions operates almost entirely autonomously. Its CEO and leadership team have total freedom to make the decisions they choose, to optimise their business. They can compete against one another, change direction when they need to, and need only provide the thinnest of reporting to the Berkshire Hathaway executive.

Honeywell also has a small (though nowhere near as small) centre. But its trading divisions are largely shells, served by highly technocratic functions. All the power resides with functional leads at multiple levels. Profit and Loss accountability may sit with general managers and managing directors, but their goods are designed by engineering verticals, their marketing sits with a marketing function, and cross brand sales teams sell their products.Look inside the ‘business’ that represents a go-to-market brand, and there’s little to see.

Corporate Strategy

Of course, both Berkshire Hathaway and Honeywell grew by acquisition, and Italian states grew in much the same way – but with more casualties. Machiavelli points out that subjugating a whole population is not easy. You cannot rule from afar, with the threat of oppression as your local implementation.

Instead, he tells us to swap in some of your most trusted people as key managers to replace those whom you cannot trust. Get them out of the way, and the rest of the population will fall in line, according to how well those managers meet the concerns of the populace.

And of course this leads us to every manager’s favourite quote from Machiavelli (you’ll see my own favourite next week).

‘It must be considered that there is nothing more difficult to carry out ,
nor more doubtful of success, nor more dangerous to handle, than to
initiate a new order of things.’


* We may add a few additional solo representatives to this list, from time to time, but with well over 150, we are starting to find new candidates of genuine quality thin on the ground. So we are going to turn instead to Management Pairs; thinkers and practitioners whose best work was done or is being done in collaboration. Watch out for that series to start in a couple of weeks.

Charles Handy Part 2: The Nature of Organisations

In last week’s Pocketblog, we surveyed the life of Charles Handy, and referred to some of the big ideas in his many books. Now it’s time to look at those ideas.

The Gods of Management

In Handy’s first book, Understanding Organisations, he set out to collate and understand a wide variety of management and organisational thinking. In his second, The Gods of Management, he presented his own ideas. He perceived that organisational cultures can be classified into four broad types, according to how formal their structure is, and how centralised power is, within them. He drew the analogy with the characters of four of the olympian gods, from Greek mythology. He was, after all, an Oxford classics scholar.

The Gods of Management - Charles Handy

The Gods of Management – Charles Handy

Zeus – The Club Culture

Zeus presides over a highly centralised ‘Club’ culture, where one dominant executive holds all the reigns of power, making all of the important decisions themselves. They control al the important resources and can have low acceptance of what they perceive as under-performance. This culture tends to arise under a dominant and successful founder, or with the ascendancy of a charismatic leader. Political parties, start-ups, and crime families often share this culture.

Apollo – The Roles Culture

Mature, bureaucratic organisations adopt a solid, stable, rule-based culture, where everyone has a specific role. People know what is expected of them and will rarely step beyond those boundaries. Reporting lines are well-defined and decisions follow set procedures. Job positions confer authority to make those decisions, and processes can be long-winded and inflexible. Apollo cultures struggle to adapt to a changing environment

Athena – The Task Culture

The Athena culture is a meritocracy, where ability to think and get things done is highly valued, and rewarded well. Talent is well rewarded, and teams are fluid, with people coming together to work on projects and solve problems. Authority is less important here than knowledge, expertise and the ability to influence and persuade. You can see this culture in consultancies, research organisations, and in agile business units of larger, forward thinking businesses that may be stuck with an Apollo or Zeus culture.

Dionysus – The Existential Culture

The Dionysus culture is all about me, me, me. It serves the individuals and can lead to both creative freedom and equally internal discord and unproductive competition. The organisation is little more than the home and resource for a set of self-motivated individuals who often care more about their own position than that of the organisation. Accounting and law firms are good examples, because of the partnership nature of the businesses. So too are pressure groups.

New Organisations

In his 1989 book, The Age of Unreason, Handy started to foresee some of the changes we now take for granted. As technological and commercial realities were shifting, Handy built on his earlier book, The Future of Work, to develop new models of how we would work in the future. He further developed those ideas in The Empty Raincoat, and The Elephant and the Flea. Two of the characteristics of Handy’s books are

  • That they often take management and organisation as their starting point, but then extend their ideas outwards to reflect on the impact of society
  • Each book seems to build on and develop further, the ideas of its predecessor

Here are four of the trends and ideas that most appeal to me as both relevant to our readers, and accurate as forecasts. Inevitably, they interlink into a coherent idea-set.

Portfolio Workers

Handy’s concept of a portfolio career, with lots of components, rather than one single ‘job’ is a reality for many professionals nowadays (including me). The concept of a flexible labourer able to turn his hand to anything from agricultural work to general making and mending, to selling goods at market, to working in a tavern, is ancient. What Handy foresaw (and embraced for himself) was the emergence of this lifestyle for white collar, knowledge workers.

The Shamrock Organisation

This trend will enable what Handy describes as a Shamrock Company.

The Shamrock Organisation - Charles HandyThe Shamrock Organisation - Charles Handy

The Shamrock Organisation – Charles Handy

In the The Age of Unreason, Handy originally described three leaves, but four seems to be a fuller model: the first is the professional core of managers, technocrats, vital support staff, and a minimum of specialists. Together, they define the core competence of the business, and provide and manage its infrastructure. Everything else is provided by contracted workers: outsourced services from specialist providers, contracted independent professionals with highly specialised skills, and a flexible, lower-paid  workforce that can be brought in on short contracts and day-rates.

The Federal Organisation

Berkshire Hathaway seems to me to be the epitome of Handy’s Federal Organisation. Here, there is a tiny core business, managing a large number of highly independent businesses, all of whom have complete autonomy to manage their affairs, and succeed on their own terms. When you see the success that Warren Buffett and Charlie Munger have created, you have to wonder why other large federal multinationals spend so much effort trying to control their subsidiaries, impose processes and functional verticals upon them, and generally over-manage the local talent.

The Triple-I Company

The astonishing rise of internet-based software companies, web-based news aggregators, digital information providers (increasingly, Management Pocketbooks is transitioning to becoming one of these), and the high-tech consultancies that serve them, seems to me to be ample evidence of the prescience of Handy’s third kind of new organisation: one that capitalises, above all, on:

  • Ideas
  • Intelligence
  • Information

Discontinuous Thinking

Handy foresaw our current period of discontinuous change, and suggested that incremental ‘continuous’ thinking was not going to solve the problems it throws up. He doesn’t require us all to have the genius-level intellects of Einstein or Marx, but instead implies we need to build a capacity for curiosity, reframing situations, and constant learning. It seems inevitable that, once again, Pocketblog returns to the thinking of Carol Dweck, on Growth Mindset.

Richard Branson: Virgin

Richard Branson went from academic under-performer to being the first serial entrepreneur to create eight $8 billion businesses (and many other successful ventures too). He is an adventurer, a risk taker, and a visionary. Above all, he is a business person who sees business as a means to an end or, in his case,many ends. But despite the galactic scale performance of his business mind, there are many lessons we can learn from him, that apply equally to the day-to-day business and management practices of Pocketblog readers.

Richard Branson

Short Biography

Many acres of newsprint (and Branson’s own autobiographies) have documented the life story of one of the world’s favourite entrepreneurs, so here it is in brief.

Richard Branson was born in 1950  in South London, to a comfortable professional middle-class family, which was able to send him to a privileged private school, Stowe. However, Branson was not academically strong, due to dyslexia, despite being evidently highly intelligent, so he left the education system at 16, only to return for a number of honourary degrees in later life.

His first business, so named because he and his staff felt themselves to be business virgins, was a mail order business selling records below store prices, which he set up in 1970. This allowed him to enter the high street in 1972. In the same year, he created Manor Studios where his first recording artist was Mike Oldfield. The Tubular Bells album became (and continues, 30 years later, to be) a massive seller for the new Virgin Records label.

Branson’s achievements span far more than his business ventures, but we’ll leave it to the glossy magazines to cover his record-breaking, kite-surfing, books, island buying and publicity-seeking activities, and simply list a selection from his business ventures.

1973 – Virgin Records record label
1979 – Buys the gay nightclub Heaven1983
1984 – Virgin Atlantic Airways and Virgin cargo
1985 – Virgin Holidays
1987 – Virgin Records to the United States
1987 – The Virgin Group, along with Granada, Anglia and Pearson, founds BSB (British Satellite Broadcasting)
1987 – Virgin Airship & Balloon Company.
1987 – Mates condoms
1988 – Virgin Broadcasting
1991 – Virgin Publishing (Virgin Books)
1993 – Virgin Radio
1994 – Virgin Vodka and Virgin Cola
1995 – Virgin Direct Personal Financial Services
1995 – Virgin Express (a European low cost Airline)
1996 – Virgin Brides (indeed!)
1997 – Virgin Trains
1997 – Virgin Cosmetics
1999 – Virgin Mobile
2000 – Virgin Energy
2000 – Virgin Cars
2004 – Virgin Galactic
2006 – Virgin Fuel, to produce a clean fuel in the future
2007 – Virgin Media
2008 – Virgin Healthcare
2009 – Virgin Money Giving
2010 – Virgin Racing, a Formula One team
2010 – Virgin Gaming, for people to play competitively on popular Video Games
2012 – Virgin Money buys Northern Rock
2012 – Virgin Galactic announces the development of orbital space launch system LauncherOne.

Five Management and Business Lessons from Richard Branson

Lesson 1: Have Fun

It is easy to look at a multi-billionnaire and say ‘of course he has fun; he is rich and can leave other people to run his businesses’. The fact is though, that Branson remains fully engaged with the strategic aspects of his business, and that he prioritises having fun and spending time with his family. There are plenty of comparably wealthy people who do neither. If he can make these choices, so can you.

Lesson 2: Get Things Done

To make these choices, Branson is ruthlessly efficient at making lists and getting things done. He disparages those who write off To Do lists as a waste of time and is a compulsive note-taker and list maker.

Lesson 3: Persevere and Fight Back

Branson’s ventures have often faced opposition from incumbent market leaders and sometimes political figures. Branson has deployed every form of response he can to fight off this contention and see his ventures succeed. His battles with British Airways (on behalf of Virgin Atlantic) and, more recently, with the UK Department of Transport (supporting Virgin Trains) are notable successes.

Lesson 4: Master Public Relations

Brand and public perception are a vital, and maybe central component of Branson’s business strategy. Very few of his ventures have eschewed the Virgin brand. Branson is a charismatic figure who has been adept at using his own personal brand to gain media attention, which of course has assisted in his public battles on behalf of his corporate brands.

Lesson 5: Be an inspirational leader

The central holding business of Virgin is tiny (much like Berkshire Hathaway’s) and there Branson leads, rather than bosses – recently setting highly innovative and permissive HR policies in place, which truly demonstrate exceptional levels of trust in his staff. When Virgin Atlantic won a legal case against British Airways and both he and the company received  significant sums in compensation, he distributed this to the staff as a ‘BA Bonus’.

Richard Branson in his Own Words

Here is Richard Branson speaking at TED 2007.

Warren Buffett: Oracle of Omaha

At the start of every year, many thousands (possibly millions, globally) of people look forward to some New Year reading, from the richest writer in the world. Don’t rack your brains for a best-selling multi-billionnaire novelist though: the writer is Warren Buffett, the Oracle of Omaha*.

Warren Buffett

Short Biography

Warren Buffett was born in 1930, in Omaha, Nebraska. By the age of six, he was trading in soft drinks and dreaming of becoming rich. When he was 12, his father won a seat in Congress and the family moved to Washington DC, where Buffett took on five paper rounds a day and earned the equivalent of a full time wage. He saved his money and, at 14 invested it in farmland in Nebraska, which he then rented out.

His academic career started at 17, at Wharton, but he quickly left, in search of a more practical and less theoretical education. He found it at Columbia Business School, where one of the leading thinkers in investing, Ben Graham, lectured. Graham’s ideas had a profound effect on Buffett’s investment strategies from then until now, focusing as they did on underlying value in all of its aspects.

Let’s skip lightly over the stellar performance of Buffett Partnership, Ltd – his stock investment business that managed other people’s funds, which ran from the mid 1950s to 1969. He closed it down to focus on investing through Berkshire Hathaway. At first it was a textile business that Buffett acquired in 1965.  It eventually closed all its mills in 1985, but by then it was the core of a diverse portfolio of businesses. Its shareholders profit from massive stock performance that frequently outstrips industry averages by a wide margin, generated by Buffett’s choice of outright acquisitions and stock purchases.

Once a year, at the start of the year, Buffett writes a long letter to his shareholders. It explains carefully Buffett’s assessment of the year past and the future of the business. It combines folksy humour, wry metaphor, and deep insight. It is widely read not just by investors and analysts, for whom it is a professional interest, but by folk like me, who see it as a fascinating exercise in communication, combined with a source of interesting insight.

What can we learn from Warren Buffett?

There are very many websites and articles purporting to extract lessons from one of the world’s most successful and penetrating business minds. What a surprise! But I am determined to add another, because I won’t be thinking about investing; that’s not my thing. Instead, I am going to focus on what I think day-to-day managers and business leaders can learn about doing your job well.

Keep it Simple

Buffett likes investing in simple businesses that he can fully understand. As a manager, keep it simple and don’t take on something you don’t understand. So, if you need to take on something you don’t understand, then make it your urgent business to understand it.

Character / Integrity / Reputation

They all amount to the same thing. Buffett puts an astronomical premium on these. As well as his annual letter, Buffett issues a biennial memo to the CEOs of the businesses Berkshire Hathaway owns, his ‘all stars’. These are not published but frequently leak onto the web. Here are two extracts from the most recent (December 2014), which clearly makes his point.

The top priority — trumping everything else, including profits — is that all of us continue to guard Berkshire’s reputation… As I’ve said in these memos for more than 25 years: “We can afford to lose money — even a lot of money. But we can’t afford to lose reputation — even a shred of reputation.”

Sometimes your associates will say “Everybody else is doing it.” This rationale is almost always a bad one if it is the main justification for a business action. It is totally unacceptable when evaluating a moral decision.

Select for leadership on track record, and then trust your leader

This is Buffett’s approach and it applies to any manager who appoints supervisors, or any leader who appoints managers. Experience matters – look for evidence. When you get the right person, trust them enough to give them the autonomy that will allow them to add to your leadership, rather than be subordinate to it.

Merit is all that matters

This one is simple: Buffett rejects all judgements based on gender, race, or age. So too should you. The person that has the skills and energy to excel in a role is the person for the job.

Rational decisions

Trust the numbers too. Do everything you can to understand the nature of cognitive bias. Study the facts and work hard to eliminate any other influence over your choices. You will get things wrong, just as Buffett has done on many occasions. But each time he does, he analyses it and discusses it in clear objective tones without a trace of blame for anything other than his failings in judgement. He takes away the lessons and uses them.

Trends not Headlines

Buffett rejects knee-jerk reactions to headlines and focuses on the big picture underneath them. When he is ready he makes decisions rapidly, but he won’t be hustled.

The only memo to his all stars that is on the Berkshire Hathaway website is also the most astonishing piece of business communication I have seen. Two things strike me as remarkable. The steadying calm and confidence with which it is written, and the remarkable strength that a business would need to have for its CEO to be able to say the things he does. It is a short note, so to reproduce anything valuable from it would doubtless be morally a breach of copyright even if it stayed on the right side of the law, so do have a look at it. The context may be obvious when I tell you the memo was issued on 26 September, 2001. The message from Warren Buffett is on the Berkshire Hathaway site.

Read Voraciously

Warren Buffett and his business partner, Berkshire Hathaway Vice-Chairman Charlie Munger, both set aside large chunks of their working day to read. They read all sorts of stuff and the breadth and depth of their reading gives them both profound understanding and a wide context. This commitment to learning is what you need if you are to grow in wisdom and make sound decisions more often.

Obsess over detail

There isn’t much to say about this but to note that the big picture is all very well and an appealing target for leaders’ attention, but the details are often where the differences get made. The skill, of course, is to figure out which details (see paragraph above for the best technique).

Delegate everything that is not strategic

In Buffett’s case, deciding how to invest Berkshire Hathaway’s assets is the strategic role he fills. Everything else – and in particular the operation of the Berkshire Hathaway businesses, he delegates completely. While he makes himself available to his All Stars for a conversation 24 hours a day if they need it, he does not require them to communicate with him more than once every two years. At that time, each is required to put one name in a sealed envelope and send it to him. This name is that of the most suitable successor, should the business CEO be suddenly unable to fulfil their role.

Right, that’s me done, I’m off to do the ironing. ‘Delegate it’ you say. ‘Indeed’, says my wife!

 


* Although Buffett is also known as the Sage of Omaha and the Wizard of Omaha, Oracle is the term he himself favours.

 

The Oracle of Omaha

I have been reading a remarkable and unusual book about a remarkable and unusual business, and learning some remarkable – and sometimes unusual – things.

Warren Buffett speaking to a group of students from the Kansas University School of Business - Work of Mark Hirschey

The business is one of the most impressive in the world – often described as the best business to work for – and it is run by Warren Buffett, a man for whom ego plays no part at all in his business life or management style.  Yet this is also a man who sits atop a company with over 250,000 employees, assets of nearly $400 billion, and an annual net income of over $10 billion.  That company is Berkshire Hathaway.

 

The Remarkable Book

The remarkable and unusual book I have been reading is called “The Warren Buffett CEO” by Robert P Miles and it is remarkable as a tribute to a great manager, because it is primarily not about Buffett.  It is about the great CEOs he hires.

The extent to which it is about Buffett is that it demonstrates how his careful selection of CEO – based almost entirely on character, rather than credentials, resumes or recommendations – and then his ability to leave them alone to run their businesses makes him “”the best boss in the world”.  Of course, he doesn’t abandon them: he is available any time for a phone conversation and many of them take the opportunity, because they learn from him whenever they do.

Many, Many Remarkable Managers

The book is actually about the stories, personalities and management styles of a selection of Buffett’s CEOs: his “All Stars”.  There is much to learn from these men and women (mostly middle aged men, it must be observed).  Each chapter focuses on one or two of them and each ends with a short selection of their business tenets.

I’d like to share some of my favourites.

Warren Buffett CEO Management Tenets

‘Go out of your way to help your managers.
Stan Lipsey

‘Success in any field can be achieved by staying disciplined.’
Al Ueltschi

‘Mandatory retirement is not a policy I endorse.  As long as someone is healthy and interested in working, he or she should stay on the job.  The intelligence and experience of older people can be a tremendous asset.’
Chuck Higgins – in 2001

‘Try to get along with everyone.  Having a positive attitude affects the people around you.’
Susan Jacques

‘Honesty and integrity should govern all your business decisions.’
Harold Melton

‘View your staff as if they were family.’
Irvin Blumkin

‘If you’re on the fence about a particular deal, then you probably should decline and move on to the next opportunity.’
Ajit Jain

And finally, I think more big businesses should think like this: it’s a paragraph in a letter Buffett wrote to the CEOs of the Berkshire Hathaway businesses.

‘We can afford to lose money – even a lot of money.  We cannot afford to lose reputation – even a shred of reputation.’

or, as Othello says:

‘Good name in man and woman, dear my lord,
Is the immediate jewel of their souls.’

These are only a tiny sampling from a magnificent book.
Do find yourself a copy.