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Warren Buffett’s Leadership in Berkshire Hathaway Essay

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Updated: Jul 23rd, 2020

Introduction

It is known to everyone that the success of a company depends in a major part on the personality and qualities of its leader. It is hard to find a better example of this notion than Berkshire Hathaway. Being one step from a complete collapse in the early 60-s, the company was put under the leadership of Warren Buffett, who turned it into a powerful international corporation, earning himself a reputation of a wise, knowledgeable and skilful headman. Warren Buffett is considered one of the most successful investors of our time. His sayings are quoted worldwide, scholars write his biographies and analyse his achievements in articles, random interested fellows discuss his personality traits on internet forums.

In this paper, Warren Buffett’s leadership is evaluated, and the most important constituents of leadership are checked. The following points have been included int the present work: Buffett’s leadership skills; the mode of interaction with followers; the use of power and influence; the ethics, values and attitudes that he promotes; personality traits; his behaviour as a leader; his impact on the motivation, satisfaction and performance of the employees; the way, in which he affects team effectiveness; Buffett’s influence on organizational change. The analysis is conducted within the appropriate business context after the examination of the history, structure, and organizational culture of Berkshire Hathaway.

Business Context

Berkshire Hathaway Inc. is a major American conglomerate holding company that operates subsidiaries from various fields of industry. The organization performs insurance activities on a primary basis, as well as on a reinsurance basis, of property, life, casualty risks, and health risks all over the world. The insurance and reinsurance activities are implemented through multiple entities based in various countries of the world (Reuters 2015). Berkshire Hathaway is also engaged in such business activities as freight rail transportations and energy and utility generation and distribution. Berkshire Hathaway occupies fifth place in Forbes’s list of largest public companies (Chen 2015).

The organization was founded by Horatio Hathaway in 1888 under the name The Hathaway Manufacturing Company and was occupied by milling cotton. The company was profitable until after World War I when cotton industry was at a crisis. Seabury Stanton, who was operating the company at that time, had to put his own money to keep it running. The next peak of success was after the Great Depression. In the early 1950-s, Hathaway was united with Berkshire Fine Spinning Associates Inc, a large milling company. However, by the end of the decade the company faced a serious decline (Cunningham 2014).

Warren Buffett started acquiring the company’s shares in 1962. Having become the owner of a considerable part of Berkshire Hathaway, Buffett was selected Chairman of the executive committee. As he assumed leader’s responsibilities, Berkshire Hathaway remained in the textile business but also became an investment tool. At first, Buffett preserved the textile sector to prevent job losses and keep profits. By 1986, textile business was no longer profitable, so Buffett removed this sector.

Under Buffett, the company started to provide insurance services. Wise leader as he is, Buffett realised that insurance business allows a company to dispose with large sums of money that can be invested. Additionally, he understood that insurance activities create a strong reputation for a company, which makes partners trust this company as an investor (Cunningham 2014).

Warren Buffett is currently the CEO of Berkshire Hathaway. The company now consists of the following segments. The GEICO segment involves the company’s subsidiaries, i.e. eight insurance companies. The General Re segment includes General Re Corporation. Its subsidiaries provide insurance services around the world. Berkshire Hathaway Reinsurance Group consists of multiple subsidiaries that provide quota-share reinsurance and excess reinsurance. Berkshire Hathaway Primary Group includes independent insurance operations providing coverage to American policy holders. The BNSF segment manages railroad systems.

Berkshire Hathaway Energy consists of a company with the same name that generates, supplies and stores energy. The McLane and Co segment includes the company with the same name that distributes groceries and non-food production over the USA. The Manufacturing segment consists of the entities that produce industrial and end-user production, building production and apparel (Reuters 2015). The service and retailing sector includes multiple companies that belong to the spheres of aviation, electronic products and retail. The segment of Finance and financial products include several companies that provide transporting and financial services (Cunningham 2014).

Berkshire Hathaway promotes good corporate citizenship. Many subsidiaries of the company share the practice common among global companies, i.e. issuing the statements on social responsibility and sustainability, as well as corporate reports on the treatment of stakeholders. In addition, Berkshire Hathaway promotes the responsible treatment of the environment. The company has a family-like organizational culture. It is composed of companies rather than of stock. Such features allow the organization to absorb different businesses.

Evaluating Warren Buffer as a leader

In this paper, the leadership of Warren Buffett will be assessed by the following positions: his leadership skills; the way he interacts with followers; power and influence; ethics, values and attitudes; personality; behaviour; impact on motivation, satisfaction and performance; impact on team effectiveness; impact on organizational change.

Leadership skills

As a successful leader, Warren Buffett possesses basic necessary skills. He has certainly learned from his experience: Buffett has literally been in business since childhood, he managed to grasp how business relationship work and developed his own “double-barreled” approach (Labitan 2012, p. 269). He has mastered communication and listening, which is the key to effective leadership; it can be seen in his letters to shareholders (Nicholas 2011).

Buffett is also considered an assertive leader. He succeeded to become one despite his introverted personality. Such an important skill as technical competence is also developed by Buffett: he is an expert in his job, and he establishes clear goals for the organization. Before becoming a CEO, he was noted for building effective relationship with his superiors; for instance, he successfully operated with the former president of Berkshire Hathaway. He is currently enjoying effective collaboration with the directors of the segments of the company. Finally, Buffett has built a strong reputation for himself, as well as for the company; it is known that credibility is a significant part of leadership (Liberman 2015).

Interaction with followers

Buffett has a significant effect on his followers, promoting the enterpreneurial spirit. As a competent and industrious person, he provides his subordinates with an inspirational role model. He has chosen to let his followers assume more responsibility, placing high requirements in return. Buffett has employed the laissez-faire style of interaction with followers. He trusts their competency and relies on the quality of their work (Stern 2010).

As Buffett has once confessed, he and Charlie Munger, the vice president of Berkshire Hathaway, treat managers and employees in such a way as they would want to be treated if the roles were reversed (McGregor 2015, para. 10). Buffett does not hesitate to acknowledge his own mistakes and recognize it when his followers do better than himself. Such a style of interaction with followers ensures their development as competent specialists and future leaders, as well as it contributes to their work commitment. Even though Buffett’s followers vary in competencies as the company embraces industries of various fields, he managed to work out an effective interaction model.

Power and influence

One of the reasons why Warren Buffett can be considered a wise and successful leader is his use of power. As a leader, Buffett relies primarily on two bases of power: expert power, i.e. his power as a competent, knowledgeable and skilled person with rich experience, and referent power, i.e. his power as a trusted headman, who has loyal and friendly relationships with his subordinates. Using these bases of power, Buffett does not have to rely on such power bases as reward, legitimacy or punishment. Not only that, but he also promotes the same application of power throughout all the levels of leadership in his company. As for the influence tactics, Buffett uses rational persuasion, i.e. presents factual information on the state of business affairs to influence the mind and decisions of his followers, and inspirational appeals, i.e. encourages them emotionally with his own example and promotes enthusiasm towards the company’s cause (Liberman 2015).

Ethics, values and attitudes

Warren Buffett has developed trust in his followers through his vision, around which he unites his subordinates, his empathy, i.e. his willingness to understand how the followers comprehend the world, his consistency in business world, and his commitment to the company’s values. Buffett holds an optimistic view of human nature, believing that people are inherently good and possess enough self-control and talents to do well, provided that they are assigned clear tasks. Buffett has not been heard to justify unethical behaviour or allow any biases to influence his judgement. As an ethical leader, Buffett presents the following requirements to his employees.

First, they should care for the company’s reputation more than for its money. Second, they should always be aware of the far-reaching consequences of their actions. Finally, Buffett considers transparency a significant value for the contemporary society. He believes that it is an ethical duty of major companies to provide public access to their information (Nicholas 2011).

Personality

Buffett possesses the following traits that are highly essential for a business leader. He is able to restrain his impulses when an objective seems easy. He is conscientious and admits his mistakes. Buffett constantly thinks about future and calculates possible outcomes. He weighs his chances carefully and does not allow ambitions to make him overestimate his abilities. Buffett has demonstrated his independent thinking, modesty and a high level of morals. As a leader, Buffett does not have the traits that undermine good leadership, also known as the dark side of personality.

He does not present an unclear vision or goals to his followers, is able to win follower loyalty, build strong teams, meet business objectives and adapt to changing environment. The analysis of Buffet’s personality proves that he has high levels of analytical intelligence, practical and creative intelligence, as well as emotional intelligence, which makes him a remarkable leader and a good role model for his followers (Liberman 2015).

Behaviour

An analysis of Warren Buffett’s leadership behaviour supports the notion that he can be considered a good leader as well. As a leader, Buffett presents the following patterns of behaviour. He inspires and motivates his followers, maintaining their energy and enthusiasm on a high level. He strives for strong results and makes his followers focused on them. He provides his team with a clear sense of direction, thus establishing a strategic objective.

Buffett works in close collaboration with his team. He trusts and openly demonstrates his trust to the employees. Additionally, he is open and honest with subordinates. Not only does he keep developing his own personality and skills, but he also helps others on their way of improvement. Buffett is brave enough to not shy away from conflicts, and he resolves them according to his ethical beliefs. While building relationships with his employees, Buffett is concentrated on keeping the high level of organizational commitment and employee satisfaction (Liberman 2015).

Impact on motivation, satisfaction and performance

Throughout his career, Warren Buffett has demonstrated a clear understanding of the forces that shape the motivation, satisfaction and performance of the employees, as well as he learned how to command these forces. As it was already mentioned, Buffett possesses the necessary leadership traits, and his behaviour is likely to have a positive impact on the employees. In addition to this, Buffett knows how to appoint people to the positions that are suitable for them and assign tasks that correspond with the employees’ talents, interests, and ability.

Such actions are known to boost the motivation, satisfaction, and performance since when a person is given appropriate tasks, they are happier to do it and more likely to perform well than when a task is not suitable. Buffett’s being ethical and credible contributes to the positive tendency. Therefore, Buffett contributes to employee satisfaction in terms of leadership and helps improve the motivation and performance (Liberman 2015).

Impact on team effectiveness

The leadership style employed by Warren Buffett, which the author of this paper believes to be charismatic leadership, has been proven to have a positive effect on team cohesiveness and, therefore, the overall effectiveness of a team (Wang et al. 2005).

The clarity of the mission established by Buffett contributes to team effectiveness. Buffett is acquainted with the abilities and talents of each team member, which helps him to allocate tasks properly, thus increasing the effectiveness of the team. The friendly relationship, which Buffett maintains with his subordinates, as well as his well-known talent for planning also help to boost team effectiveness, as well as to reduce the conflict level. In addition, Buffett’s laissez-faire management style gives higher responsibility and more freedom in decision-making to the team members, which makes the team more effective. Buffett believes that the more autonomy people are given, the better they do their job, and the success of Berkshire Hathaway definitely proves him right (Stern 2010).

Impact on organizational change

The history of Berkshire Hathaway is a sufficient demonstration of the fact that Warren Buffett is highly capable of organizational change. Having found the company in a state of a decline, engaged in an industry that was no longer profitable, Buffett employed the strategy of gradual but inevitable change and turned Berkshire Hathaway into a major global company involved in diverse industry sectors (Cunningham 2014).

As a charismatic leader, Buffett promotes change among his followers. Having earned a positive reputation, Buffett achieved the trust and respect of his followers, which makes it more likely that they would support any change measures undertaken by their leader. In addition, Buffett’s reputation can ensure that customers would not be alienated or worried by any change processes if they are started at Berkshire Hathaway. As it was already mentioned, Buffett is good at strategic planning, which contributes to the effectiveness of organizational change and ensures that it would be planned well.

Discussion

Having evaluated the leadership qualities of Warren Buffett, I came to a conclusion that he can be named a remarkable leader and a worthy example for anyone, who is approaching the start of their way to leadership. As a future leader, I consider borrowing his laissez-faire management style, for I do agree with Buffett, the more autonomy subordinates are given, the better chance they have to perform well. However, to my opinion, charismatic leadership style is a product of earlier times, and for the conditions of the present day, transformational leadership is more suitable. As a leader, I would employ transformational leadership style rather than charismatic one as Warren Buffett does.

Conclusion

In the present paper, the leadership qualities of Warren Buffett, the CEO of Berkshire Hathaway, were evaluated and checked by the following points: leadership skills, the way of interaction with followers, the use of power and influence, ethics, values and attitudes, personality traits, leadership behaviour, the impact on the motivation, satisfaction and performance of the employees, the impact on team effectiveness, and the influence on organizational change. Having studied the business context of the problem, I can conclude that Warren Buffett is an example of a successful leader, and he can be a worthy role model for future leaders.

Reference List

Chen, L 2015, ‘’, Forbes. Web.

Cunningham, LA 2014, Berkshire beyond Buffett: The enduring value of values, Columbia University Press, New York City, New York. Web.

Labitan, B 2012, Moats: The competitive advantages of Buffett and Munger businesses, Lulu, Raleigh, North Carolina. Web.

Liberman, N 2015, Being Warren Buffett: Life lessons from a cheerful billionaire, Hardy Grant Books, London, UK. Web.

McGregor, J 2015, ‘The leadership wisdom of Warren Buffett’, Washington Post. Web.

Nicholas, L 2011, ‘An ethical wake-up call from Warren Buffett’, Business Finance. Web.

Reuters 2015, . Web.

Stern, G 2010, ‘Why Warren Buffett’s laissez-faire management style works’, Investor’s Business Daily. Web.

Wang, E, Chou, H., & Juang, J 2005, ‘The impacts of charismatic leadership style on team cohesiveness’, International Journal of Project Management, vol. 23, no. 1, pp. 173-180.

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IvyPanda. 2020. "Warren Buffett's Leadership in Berkshire Hathaway." July 23, 2020. https://ivypanda.com/essays/warren-buffetts-leadership-in-berkshire-hathaway/.

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IvyPanda. (2020) 'Warren Buffett's Leadership in Berkshire Hathaway'. 23 July.

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