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Warren Buffett’s Leadership Style in Business Research Paper

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Updated: Jun 15th, 2020

Abstract

Success of a leader depends on many factors. Business experts from all around the world explore various theories of leadership and recognize various leadership styles. The most famous and brilliant leaders of the business world have achieved their success practicing absolutely different kinds of management. The style of leadership varies from a person to a person and is affected by the circumstances the leader has to work in, their personality and character, the kind of organization they manage and the kind of people they hire. This paper examined leadership style of an outstanding business leader whose name is Warren Buffett. This man has changed the world’s idea about leadership in business; this is why his style is of high interest for many experts.

Introduction

The keys to successful leadership have been debated about ever since the ancient times. Well known thinkers such as Plato, Socrates and Aristotle discussed what makes a great leader, if being outstanding is something people are born with or if it is something they can learn to be. Today the issues of leadership in the business world are researched from various perspectives. Many experts came up with different theories about the styles of leadership, the qualities and skills necessary for a good leader, the kinds of behavior and thinking that can be useful for them. The most popular and professional business schools are focused on training specialists for work in the sphere of business and take over leading positions, be prepared to organize the employees and handle responsibilities. Having knowledge of all the theoretical approaches to the duties and tasks of a successful leader is, without a doubt, very important. At the same time, observing the work of practicing world renowned business leaders can be even more useful because it provides the observer with special insights, original approaches and unique strategies that have never been documented because they appear as products of the professional experience, extraordinary personality and special circumstances the leader had to work with. Such observations are truly priceless, this is why the leadership styles, strategies and techniques of well known business practitioners are carefully followed and examined these days. This paper is focused on leadership style one of the most famous business leaders if the present days Warren Buffett in order to research his special approaches and the basic factors of his success.

Warren Buffett’s Success

The management genius of Warren Buffett is known all around the world. This man is famous for his easy attitude and down to earth personality, but at the same time he is the second richest American and is the number four in the list of the wealthiest people of the world. According to last year’s data, Warren Buffett is worth fifty three and a half billion dollars, and he earned his entire capital by himself practicing his very special management style and investment strategy. Among the other well known business men of the world, Warren Buffett is known for his authenticity and unusual approach towards money and earning. His management and leadership style is one of the rarest ones practiced on the contemporary business arena. Various experts and professional of theory of business constantly keep an eye on his decision making process, the development of his capital. Basically, every professional move and every word of this outstanding business man is carefully followed by thousands of people all around the world. The business theorists are trying to understand the key to Warren Buffett’s unbelievable success that looks very much like the famous American dream.

The experts are arguing about the sources of power and influence Warren Buffett employs, the factors that make him so successful and so sensitive towards the potential ways of development of his business, the most appropriate and profitable areas for investment. Many say that he possesses almost supernatural ability of determining potentially successful companies, others state that Warren Buffett’s decisions are mainly based on mathematical calculations and logical solutions. At the same time, if there was a formula to this kind of success, it would definitely be used by many people, which is not the case. Warren Buffett remains an extraordinary and legendary personality of the present days, whose success and flawless management style are admired all over the world.

Leadership

One of the most outstanding features about Warren Buffett is the kind of leadership style he is practicing. This style is called Laissez-faire. Mister Buffett is one of the few business makers that employ this approach, as it is extremely risky. The term “Laissez-faire” came from French and was initially used in reference to mercantilism. In the spheres of politics and economics Laissez-faire was a definition of the kind of system that in no controlled by the government (Goodnight, 2004). Basically, Laissez-faire system does not allow any interference from the side of the leader. This is why this management style is also known as “hands off” approach, where the leader does not play the role of the big boss, but of a mentor for the employees. Laissez-faire leader allows the workers have freedom for their creativity and make decisions on their own. It goes without saying that this type of leadership is considered one of the most risky and dangerous ways of managing a company. First of all, the leader freeing their employees from all forms of control puts themselves under a constant threat of losing the whole business due to a mistake of some manager. Besides, the inability to monitor the working process often leaves the leader without an opportunity to predict or project possible obstacles their business would face in the future. Finally, very few leaders are emotionally able to let go and stop interfering with their business.

Most of the well known business makers such as Donald Trump, Steve Jobs or Bill Gates are known for practicing the opposite behavior, being all the time among the employees, tutoring and training them, directing them, criticizing, planning and evaluating. According to Warren Buffett’s idea, people’s working process is much more successful when they are not restricted by their boss constantly looking over their shoulder, watching their performance and checking the quality of their work. The leaders that practice this style of management provide only resources requested by their employees; they do not offer much guidance and leave the freedom of decision making to the workers (Laissez-Faire Leadership and Warren Buffett, 2014). This style is successful very rarely, only in the cases when the employees are highly professional, can work independently and have good motivation to develop the business. Obviously, Warren Buffet knows how to select the workers of this exact type. Warren Buffett believes that looking over the shoulder of his professional would affect their performance in a negative way, this is why he prefers giving them autonomy and freedom (Stern, n. d.). The character trait that makes Buffett successful practicing his risky management style is his sensitivity and knowledge of people.

Investment

This trait is also the one Warren Buffett relies on in his investments. He once mentioned that eighty five per cent of his investment strategy is based on the strategy of Benjamin Graham, who introduced the world to the idea of the underlying fair value of a business, which comes for the stock’s earning power and is called intrinsic value. In order to organize his investment strategy and make it productive Warren Buffet has created his twelve important tenets that help him make with the decision making (Harper, 2014). These rules may seem very simple and obvious, but in reality, they are very hard to put into practice. Buffett’s approach towards investment is very traditional, but at the same time it is flexible and open for changes and adjustments. His investment strategy is not dogmatic, even though it has very clear set of rules. The investor’s approach is reflective and adaptive. One of Buffett’s basic twelve tenets says that “it is better to buy a wonderful company at a fair price than a fair company at a wonderful price” (Buffett, 1989). The investor never felt wrong to limit himself only to the kinds of companies and businesses he could fully comprehend. He chooses the businesses with evident intrinsic value, which can be evaluated notwithstanding the current success of the company. This policy has been working for Warren Buffett very well for decades. At the moment his investing company called Berkshire Hathaway is the owner of some of the most renowned American firms such as Heinz, Dairy Queen, GEICO and Fruit of the Loom.

The reason why he chooses to purchase only the most candid and open types of companies is because it is easy to run them through his hands off style of leadership. Warren Buffett allows his employees to have autonomy partly because he believes that it creates better atmosphere at the workplace, but partly because many of his businesses are fairly easy to run. Moreover, one of the important criteria of a business that attract Warren Buffets interest is stability and absence of change. The best trait of profitability, according to mister Buffett, is that it cannot be affected by change in the society or new technologies such as Internet, for example. The experts have developed a special sphere of knowledge called Buffettology, which states that if one learns the way of thinking of this great leader, they may be able to invest like Buffett and increase their wealth. One of the main principles misted Buffett relies on when investing is to never be interested in “hot” companies or popular businesses. He notes that his investment strategy is much less risky because it does not depend on the sudden falls of the stock market as much. Warren Buffett’s success is based on his choice of stable and efficient businesses, gradually developing and having long-temp perspectives.

Conclusion

Mister Warren Buffer is one of the wealthiest men alive and a person who has changed the world’s understanding of stock market and investment. While other business makers threw themselves into the stressful and changeable sphere of stocks, Buffett relied on his understanding of investment as a long term process and kept calmly and gradually accumulating his capital. Warren Buffet had his share of losses and mistakes, from which he learnt and shaped his investment strategy and leadership style. The history of his success and steady pace development attracts attention of tens of thousands of people and is studied by various professionals calling themselves Buffettologists. According to the conclusions these experts came to over time, Warren Buffett’s business strategy is based on confidence and patience, this investor’s idea of working with stock markets is not related to quick reactions and a lot of risk, he never sticks to the “hot” sector of the market, he does not hope to earn a fortune within minutes. He buys stable companies and employs Laissez-faire style of leadership there in order to let them develop autonomously under his minor guidance. Stability is the main key to his success; Warren Buffett does not appreciate rapid changes and does not rely on sudden rises of the stock market sectors because they normally come together with sudden falls and loss of income. This strategy made miser Buffett one of the wealthiest people of the world, who could easily take over the first place in the list of the richest business makers, but a large part of his revenue is directed to charity. Warren Buffett’s not money hungry nature allows him to be an extraordinarily prosperous man and at the same time help thousands of people in need. This man’s exceptional generosity, sensitivity and human approach to business makes him very different from most of the business men today.

Reference List

Buffett, W. (1989). . Web.

Goodnight, R. (2011). Laissez-Faire Leadership. Thousand Oaks, CA: Sage Publications.

Harper, D. (2014). What Is Warren Buffett’s Investing Style? Web.

. (2014). PennState. Web.

Stern, G. M. (n. d.). Why Warren Buffett’s Laissez-Faire Management Style Works. Web.

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