As usual, some wise words from Warren Buffett in a memo sent to his senior managers last year. We’ve underlined one sentence we think sums up a (the?) critical requirement of anybody trying to lead their organisation, team etc.
To: Berkshire Hathaway Managers (“The All-Stars”)
cc: Berkshire Directors
From: Warren E. Buffett
Date: July 26 2010
This is my biennial letter to re-emphasize Berkshire’s top priority and to get your help on succession planning (yours, not mine!).The priority is that all of us continue to zealously guard Berkshire’s reputation. We can’t be perfect but we can try to be. 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.”
We must continue to measure every act against not only what is legal but also what we would be happy to have written about on the front page of a national newspaper in an article written by an unfriendly but intelligent reporter. 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 amoral decision. Whenever somebody offers that phrase as a rationale, in effect they are saying that they can’t come up with a good reason. If anyone gives this explanation, tell them to try using it with a reporter or a judge and see how far it gets them. If you see anything whose propriety or legality causes you to hesitate, be sure to give me a call.
However, it’s very likely that if a given course of action evokes such hesitation, it’s too close to the line and should be abandoned.
There’s plenty of money to be made in the center of the court. If it’s questionable whether some action is close to the line, just assume it is outside and forget it. As a corollary, let me know promptly if there’s any significant bad news. I can handle bad news but I don’t like to deal with it after it has festered for a while. A reluctance to face up immediately to bad news is what turned a problem at Salomon from one that could that could have easily been disposed of into one that almost caused the demise of a firm with 8,000 employees.
Somebody is doing something today at Berkshire that you and I would be unhappy about if we knew of it. That’s inevitable: We now employ more than 250,000 people and the chances of that number getting through the day without any bad behaviour occurring is nil. But we can have a huge effect in minimizing such activities by jumping on anything immediately when there is the slightest odor of impropriety.
Your attitude on such matters, expressed by behaviour as well as words, will be the most important factor in how the culture of your business develops. Culture, more than rule books, determine show an organization behaves. [our underlining ]
In other respects, talk to me about what is going on as little or as much as you wish. Each of you does a first-class job of running your operation with your own individual style and you don’t need me to help. The only items you need to clear with me are any changes in post-retirement benefits and any unusually large capital expenditures or acquisitions.
* * * * * * * * * * * *
I need your help in respect to the question of succession. I’m not looking for any of you to retire and I hope you all live to 100. (In Charlie’s case, 110.) But just in case you don’t, please send me a letter (at home if you wish) giving your recommendation as who should take over tomorrow if you should become incapacitated overnight. These letters will be seen by no one but me unless I’m no longer CEO, in which case my successor will need the information. Please summarize the strengths and weaknesses of your primary candidate as well as any possible alternates you may wish to include. Most of you have participated in this in the past and others have offered your ideas verbally. However, it’s important to me to get a periodic update, and now that we have added so many businesses, I need to have your thoughts in writing rather than trying to carry them around in my memory. Of course, there are a few operations that are run by two or more of you – such as the Blumkins, the Merschmans, the pair at Applied Underwriters, etc. – and in these cases, just forget about this item. Your note can be short, informal, handwritten, etc. Just mark it “Personal for Warren.”
Thanks for your help on all of this. And thanks for the way you run your businesses. You make my job easy.
P.S. Another minor request: Please turn down all proposals for me to speak, make contributions, intercede with the Gates Foundation, etc. Sometimes these requests for you to act as intermediary will be accompanied by “It can’t hurt to ask.” It will be easier for both of us if you just say “no.” As an added favour, don’t suggest that they instead write or call me. Multiply 76 businesses by the periodic “I think he’ll be interested in this one” and you can understand why it is better to say no firmly and immediately.
UPDATE MAY 2011