What makes Buffett-led Berkshire Hathaway ‘very distinctive in corporate America’: Management expert
The rise of remote work amid COVID-19 prompted a reckoning over the promise and peril of the decentralized workplace, including a McKinsey & Company report last May that heralded the shift toward agile companies that "depend less on top-down, command-and-control decision making."
Billionaire investing legend Warren Buffett has put that type of management culture into action at Berkshire Hathaway (BRK-A, BRK-B) for decades, says George Washington University Corporate Governance Professor Lawrence Cunningham, who has written several books on Berkshire Hathaway and corporate governance.
In a new interview, Cunningham told Yahoo Finance that the "Berkshire magic" stems from the decentralized, hands-off relationship between Buffett and the company's other stakeholders, especially its subsidiary businesses and investors. The approach sets Berkshire Hathaway apart from many of its peers in corporate America, Cunningham said.
"The Berkshire magic is that the trust-based culture actually delivers better performance than the control-based culture," he says. "It's contrary to conventional thinking and practice in corporate America."
"That filters out into every other aspect of the business to including the shareholder relationship, the way the board operates," he adds. "Even this [shareholder] meeting, it's a real trust-based culture that dozens of other companies have emulated."
In February, Buffett vowed to treat every investor in Berkshire Hathaway "as a partner," saying in his annual shareholder letter that the company remains reluctant "to court Wall Street analysts and institutional investors."
Since 1965, Buffett has built textile company Berkshire Hathaway into a giant holding company, along the way popularizing the strategy of “value investing,” which identifies stocks trading at a price lower than their book value, and patiently waits for them to rise.
Today, Berkshire Hathaway owns over 60 companies, like Geico and Dairy Queen, plus minority stakes in Apple (AAPL), Coca-Cola (KO), among others. Buffett holds a net worth of $102.8 billion, and has vowed to give away nearly all of it.
"Productive assets such as farms, real estate and, yes, business ownership produce wealth — lots of it," Buffett wrote in this year's shareholder letter. "All that’s required is the passage of time, an inner calm, ample diversification and a minimization of transactions and fees."
Executives at Berkshire Hathaway channel that investing philosophy by giving subsidiary companies time and space to make decisions and respond to their specific business environment, Cunningham said.
"Berkshire acquires the business, ideally, with good management in place, and then defers to those managers to execute on their own strategy, leaving them alone," says Cunningham, author of "Berkshire Beyond Buffett: The Enduring Value of Values."
"Which is very distinctive in corporate America, which tends to prefer a lot of directors from headquarters, a lot of internal controls and training and reporting," he adds.
The leadership style at Berkshire Hathaway owes first and foremost to the approach taken by Buffett, Cunningham said.
"Warren is not sitting at the top of some Empire, calling the shots and increasing his power over everyone else," he says. "He thinks of himself as a general partner of a partnership, who is trying to make the best decisions for the company as a whole."
Buffett, age 90, took the opportunity in this year's shareholder letter to assure investors that the company would carry on its decentralized approach to leadership after Buffett retires.
After vowing that he and Vice Chairman Charlie Munger would continue to treat shareholders as "partners," Buffett added: "And so, too, will our successors."
Read more:
