If Warren Buffett were the chief of staff of the Army, we
likely would be better off, with a military that is more effective in combat,
and also with a better selection of leaders. That's the thought that occurred to
me while reading his
latest annual report. You can learn a lot about how to run a large
organization from a guy like Buffett.
First of all, Buffett, the chairman of Berkshire Hathaway
Inc., didn't follow a "zero defects" philosophy during the course of investing
his way to becoming one of the richest people in the country. Unlike some Army
leaders, he knows that if you aren't making some mistakes, then you aren't
trying hard enough. Punishing all errors simply will deter subordinate leaders
from taking necessary risks, or even making timely decisions. You want prudent
risk taking and you want it done as fast as possible. Time is the great
variable in both investing and war, but that isn't acknowledged often enough in
the military strategic discussions. Buffett writes that,
We would
rather suffer the visible costs of a few bad decisions than incur the many
invisible costs that come from decisions made too slowly -- or not at all -- because of a stifling bureaucracy."
That said, he is quick to go on to describe what he sees as
his role in risk taking and other leadership tasks: He and his deputy, he
writes, "limit ourselves to allocating capital, controlling enterprise risk,
choosing managers, and setting their compensation." In military terms, I think
that would mean allocating resources and people, deciding where to take
strategic risks, and selecting subordinate commanders. Everything else? That
stuff "we delegate almost to the point of abdication," he states in his
management principles, printed later in the same annual report. Buffett is so
serious about limiting himself that in a company with 257,000 employees, his
headquarters office numbers just 21. (This is an approach that reminds me of
William Slim, the greatest British general of World War II, who insisted that
his corps headquarters be able to travel in just a few trucks and jeeps.) Of
course, as Buffett notes, he has to be more careful than most to keep his
subordinates happy, because they tend to be wealthy people who can walk if they
feel micro-managed or mistreated.
A significant part of discouraging a "zero defects"
mentality is leading the way in confessing your own mistakes, which Buffett is
quick to do. He notes that the chiefs of
GEICO (yeah, he owns that too) opposed his idea of issuing credit cards
to the insurance company's customers, a project that ultimately lost about $50
million.
GEICO's
managers ... were never enthusiastic about my idea. They warned me that instead of getting the cream of
GEICO's customers we would get the -- well, let's call it the non-cream. I subtly indicated that I was older and wiser.
I was just
older."
Despite his willingness to see mistakes made, Buffett, whose
company is bigger than the Marine Corps, is a big believer in accountability. I
believe we need more of this in our military, which used to relieve senior commanders
quickly (such as 17 division commanders in World War II), but no longer does.
In all walks of life, if you screw up big time, you should suffer the
consequences. For what it is worth, I agree with him -- too often we have
privatized profit and socialized risk, letting the taxpayer pick up the tab when
Wall Street's bets go wrong.
This is how he puts it:
If Berkshire
ever gets in trouble, it will be my fault. It will not be because of misjudgments made by a Risk
Committee or a Chief Risk Officer.
In my view a
board of directors of a huge financial institution is derelict if it does not insist that its CEO bear full
responsibility for risk control. If
he's incapable of handling that job, he should look for other employment. And if he fails at it -- with the government
thereupon required to step in
with funds or guarantees -- the financial consequences
for him and his board should be severe. ...
The CEOs and
directors of the failed companies, however, have largely gone unscathed. Their fortunes may have been diminished
by the disasters they oversaw, but they
still live in grand style."
Unlike many in the military, Buffett also writes clearly and
simply, and as George Orwell
teaches us, clear writing reflects clear thinking.
Finally, lots of people talk nowadays about how military
officers need to thrive on chaos or be comfortable with ambiguity. If you can
do that, you can seize on opportunities when they arise. Buffett thrives on
turmoil. Listen to the master discuss how he did that during the financial
crisis of a couple of years ago, when many people ran for the hills:
We've put a
lot of money to work during the chaos of the last two years. It's been an ideal period for investors: A climate of fear
is their best friend."
He isn't kidding. He explains that:
When the
financial system went into cardiac arrest in September 2008, Berkshire was a supplier of liquidity and capital to the
system, not a supplicant. At the
very peak of the crisis, we poured $15.5 billion into a business world that could otherwise look only to the federal
government for help."
In
other words, he spent billions on his belief that it was a good time to buy,
and so picked up big parts of major companies for a relative pittance. Or, as
he summarizes his thinking about that crisis, "When it's raining gold, reach
for a bucket, not a thimble."
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