Managers of those subsidiaries are given considerable freedom to carry out their businesses. Warren Buffett is not intervening as much as he would like, because he knows better, according to him there are two kind of jobs; running the business, and running the people who do it, so managers should be given the freedom to perform. The managers earnings also depend on the performance of their subsidiary instead of the overall performance of Berkshire Hathaway, according to Warren Buffett a very important stimulus to excel at their occupation. As an associate says, 'somehow Warren has been able to keep a diverse cast of characters working harder for him than they did for themselves. I see it every day - and I still don't know how he does it'. But I do know that all of us feel this incredible responsibility to him.” Warren Buffett's ways make the managers of Berkshire Hathaway feel proud to be affiliated with the company, feel valued as human beings and feel they can communicate openly and honestly with Buffett. Berkshire Hathaway has in 34 years never lost an operating chief except to death. Even, a majority of its subsidiaries are still under control by the same managers, which shows the managers great devotion to their company and their loyalty to Warren Buffett as a person. This might be the result the good judgment of character by Warren Buffett or a great corporate culture in which everyone is pushing their limits. So what makes Warren Buffett a good leader? First of all the personality of him, which comes close to the social cognitive level15, because he puts effort in understanding and making sense of people around him, meaning that in an organization he is one that can place himself in another’s persons shoes. 

For subsidiaries and portfolio companies, Warren Buffett sees their shareholders as partners. He considers them as owner-partners and himself and other managers at Berkshire Hathaway as managing-partners. This is not just a simple way to convince shareholders and potential shareholders to invest in the company, since Warren Buffett invested 99% of his net worth in Berkshire Hathaway and Charlie Munger’s (Vice-Chairman of Berkshire Hathaway) family fortune is for more than 90% invested in the company. Furthermore relatives of Warren Buffett also considerably invested in stocks of the company. These facts show that the top-mangers of Berkshire Hathaway have a lot of long term confidence in the company, since a lot of their wealth is invested in stocks of the company, and that are not looking for some short-term return, which regularly occurs when managers are given large stock options as bonuses.

Berkshire Hathaway owns a lot of subsidiaries, but for Warren Buffett’s there is no need to intervene in every detail, he argues the following: “they were managerial stars long before they knew us, and our main contribution has been to not get in their way”. 

WARREN BUFFET’S MANEGERIAL SKILLS

After having looked for sources of success in Warren Buffett’s childhood and his earlier career, and further analyzing his successful investment principles its time to find out what kind of corporate culture is needed to manage his empire. In this part the focus will be on Warren Buffett’s managerial skills and how a management team functions optimal according to Warren Buffett. Of course one man can not run companies on his own, but needs to create management teams that will perform according a certain philosophy. This need stems from the fact that Berkshire Hathaway owns 79 subsidiaries with a total of 246,083 employees. For Warren Buffett, “managers are stewards of shareholder capital. The best managers think like owners in making business decisions.” However as economic theory predicts, manager will not always pursue the same interests as shareholders, which is reflected in the classical agent-principal problem. According to Warren Buffett it is important to select employees who are “able, honest and hard-working” Having those people in a management team is more important than “designing hierarchies and clarifying who reports to whom about what and at what times”.

In times of growth he is very optimistic and euphoric about the business opportunities so he offers very high buy-sell prices in fear that the investor will reap all his imminent gains. On the contrary, when Mr. Market is depressed he sees only the pessimistic picture and his lower expectations of future lucrative opportunities, not say that even losses are anticipated, makes him set very low prices in fear that an investor will unload his interest on him. In both cases prices deviate from the real value of a business. Moreover, Mr. Market is a partner that does not mind being ignored, meaning that transactions are fully optional and whenever an investor does not like the proposed price, he can wait until Mr. Market offers a new one in hope that it will be more suitable. Thus Mr. Market’s emotionality fully favors the investor, as long as one uses the market as a servant not as a guide. For this purpose one should be sure that one understands Mr. Market or else better not deal with him since falling into his influence can be disastrous. Buffett synthesize all that very clearly – “profit from folly rather than participate in it. Be fearful when others are greedy and greedy when others are fearful.”

INVESTING

 After digging into Warren Buffett’s early years its time to see what was inherited and adopted by him in his investment style. In this section the focus will be on Buffett’s views on the market, thus his investing principles will be discussed as well as his criteria for a business worthwhile buying. References to and comparisons with EMT and MPT mentioned in the introduction will be made when talking about his personal believes and principles.

   VIEWS ON THE MARKET

"I'd be a bum on the street with a tin cup if the markets were always efficient."

In his views on the market Buffett is influenced greatly by his friend and teacher Graham, both directly challenging the EMT and the contemporary academic teachings and market views on Wall Street. Buffett uses the same attitude towards it dealing as if the market was a business partner from where the name Mr. Market stems. According to their view Mr. Market often suffers from incurable emotional problems.

After graduating Columbia University, Buffett returned to Omaha where he had a short traineeship at his father‟s brokerage firm. During this time he didn‟t cut his contacts with Graham but on the contrary, informing him for various investments he made and discussing common topics of interest. Graham was generous with his time and thoughts and this relationship between a professor and a former student eventually brought them working under the same roof. In 1954 responding to a invitation of Graham, Warren Buffett ended up as a security analyst at Graham-Newton Corporation. These two years working side-by-side with Graham and the other analysts analyzing hundreds of companies proved decisive for the future successive investment style of Buffett.

Apart from Buffett, Graham employed several other bright youngsters coming from various fields of study and backgrounds. What unified them all was their common understanding of the value investing approach and the willingness to apply it unconditionally. Among them were Walter Schloss manager of WSJ Ltd Partners, Tom Knap, founding partner of Tweedy, Browne Partnerships, and the founder of Sequoia Fund Bill Ruane. All of them became very successful investors in their careers after the liquidation of Graham-Newman which proves the fact that the success of Buffett was not just a pure miracle but grounded to a big extent in his adopted investing methods.

The significance of Graham in Buffett‟s career and the role of a mentor he would have in future deserve a few words to be mentioned about his teachings. Benjamin Graham is known as “the father of value investing”. He stressed the importance of trading on the market as one would trade with a business partner that offers you the chance to buy you or sell you his interest on a daily basis. This imaginary partner, to whom he referred as Mr. Market, would sometimes offer fair deals but often his price would be either undervalued or overvalued given the characteristics of a specific business, which created the possibility of speculation. For him having a margin of safety on an investment, meaning to buy a stock only if its price is lower than the conservative value of he business, was essential. In this way he ensured any investment from fluctuations on the negative side. For this purpose an investor has to determine the intrinsic value of a company. In his believes a company that was well managed and firm in its belief about the value of its product could and should prosper as an investment. The mathematical simplicity of Graham‟s methods appealed much to Warren‟s feeling of numbers.