Monday, November 9, 2009

Is your leadership missing these timeless lessons from Warren Buffett?

Beyond making money, what can the world’s greatest money-maker teach us about leadership? In a recent BBC documentary, Warren Buffett shared the principles that he's been sticking to for over 40 years.

  • Invest, don’t speculate
  • You don’t have to diversify
  • Be a business owner
  • Allocate capital efficiently
  • Don’t get into debt
  • Think independently
  • Give it away

Invest … don’t speculate

You don’t buy a farm and then wake up every day to see whether the price of your farm has gone up or down. You look to the farm’s asset to produce the returns. Buying stock hoping it goes up next week is speculation. Look for businesses with intrinsic characteristics, where the management of the business is based on lots of integrity and talent. The Federal Reserve was on the verge of shutting down the investment bank Soloman Brothers, when Buffett was called in to rescue the company. In the end the Fed did not shut down Soloman Brothers because they trusted Warren Buffett to do the right thing. Warrant Buffett repaid that trust in his address to the Soloman Brother employees – ’…lose money, I will be understanding; lose a shred of integrity and I will be ruthless.’

Leadership Thought #1

Next time you think about the often used phrases – our people are out asset – think of Warren Buffett. Are you investing in your people or are you speculating in your people?

You don’t have to diversify

Stick with what you know. If you have too many interests, you can’t really devote the required attention. He should know what he’s talking about. His company has returned an average 20% per year for over 40 years. This is incredible, most companies would be happy to do this for just a few year.

Leadership Thought #2

We are often told to improve our weaknesses. Successful leaders don’t do that, they don’t diversify and spread themselves thinly by working on their weaknesses. They stick to what they know and they surround themselves with people who are strong in their weakness.

Be A Business Owner

Being a shareholder is very different to being a business owner.

Leadership Thought #3

What would you do that’s different if your treated your company as your own?

Allocate Capital Efficiently

Take capital from one business and invest in another if necessary – to make best use of capital. More of this later when he talks about ‘giving it away’.

Leadership Thought #4

Are you making the best use of all your assets? Not just your people, but also yourself. Do you suffer from urgency addiction, working on other people’s priorities rather than your own priorities? Are you doing the important things – like building relationships?

Don’t Get Into Debt

More smart people has gone broke through leverage than any other activity. Smart people don’t go broke. If you are smart, you don’t need it (leverage). If you are not smart, you’ve got no business using it.

Leadership Thought # 5

The lesson here isn’t just about financial debts. Are you continuously indebted to others? Are you constantly on the take? How much are you giving back to relationships?

More profoundly, from a financial perspective, the more you are in debt, the more you are tied into what you are doing to service the debt …. The less likely you are able to find and do great work that is meaningful and purposeful.

Think Independently

Warren Buffett believes you have to think for yourself. Tune out the bandwagon stuff. Avoid the latest fashion. Unfashionable stuff is what will last. Buffet is everything Wall Street isn’t.

He says ‘ ….the super rich are not as smart as they think. The society has done an awfully lot for them. You ought to have a taxation system and a personal value system where you believe a lot of that should go back to the individuals who got short changed in their life.’

Leadership Thought #6

You can be an invisible leader or you can be a remarkable leader. The difference is independent thinking. You can blend in and be part of the crowd or you can stand out from the crowd (and be ready to be shot at)

Give It Away

Warren Buffett gave away $31 billion last year to charitable causes. Buffet’s generosity won’t be remembered in the name of the organizations he’s funding. In his own words – ‘…. charities can get money by naming things for people. Why waste the building on me … they are going to get my money anyway – why waste that money on me.’ That, for me, is a man who practice what he preaches – maintaining his ‘allocate capital efficiently’ principle when every fibre of his ego screams out MAKE ME IMMORTAL !!!

Leadership Thought #7

We live in a word of abundance. Live with a ‘giving it away’ mentality and you will attract abundance. So, what are you giving away to your people?

Warren Buffett’s Philosophy

  • He still only lives in the one house he bought in the 1950s
  • He drives just one car at any one time (a pick-up) – and always buy second hand
  • He eats at his local diner nights on end – favourite meal is T-bone steak with double hash-brown followed by an ice cream sundae
  • His children will not inherit his fortune
  • Life is about embracing people, having fun in what you do and doing it with humour.
  • If we’ve been more successful than others, is because, we always realise the school of life is always open .. if you weren’t learning more, you would be falling behind.

Warren Buffett doesn’t go out of his way to be different and ‘old fashioned’. He’s quite happy to be unconventional.

The paradox, of course, is that it is ‘old-fashion’ that has brought him success … and it is the old-fashion companies that have survived the economic storm better than others.

How many of us have the courage and resilience to be unconventional like Warren Buffett? The irony is that we have a shining example of old-fashioned leadership resulting in the world’s greatest money maker and yet, the city slicker brigade are not falling over themselves to follow in his footstep.

…. Makes you think doesn’t it.

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