Warren Buffett on Business

So when I buy a business, I am usually buying the manager with them, because I don’t know how to run the business. So when someone comes along that wants to sell their business, I have to look at them in the eye and I have to decide whether they love the money or love the business. It’s okay to love the money, but they have to love the business.²

Our prototype for occupational fervor is the Catholic tailor who used his small savings of many years to finance a pilgrimage to the Vatican. When he returned, his parish held a special meeting to get his first-hand account of the pope. “Tell us,” said the eager faithful, “just what sort of fellow is he?” Our hero wasted no words: “He’s a 44 medium.”³

We intend to continue our practice of working only with people whom we like and admire. This policy not only maximizes our chances for good results, it also ensures us an extraordinarily good time. On the other hand, working with people who cause your stomach to churn seems much like marrying for money—probably a bad idea under any circumstances, but absolute madness if you are already rich.⁴

My managerial model is Eddie Bennett, who was a batboy. In 1919, at age 19, Eddie began his work with the Chicago White Sox, who that year went to the World Series. The next year, Eddie switched to the Brooklyn Dodgers, and they, too, won their league title. Our hero, however, smelled trouble. Changing boroughs, he joined the Yankees in 1921, and they promptly won their first pennant in history. Now Eddie settled in, shrewdly seeing what was coming. In the next seven years, the Yankees won five American League titles.

What does this have to do with management? It’s simple—to be a winner, work with winners. In 1927, for example, Eddie received $700 for the 1/8th World Series share voted him by the legendary Yankee team of Ruth and Gehrig. This sum, which Eddie earned by working only four days (because New York swept the Series) was roughly equal to the full-year pay then earned by batboys who worked with ordinary associates.

Eddie understood that how he lugged bats was unimportant; what counted instead was hooking up with the cream of those on the playing field. I’ve learned from Eddie. At Berkshire, I regularly hand bats to many of the heaviest hitters in American business.⁵

Usually the manager came with the companies we bought, having demonstrated their talents throughout careers that spanned a wide variety of business circumstances. They were managerial stars long before they knew us, and our main contribution has been to not get in their way. This approach seems elementary: if my job were to manage a golf team—and if Jack Nicklaus or Arnold Palmer were playing for me—neither would get a lot of directives from me about how to swing.⁶

This means no second-guessing by Charlie and me. We avoid the attitude of the alumnus whose message to the football coach is “I’ m 100% with you—win or tie.” Our basic goal as an owner is to behave with our managers as we like our owners to behave with us.⁷

When we were due to close the purchase at Charlie’s office, Jack was late. Finally arriving, he explained that he had been driving around looking for a parking meter with some unexpired time. That was a magic moment for me. I knew then that Jack was going to be my kind of manager.⁸

Second thing, they want applause. I want applause. I like it when people say that’s a good job. Our managers are just the same way. Our managers have a lot of money, most of them, and they want to be treated fairly and they don’t want to be taken advantage of. They want to paint their own painting. They love that, and they get that at Berkshire like no other place and they want applause and when they get applause from me they are getting applause from a knowledgeable observer. It is not uninformed applause. That keeps them and we have had remarkable success in keeping managers over the years.⁹

Charlie and I know that the right players will make almost any team manager look good. We subscribe to the philosophy of Ogilvy & Mather’s founding genius, David Ogilvy: “If each of us hires people who are smaller than we are, we shall become a company of dwarfs. But, if each of us hires people who are bigger than we are, we shall become a company of giants.”¹¹

Charlie and I try to behave with our managers just as we attempt to behave with Berkshire shareholders, treating both groups as we would wish to be treated, if our positions were reversed. Though “working” means nothing to me financially, I love doing it at Berkshire for some simple reasons: It gives me a sense of achievement, a freedom to act as I see fit and an opportunity to interact daily with people I like and trust. Why should our managers—accomplished artists at what they do—see things differently?¹²

“How Do You Know When You’re Dealing with an Honest Person?”