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Warren Buffett – Not your average billionaire

This blog will be the first in a series of posts profiling some of today’s most successful business leaders. Each leader is recognised as a trailblazer in their own right; entrepreneurs and visionaries who have dared to challenge the status quo and write their own rules.

This series will explore their different leadership styles and approaches and look at how this has shaped their success.

I decided to kick off with a name you might recognise as being one of the wealthiest and most business savvy people on the planet.

Warren Buffett

Warren Buffett is the creator and CEO of Berkshire Hathaway, a holding company with interests in the likes of Apple, Costco and Coca Cola. [1]

Buffett has been a regular on the Forbes 400 Richest People in America list since 1982, and in 2008 was officially crowned the richest person in the world with a fortune of $62 billion.

Warren Buffett is the stuff of legends and has a cult-like following of investors that hang on his every word. But for me, it is not so much his financial prowess that I’m interested in, but rather how his distinctive leadership style has contributed to his celebrated status in the world of business.

Laissez Faire Management Style

Numerous books and articles written about Warren Buffett refer to his laissez-faire approach to management. A French term, laissez-faire loosely translates to “let them do” -basically let people do as they choose. This label seems fair given what I have come to learn about Buffett’s hands-off approach.

When Buffett buys a business, he leaves the managers alone to run the company the way they would have had he not bought them. Unlike other CEO’s, he doesn’t seek to exert control through traditional corporate plans or strategic meetings, and generally only communicates through his annual letter to the board. [2]

So how has Warren Buffett managed to successfully build an empire with assets worth $621 billion [3] whilst all the time remaining at arms length?

Adapting the Situation to Suit the Leader

Perhaps the secret lies in the corporate culture and operating environment he has carefully cultivated over the last four decades.

Engaging Top Talent
Warren Buffett has been quoted as telling his children “If you want to soar like an eagle in life, you can’t be flocking with the turkeys”. His personal philosophy is to surround yourself with good people whose behaviour is better than yours so that they inspire and challenge you. When hiring managers, Buffett looks for integrity, intelligence, and energy. [4]

Autonomy and Accountability
It stands to reason then that by choosing highly motivated and capable leadership, Buffett has been able to entrust his businesses to the stewardship of others. Handing over full autonomy is fundamental to the way Buffett operates. [2] (For more on the benefits and challenges of autonomy see A Sensible Discussion about Autonomy)

Meaningful Communication
Though Buffett’s communication with his people may be infrequent, his words have impact. He showers praise on the people who work for him in his annual letters but is also generous with advice. He breaks down complex financial concepts in a way that anybody can understand him.

Values-Driven Culture
In Part II of my blog Aligning People I discussed how a group united by values will achieve far more than one that’s driven by other agendas. Interestingly, Buffett only acquires well-led, profitable companies that share his values. He believes that a values-driven culture translates to strong business performance and credits a strong culture with the ability to attract and retain outstanding employees. [5]

If you want to soar like an eagle in life, you can’t be flocking with the turkeys

Authentic Leadership – Living the Values, Walking the Talk.

An ‘aha’ moment for me in my research into Warren Buffett was when I realised that the values he pursues in business he practises in all aspects of his life.

Thriftiness

Berkshire Hathaway only acquires firms with low debt and strict cost control. This reflects Buffett himself who is renowned for his frugal nature. He still lives in the same house he purchased in 1958 for $32,500 and drives himself to work everyday. [6]

Hard Work and Discipline

Lawrence A Cunningham in his book Berkshire Beyond Buffett wrote that,
“Buffett’s own success has been built through hard work, discipline, a no-nonsense acquisition strategy and unwavering adherence to core values”. [2]

Buffett demands the same level of discipline and commitment from his leaders. He asks only that they stay true to their core business and values. In other words, he expects them to keep doing what they know how to do and to do it well. No more, no less. [2]

Integrity and Humility

Cognology has found extensive evidence to suggest that integrity is a key attribute of exceptional leaders. Buffett is passionate about maintaining a reputation for doing the right thing and instructs his leaders to “zealously guard Berkshire’s reputation.” [7]

Buffett is admired for the humble manner in which he openly admits his failures and his willingness to share the lessons he has learnt. In turn he encourages his business leaders to “face up immediately to bad news” and not let problems fester. [7]

But Warren Buffett is not as warm and cuddly as he might seem. He has shown that he is also a man prepared to deal with any leader that has breached what he holds sacred. A Buffett biographer once noted that “when a leader violates corporate values or generates reputational damage, the axe falls swiftly.” [2]

Letting Go

At 87, Warren Buffett has no plans to retire. People will remember Buffett for his extraordinary ability to pick good investments. But in truth, a lot of his success has been due to his ability to identify talent and retain top performers for the long term.

His leadership style has been shaped by his own personality: his honesty, his integrity, his humility, and his other deeply ingrained values. He has succeeded in demonstrating that you don’t have to maintain tight control over your people to do well in business. Success can in fact come from letting go – so long as you have laid the right groundwork to begin with.

References

  1. CNBC, [Online]. Available: http://www.cnbc.com/berkshire-hathaway-portfolio/.
  2. L. A. Cunningham, Berkshire Beyond Buffett : The Enduring Value of Values, Columbia University Press, 2014.
  3. Market Watch, “marketwatch.com,” [Online]. Available: http://www.marketwatch.com/investing/stock/brk.a/financials. [Accessed 09 03 2017].
  4. Vintage Value Investing, [Online]. Available: http://vintagevalueinvesting.com/wp-content/uploads/2017/01/Warren-Buffett-University-of-Florida-Lecture-Vintage-Value-Investing.pdf.
  5. L. A. Cunningham, “The Philosophy of Warren E. Buffett,” The New York Times, 05 02 2015.
  6. A. Mohr, “www.investopedia.com,” 22 07 2016. [Online]. Available: http://www.investopedia.com/financial-edge/0412/the-everyday-lives-of-frugal-billionaires.aspx.
  7. W. Buffett, “berkshirehathaway.com,” 31 12 2014. [Online]. Available: http://www.berkshirehathaway.com/letters/2014ltr.pdf.

What can Netflix, HubSpot, Zappos and Google teach you about the future of performance management?

At last count, the Netflix culture document had been viewed almost 11 million times. It’s been a viral sensation and has challenged the way that millions of people think about the future of performance management, work and HR.

Since the Netflix culture presentation appeared online in 2009, many other technology companies’ culture docs have attracted similar attention.

What excites me is that performance management plays such a big part in these documents. It’s clear that rethinking the way goals are set and feedback is given is hugely important to these companies and their employees.

In this article we’re going to take a quick look at four particularly popular culture docs and how they’re approaching performance management.

Netflix

What they do: Provide on-demand internet streaming media
Founded: 1997
Number of employees: 2000+
Glassdoor rating: 3.7
Culture doc views: 10,720,425

Read the Netflix culture doc

Netflix Culture

Netflix on setting goals

Netflix’s performance management is built on the core idea of ‘context, not control’. This means that managers must give employees an understanding of context to enable autonomy and sound decisions.

So rather than setting goals in isolation, managers should make their employees aware of: the link to the organisation’s goals, the relative priority of the goal, the level of refinement required, key stakeholders and the definition of success.

The onus here is clearly on the manager to provide the best environment for employees to excel. Speaking directly to managers, the Netflix culture doc says: “When one of your talented people does something dumb, don’t blame them. Instead, ask yourself what context you failed to set.”

Netflix on feedback and performance reviews

Netflix has also moved away from annual reviews to a more frequent feedback process. In an article for Harvard Business Review, co-author of the Netflix culture doc Patty McCord explains: “If you talk simply and honestly about performance on a regular basis, you can get good results—probably better ones than a company that grades everyone on a five-point scale.”

I couldn’t agree more with Patty on this point. High frequency feedback is something I’m a huge advocate for. And it’s one of the key elements of Agile Performance Management.

HubSpot

What they do: Inbound marketing software
Founded: 2006
Number of employees: 500+
Glassdoor rating: 4.5
Culture doc views: 1,571,813

Read the HubSpot culture doc

HubSpot on feedback

Hubspot on feedback

Like Netflix, HubSpot have moved away from annual performance reviews. Instead they’ve implemented social performance management software to facilitate year-round feedback in real time. As the company put it here:

“If you want to hire and retain great young employees, you have to work the way they live… using social networks to facilitate interactions on a regular basis and to solicit feedback.”

Zappos

What they do: Sell shoes and clothing online
Founded: 1999 (acquired by Amazon in 2009)
Number of employees: 1500+
Glassdoor rating: 3.8
Culture doc views: 53,000

Read the Zappos culture doc

Zappos on feedback and reviews

Zappos has long been recognised as an innovator in performance management. They’ve done this through heavy emphasis on the importance of values and culture. As Zappos’ culture doc states: “Interviews and performance reviews at Zappos are 50% based on values and culture fit.” 

This introduction of behavioural competencies into performance management does tend to be a characteristic of more forward-thinking companies.

I’ve talked about the difference between behavioural and functional competencies before. My opinion (which I share with Zappos) is that a combination of both is almost always required to be effective.

Zappos Core values

Google

What they do: Run the internet (amongst other things)
Founded: 1998
Number of employees: 53,000+
Glassdoor rating: 4.4
Culture doc views: 1,220,625

Read a presentation from Eric Schmidt on how Google works

Google on goals

Google often gives employees responsibility for setting their own goals. As the following slide makes clear, goal setting at Google is somewhat unconventional in other ways…

Google goals

 

In fact, scoring too high on completed goals at Google is frowned upon – it means the goals weren’t ambitious enough!

It’s an interesting technique (but one you might want to test carefully before implementing in your business).

Google on feedback and reviews

Google places great emphasis on peer feedback, which is sensible given the approach to goal setting. As an anonymous employee stated on Glassdoor:

“Promotion and work performance is entirely reliant on peer reviews. In other words, to get ahead at Google and to get a positive performance review, you must get positive reviews from your fellow co-workers. Your manager might love you, but if your co-workers don’t like you, you have some work to do.” 

While many companies have adopted 360-degree feedback it’s uncommon to see peer reviews that can actively block an individual’s chance of promotion.

My top performance management takeaway from each #culturecode

Netflix: High-performance people will do better work if they understand context.

Hubspot: If you want to hire and retain great young employees, let them work the way that they live

Zappos: Rather than just measure people on their ability to do their job, also measure their performance against company culture and values.

Google: Let your employees set ambitious (and sometimes unachievable) goals. But hold them accountable with an emphasis on peer reviews.

Have you seen other #culturecode docs with particularly innovative approaches to performance management? Let me know via Twitter (@Cognology). I’d love to keep adding to this list.

How to waste $41 billion dollars on performance management

My open letter to Bill Morrow, recently appointed CEO of the National Broadband Network

Laying cables for the NBN

Dear Bill,

Congratulations on your recent appointment as CEO of NBN. It’s a big job, even with your history of telecom turnarounds.

I read with interest the article in The Australian about your plans to fix the cultural problems at NBN. As an expert in performance management, I’ve seen cultural problems of all shapes and sizes. But it sounds like the mess you’ve inherited at NBN is truly something unique!

I’m amazed by some of the cultural and engagement problems. So I wanted to offer you some friendly advice and a second pair of eyes. Here’s my thoughts about your strategy to turn NBN into a high performance organisation.

Increasing workplace engagement

I know that the NBN has been a bit of political kick-ball. And that there’s been a lot of changes.

But you’re building a transformational piece of Australian infrastructure. The goals of what you’re setting out to do are very big (and very clear). NBN is almost the definition of a mission driven organisation. So there’s no reason that you should be dealing with an organisational engagement score of just 44%!

In my opinion, your workforce at NBN has to be inspired by a mission driven culture. Every employee needs to get up in the morning ready to shape the future of the country. And you can do this by giving them clear expectations that are directly connected back to the goals and mission of the organisation.

Setting clear expectations and holding people accountable

I can see that you’ve recognised the huge role that performance management has to play in fixing the culture. In fact, I know that you’ve “set about reforming the way the company measures performance”.

But I wanted to issue a word of warning. Measuring performance is typically only half of the challenge in a dysfunctional culture. The biggest problem is clearly setting out what high performance actually looks like in the first place.

In my experience, you get high performance when every employee can explicitly state what high performance looks like for their role, on a day-to-day basis.

And I bet this isn’t the case at NBN today. In fact, I’m going to make a wager that you have thousands of employees running round with unclear position descriptions and requirements. These employees have no real clarity around what they need to do to be successful. And as a result, they start playing the blame game.

Ending the blame game

The blame game that’s going on at NBN at the moment is typical of what I see in organisations with badly broken performance management. How it happens is clear from one of your quotes in The Australian:

“An independent assessment by KordaMentha and Boston Consulting Group cited a fear among staff of “being blamed for mistakes” that “generated a lack of willingness to accept responsibility in some functional groups”.

When you do performance management well, it’s clear who is responsible for delivery. The process ensures that your employees are deeply invested in their goals and objectives.

Remember that at heart, great performance management really isn’t much more than an organisational process for accountability.

I’ve seen the impacts of a ‘blame-game’ culture before. And I’ve got no doubt this is how NBN got to an engagement score of 44%. Because in the ‘blame-game’ environment, everyone is watching their back. Right now, your staff don’t have the time (or the energy) to care about their role in shaping the future of Australia.

Getting visible alignment

I think it’s great you’re working to show a more aligned culture by knocking down the walls. Every high performance organisation I work with makes effort to show how everyone is working together. As you said:

“If we really want to change this culture then we have to start at the top and drop this hierarchical feel. These things are minor in nature but they are symbolic. It shows us getting off our pedestals so we can align together and work together.”

Getting off the pedestal is important. And so is showing everyone that the mission of the organisation is more important than your harbour-view office.

People at NBN do need a symbol of change. And tearing down the office walls might help with that. But don’t confuse the quick win of knocking down the walls with the long-term change in behaviour that you need. You can tear down physical walls in a weekend, but good performance management and a culture of accountability takes hard work over many years.

You’ve got a big job ahead, so good luck

We both know this is going to be hard work. Cultures don’t transform themselves overnight. But with hard work, you can keep people accountable to delivering high performance at NBN. Here’s my four-step action plan:

  1. I’d remind every employee of the role they play in delivering the mission of NBN.
  2. I’d quickly get rid of those that don’t care.
  3. I’d make sure that for those that do care, the expectations of high performance are explicitly set out.
  4. And finally, I’d focus on making the connection between every individual’s performance and the mission of building a better Australia.

Once everyone can see how those expectations connect back to the big mission of NBN, you’re in with a fighting chance.

Good luck – I’m looking forward to seeing a very engaged team coming through my neighbourhood to connect us to the NBN soon!

Jon

Image credit: Bidgee used under CC-SA 3.0 License