Warren Buffet’s reputation as a leader is very legendary. Many current leaders still need to achieve the milestones he has achieved of failing to incorporate proper leadership techniques in their practice. According to Larcker & Tayan (2016), Warren Buffet worked with Bill Gates and Melinda French between 2006 and 2021 to help solve some of the world’s most significant inequalities. Therefore, Buffet is not only considered a businessman but also a philanthropist. He heads Berkshire Hathaway Inc. and has invested in many other companies, which makes him a successful businessman. Interestingly, many people prefer to look at his success rather than his management styles, which have played an integral part in his achievements. Warren Buffet has a management system that is different from that of other leaders in the corporate world. Berkshire Hathaway is, for instance, identified for its significant decentralization, where the company’s over 80 operating subsidiaries have their independence (Larcker & Tayan, 2016). As a result, there needs to be more oversight from the headquarters. Warren Buffet’s leadership style is based on high moral standards and integrity as central to leadership success. The following principles have enabled him to earn respect globally. The following essay will address the behavior practices at Berkshire Hathaway Inc. and Buffet’s key leadership strategies that have earned him such high respect globally (Cunningham, 2015).
Organization behavior and practices of Berkshire Hathaway Inc.
Warren is an ethical leader in how he has decentralized most of its operations, with each subsidiary operating independently without the headquarters’ influence. The organization only requires as little as the periodic financial statements and the returns of the excess cash, which is never required for a business’s sustainability and growth. Interestingly, Berkshire Hathaway Inc. never asks for budget or strategy documents which is pretty appalling (Cunningham, 2015). The company needs a central HR, sales, procumbent, IT, or legal department responsible for handling all the issues that may arise. Hence, many often question how these organizational behaviors serve the organization’s interest, which has ultimately helped in success. The following practice within the organization provides a mix of insurance and noninsurance subsidiaries of many dimensions (Larcker & Tayan, 2016).
Besides, Warren shows ethical leadership through the governance policy he has put in place at Berkshire and insists on having an organic structure. Warren Buffet trusts its managers, who are given considerable autonomy within the organization. The subsidiary CEOs can communicate directly with the CEO, uncommon in most modern organizations; communication is done monthly or quarterly. They are also not allowed to make regular calls or hold meetings with Buffet, which requires them to initiate any form of communication by themselves without the approval of Warren Buffet (Larcker & Taya, 2016). The following independence given to the managers is unparalleled, whereby all the CEOS within the organization strongly believe that no other owner of a corporate entity can give them the same amount of autonomy they are provided with at Berkshire Hathaway Inc. Berkshire does not in any way involve itself in business decisions because this responsibility is left solely at the hands of the managers (Cunningham, 2015). The managers are accorded too much freedom to the extent that they are responsible for engaging business in most decision-making processes. They get involved in making decisions on labor disruptions, management turnover, and the interruption in the supply or complaints from their customers. When making these decisions, Buffet needs to be consulted, even if the business experiences a significant decline in sales or impacts the company’s reputation. This demonstrates ethical leadership in him (Bock et al., 2018; Hock, Clauss & Schulz, 2016).
Moreover, Warren promotes ethical leadership by advocating for fair dealings by providing prompt instructions to the subsidiary CEOs to maintain transformational leadership. As a result, this allows employees to enjoy decision-making flexibility even though the leaders regularly monitor them to enhance accountability (Larcker & Tayan, 2016). The organization firmly opposes bureaucracy and sees it as a punishable action in case it presents itself within the management practices of the leaders in the organization. Therefore, it is easier for the employees to easily access the senior management in the organization and consult them about various issues affecting them at the workplace (Cunningham, 2015; Hock, Clauss & Schulz, 2016). The employees are also provided social support by their supervisors, which is critical to improving their performance. The company’s compliance with these policies is suitable for encouraging and supporting innovative ideas. Besides, it is also possible for the employees to report any form of non-compliance with the structured laws in the company. The following practice is focused on ensuring that the organizations support the practice of task governance and relational management to guarantee the optimum performance of the employees (Hock, Clauss & Schulz, 2016).
Also, Warren Buffet provides ethical leadership by instilling an organizational culture tied to the personal gains of the employees. The company believes that through ethically conducting the business, the company is well positioned to adhere to its culture. The company has a uniform ethical culture guided by integrity, honesty, prioritizing customer needs, and long-term orientation (Bock et al., 2018). The following culture is influenced by the tone set to them by Warren Buffet, who firmly believes the success of an organization relies on practicing ethical behaviors and showing integrity. Buffet believes that it is essential for a person to maintain their reputation, put on integrity, and always run the business as if it is the only asset that their family has got for the next fifty years. Berkshire offers good financial benefits to its employees to keep them motivated and committed within the workplace (Cunningham, 2015). However, the employees’ performance is highly influenced by the interdependent nature of their working environment built by the organizational culture. The employees within the company work as a team, and managers consider things like capital for human capital traits that may present themselves in the compensation system. The excellent relationship that the company tries to build with its employees is critical to establishing a strong ethical culture that, in the long run, positively impacts the firm’s performance (Hock, Clauss & Schulz, 2016).
Furthermore, Buffet advocates for an ethical organizational practice believing that managers have all they need to perform at a higher level when given a higher autonomy. The following trait or practice is quite elusive in most modern-day corporations whereby the CEOs are responsible for guiding the managers about how they need to undertake certain decisions or actions in the company (Hock, Clauss & Schulz, 2016). The managers will benefit from this culture by determining what they will gain from resisting short-term pressures if they need more autonomy in their practice.
Moreover, Buffet’s ethical leadership believes it is typical for companies and management to have conflicts. Organizations are supposed to bring in different techniques and practices to resolve the conflicts that may arise in the company. For instance, an organization may create a conflict management team to oversee all the issues likely to occur (Bock et al., 2018). Buffet’s company has a conflict management policy that is very supportive because of its rigid ethical orientation. The company engages in practices like providing the employees with clear guidance on reacting whenever there is a conflict of interest. The managers also provide clear instructions for resolving conflicts between parties (Crippen, 2016). The company has further managed to empower different teams by fostering knowledge-sharing culture, resulting in an average increase in employee performance within the organization.
Warren Buffets’ leadership style
Warren Buffet is a critical believer in ethical leadership who thinks modern-day leaders must demonstrate high levels of integrity and moral standards to earn respect and admiration as leaders (Crippen, 2016). He believes that the core of any business lies in the long-term investment perspective, which is the key driving factor that has helped Berkshire to withstand all economic challenges all these years under his leadership. Buffet’s leadership philosophy is one that highly values value investing. The following leadership philosophy is straightforward because Buffet has only placed one objective on Berkshire Hathaway to ensure that it only buys well-managed organizations with favorable and durable economic characteristics (Schmaltz, 2018). Through the following philosophy, Buffet’s leadership pinpointed some undervalued companies with high potential and bought them before turning things around. He achieves this by dividing his portfolio into five macro levels. He sets his min such that he often thinks about losing capital because of a stupid transaction, backing good and diligent managers, and analyzing the intrinsic value of a particular transaction (Engelbrecht, Heine & Mahembe, 2017). However, he still insists that such instances should not cause alarm. He insists on the value of staying calm while facing volatility. The fluctuations in earnings within organizations should never be an issue.
Moreover, as ethical leaders, Warren believes that leaders are supposed to keep good company, as demonstrated by Buffet’s leadership. In any case, if the leader feels they do not share the same interest with a particular company, it is appropriate to cut them off immediately, as demonstrated by Buffet’s leadership. For instance, Berkshire Hathaway has kept its Class A shares over the years, which has resultantly made each share very expensive to many retail investors (Crippen, 2016). The following leadership style has helped promote integrity within the business and discourage people from quickly mobbing in and out of stock. The objective of this strategy is to enable Buffet to ensure he only works with those who share his long-term views within the company. Besides, allowing people with short-term views always seems deceptive and contravenes Buffet’s philosophy that requires individuals to reintegrate high moral standards and integrity into the company (Schmaltz, 2018; Washington State University, 2020). Buffets’ leadership style insists on focus as a critical ingredient to the success of accompany. According to him, many great companies are likely to stagnate in their value during times of hubris or boredom, which distracts the manager’s attention, making them wander and forget about the key objectives they are supposed to achieve within the organization. Buffets warns leaders against inactivity, terming it as a recipe for diminishing their intelligent behavior (Crippen, 2016).
Moreover, Warren Buffet is demonstrated as an ethical leader at Berkshire Hathaway by applying the 3Ps (Principle, purpose, and people) in his management practices. Buffet recognizes that people are the most critical resource in the company (Schmaltz, 2018). Therefore, whenever the organization embarks on analyzing this particular component, they need to demonstrate honesty about both the positive and the negative impacts the organization has on people outside the organization, as in the case of Berkshire, which works with people internally and externally. Buffet’s leadership has, over the years, managed to build a strong reputation for its employees and the surrounding community, which in the long run, has benefited the organization. As a leader, Buffet has effectively realized the importance of satisfying the current generation of people within the company without compromising the future. Berkshire puts much ethical attention into safeguarding safety and health, enhancing equality, and ensuring people within the company have established positive relationships. Besides, there is no doubt that Buffet is geared towards ensuring the company profits from its activities (Crippen, 2016).
Warren Buffet’s ethical leadership insists on the importance of Berkshire as a company to ensure that it invests in whatever it does understand rather than taking chances in a much more volatile market environment. For instance, because Buffet needs to understand technology, the company rarely invests in tech stocks, and they are notably absent in Berkshire Hathaway’s portfolio (Washington State University, 2020). Buffet further provides explanations of the risks companies face while chasing novelties. For instance, Buffet provides an example of Google approaching him before its IPO (Washington State University, 2020). However, Buffet ignored them because he needed to be in a position to determine if the company would maintain its profitability and maintain a competitive advantage in the market. Therefore, in as much as Warren missed out on a potentially rewarding stock, it is essential to note that his decisions were founded on tangible reasons because he never wanted to take the risk. Similarly, leaders in other organizations should invest time in ventures they do not understand better. They may adequately understudy the investment before putting in the cash. However lucrative a deal is, Warren demonstrates the need for the investors to show mindfulness of the risk and the opportunities resulting from chasing things they need help understanding. An investor should never go into a business for money alone, but the investment must be driven by a passion for developing a great idea. Leaders must focus on creating and delivering value to the people (Engelbrecht, Heine & Mahembe, 2017). Leaders must also embrace failure by acknowledging that not all startups are usually successful. However, instead, they should make an effort to learn from the mistakes they have committed to turn things around in the business. Leaders and investors must work to ensure they quickly recognize the red flags and try to avoid the adverse outcomes that may result from them (Schmaltz, 2018). The following demonstrates how Buffet is ethically upright in his leadership by not getting dissuaded into investing in a venture he needs help understanding. As a leader, he quickly opens up and declines the offer, which is different from other organizational leaders if they see the deal as lucrative (Crippen, 2016; Washington State University, 2020)).
Moreover, Buffet leadership guides other leaders to ensure they buy quality the moment it is marked down. Warren feels that the best way a company may acquire a quality company is by buying the whole business that the company runs or at least 80% of the business if the management of the business is a partner. Therefore, as Buffet suggests, whenever investors see the business is selling below the marketing value, this is usually the appropriate time for investors to invest (Washington State University, 2020). As a result, this demonstrates the level of integrity Buffet has in ensuring he conducts shrewd business to create profits for his company and allow it to grow.
Conclusively, ethical leadership is essential for the success and growth of any organization, as seen in the case of Warren Buffet. Warren Buffet’s reputation as a leader is seen as legendary. He heads Berkshire Hathaway Inc. and has also invested in many other companies, which makes him a successful businessman. Berkshire has heavily invested in organizational culture and practices that enhance ethical behaviors and integrity within the organization, which has resultantly helped the organization build a strong relationship with people within the company and the community. The whole point of ethical leadership and integrity is that organizations must strive to keep their reputation. Maintaining a good reputation of honesty and integrity is essential for attracting more people into the company and thus building a brand image. Organizations must understand any investment they engage in instead of taking chances on risky novelties. Buffet also demonstrates that leaders must be ready to face market difficulties and that there is no guaranteed success. Nonetheless, he finds human resources as the most crucial resource in doing business through the application of ethical leadership.
Bock, A. J., Opsahl, T., George, G., & Gann, D. M. (2012). The effects of culture and structure on strategic flexibility during business model innovation. Journal of Management Studies, 49(2), 279-305.
Cunningham, L. A. (2015, June 17). Buffett’s and Berkshire’s anti-bureaucracy. CLS Blue Sky Blog. Retrieved March 27, 2023, from https://clsbluesky.law.columbia.edu/2015/06/17/buffetts-and-berkshires-anti-bureaucracy/
Crippen, A. (2016, November 21). Warren Buffett’s 9 Essential Rules for Running a Business. CNBC. Retrieved March 27, 2023, from https://www.cnbc.com/2016/11/21/warren-buffett-9-essential-rules-for-running-a-business.html
Engelbrecht, A. S., Heine, G., & Mahembe, B. (2017). Integrity, ethical leadership, trust and work engagement. Leadership & Organization Development Journal, 38(3), 368-379.
Hock, M., Clauss, T., & Schulz, E. (2016). The impact of organizational culture on a firm’s capability to innovate the business model. R&d Management, 46(3), 433-450.
Larcker, D., & Taya, B. (2016, April 20). What it is like to be owned by Berkshire Hathaway. Harvard Business Review. Retrieved March 27, 2023, from https://hbr.org/2015/12/what-its-like-to-be-owned-by-berkshire-hathaway
Washington State University. (2020, June 8). Warren Buffett’s three guiding investment principles. WSU Online MBA. Retrieved March 27, 2023, from https://onlinemba.wsu.edu/blog/warren-buffetts-3-guiding-investment-principles/
Schmaltz, M. C. (2018). Common-ownership concentration and corporate conduct. Annual Review of Financial Economics, 10, 413-448.