As a basic rule, holding firm Berkshire Hathaway doesn’t purchase firms run by unhealthy managers. That’s a little bit bit uncommon, former Fortune editor-at-large Pattie Sellers identified to firm CEO Warren Buffett and his enterprise accomplice Charlie Munger, who died at age 99 this week, in a 2014 interview. “A lot of people like to buy good companies with bad managers and then replace them,” she stated.
Not the method at Berkshire Hathaway, the 2 responded. “We tried that, with predictable results,” Buffett stated, including that “life is so much more fun” if you work with good individuals as a substitute of attempting to reform unhealthy ones. “I mean, who wants to spend their life trying to change people from their natural approaches?”
That’s a common lesson about partnership, the 2 agreed, and it goes for marriage, too. “If you want to ruin your life, spend it trying to change your spouse,” Munger stated. “It’s really stupid.”
“Marrying somebody to change them is crazy,” Buffett chimed in. “And I would say hiring somebody to change him is just as crazy, and becoming partners with them to change them is crazy.”
Buffett, a legendary investor, has relied on the insights and opinions of his buddy Munger, a lawyer, for 50 years. Buffett has credited Munger with reframing his outlook on investing—and on Berkshire Hathaway’s method. “Forget what you know about buying fair businesses at wonderful prices; instead, buy wonderful businesses at fair prices,” Buffett once said Munger instructed him.
Munger additionally ceaselessly made clear his views on the significance of fine managers—and the truth that unhealthy managers aren’t well worth the bother of attempting to reform.
“The reason that Berkshire has been successful as a big conglomerate—more successful than any other big conglomerate, so far as I know—is we try to buy things that aren’t going to require much managerial talent at headquarters,” he stated at an event in 2017 on the College of Michigan. “Everybody else thinks they’ve got a lot of managerial talent at headquarters and that’s a lot of hubris.”
If a sufficiently “lousy” enterprise manages to nab a “wonderful” supervisor, the status of the enterprise, moderately than the supervisor, is what’s going to stay intact, he went on. “You can’t fix these really lousy businesses. You can wring the money out—whatever comes in liquidation—and do something else with it, but most lousy businesses can’t be fixed.”
It’s a mindset that has clearly labored for the billionaire duo. Their firm’s income topped $302 billion final 12 months, notching 7th place on the Fortune 500. Munger, in 2017, stated Buffett ultimately agreed with him that it wasn’t well worth the effort to scale awful enterprise, “and it was kind of scroungy and unpleasant when you’re firing people—who in the hell wants to do that?” As an alternative, they quickly agreed to “just run the money out” with a purpose to purchase higher companies. “And we’ve been doing it ever since.”
In 2021, Buffett referred to as poor administration the number-one risk to an organization. “You get a guy or a woman in charge of it—they’re personable, the directors like ’em—they don’t know what they’re doing. But they know how to put on an appearance. That’s the biggest single danger,” Buffett stated at a shareholder assembly, the Wall Avenue Journal’s Chip Cutter reported at the time.
Then once more, possibly the departed Munger, Buffett’s trusted right-hand man for many years, might have been a bit extra forgiving on subpar management. As he once said, “My theory, Warren, is if it can’t stand a little mismanagement, it’s no business.”
