Essay: Warren Buffet: personality, organisational culture, organisational initiative & entrepreneurial assessment

From the moment we got this individual assignment my first thought was Warren Buffet. At the same time I changed my mind, because he is an investor. After having read more about him, I was even more excited than I was about this entrepreneurial leader. It will appear that Warren Buffet started very young to build his empire.
Warren Buffet, worldwide known as ‘the oracle of Omaha’ was born on 30 august 1930 in Omaha, at this time America was in an unprecedented deep economic depression. By the time Warren became six, economic conditions improved. However the recession had made a large impact on Warren and at a young age he decided to get rich, because poverty was something he never wanted to experience again . When Buffett was six years old he had his first job, he went to sell chewing gum along houses. Besides selling gum Buffett was also working on selling magazines and Coca Cola from door to door. Warren made his first investment at 11 years old, he bought three shares for 38 dollar per share. At 13 he was running his own business as a paperboy, this became the seed money for his later empire.
After high school his father convinced Warren of going to college, he went to the University of Pennsylvania. Warren was obsessed of figures and had a great advantage with a photographic mind. Buffet also went to Harvard for an interview, but was rejected. After that he enrolled for his economist and investor master’s degree at Columbia Business School and graduated with by his idol and mentor Benjamin Graham in 1951.
Buffet, with an estimated fortune of $ 60.8  is one of the richest in the world and he did it all by himself. Buffet has a majority interest in over 70 companies with more than 250.000 employees. His investment company Berkshire Hathaway is worth over 150 billion dollars . Despite being one of the richest men in the world, he is down to earth and an extravagant lifestyle does not suit him. Warren Buffett, the man who only uses a computer for bridge and he rather prefers the Moody\’s catalogue (8000 pages) above the internet. For this man it is all about the investment game, leading companies and managing people and apparently he is very good at it. The combination of being a calm investor who always thinks for himself and the success he has with his business gives me the impression that he has excellent, maybe unprecedented capacities as leader and entrepreneur. Buffet goes left where others go right, therefore he has beaten the market every year since 1964 with an average rate of 20%3.
1.1. Personality
It is possible to describe Warren Buffet in a couple of words, ‘down to earth’ & ‘authentic’ . There is a book written about the personality and traits of Warren Buffet. The author N. Liberman described a couple of characteristic about his character:  frugality/restraint, modesty, independent thinking, greed, conscience, deferring gratification and cutting your coat, that means: do not spend more money than you have (Liberman & Mc Gill, 2014).
Warren Buffet lives frugally and modest, a good example is that he still lives in the house he bought for $ 30,000 more than 50 years ago4and he drives slightly damaged cars because they are cheaper (Schroeder & McGonagle, 2008). Buffet once said ‘as long as it is warm in the winter and cool in the summer, I don’t have to move’. His three children are raised normally and Warren and his in 2004 deceased wife encouraged their kids to follow their dreams, without the pressure to grow up in the company. So, the Buffet family is not focused on money. Even getting a loan from their father is difficult. A daughter of Buffet wanted to get a loan worth $ 30,000, Buffet refused4. Warren in 2006 decided that his full inheritance (99%) would go to charity, his children were at peace with that. Buffet spends 80% of his day on reading newspapers and financial information looking for good ideas . Warren is good at making money, he never visits companies he bought, it is a conscience man. In other words, this allows him to do the right thing by himself and having the capacity to recover from mistakes or live with it. Warren also has the ability to deferring gratification, this is an important trait certainly in the investment world. He refrains from buying now in order to profit more from buying in the future and Buffet and his business partner, Charly Munger are making clear that they stick to what they understand. In the book ‘Warren Buffet The Business of Life’, they refer to “cutting your coat” which is another way of saying: work within your own boundaries (Schroeder & McGonagle, 2008) . A topic that is related to that, is independent thinking, it holds that a large part of the success of Buffet can be ascribed to the ability to think independently. He is not someone who follows the group.
Warren Buffet scores high on competitive aggressiveness according to Lumpkin & Dess (1996). Buffet buys stocks and companies aggressively when shares are going down. For instance he bought Apple shares at 109 dollar when the second hedge fund Scion Asset sold off their stake . Since investing in stocks is a risky business, however the extent of risk taking of Warren Buffet can be seen as low. Buffet is a long term investor and abhorred Wall Street. He is analysing a company and waits till the perfect moment to buy a company, this could last for years4. As a young kid (11 years) he took more risk by buying stocks without doing research and by buying companies (Dempster Mill in 1960, Berkshire Hathaway textile in 1962) with products without competitive advantage (Schroeder & McGonagle, 2008). Low risk taking can be argued with the fact that Berkshire outperformed the stock market (S&P500) every year since ’64 . Furthermore, when he was six years old he constantly searched for business opportunities. For instance, Buffet sold cooled cola cans, later he bought pinball machines and rented out a car with a partner4,5,6. He also did the Dale Carnegie’s public speaking course, because he hated public speaking4,5. From this point of view Buffets scores high on proactiveness. In addition, by buying the right companies at the right time with taking into account future needs, Warren Buffet is the perfect example of a proactive leader . This man also has a clear vision, he did not want to get involved in businesses that had labour problems or businesses where he had to fire people or personally had to get involved in management. This became a guiding principle for Buffet. His rule has always been to remain distant from his managers and executives.
Before Warren starts investing, he asks himself whether or not a company will be able to sell their products in 20 or 30 years. In other words, he demands that companies are innovative in order to survive in the long term, so innovativeness can be seen as high. It is inspiring that whatever the market is going to do Buffet sticks to his vision, the down to earth mentality makes Buffet a respected man who is loved by many, but he will in spite of the enormous fortune never behave differently or draw against social and lower classes of society.
1.2. Organizational culture
Organisation culture, according to Bolton, Brunnermeijer & Veldkamp (2013) are the principles and values that should inform the behaviour of all the firms’ employees. Schein (1992) referred to the values and beliefs that provide norms of expected behaviours that employees might follow. Because Berkshire is controlling a lot of businesses, the decentralized culture was necessary because a tight controlled business was not feasible. Buffet creates a corporate culture in which norms of behaviour are more important compared to fixed rules and structures. Warren thinks that people with more autonomy will have a greater sense of responsibility rather then when they are strictly controlled, this is going well because Berkshire has not yet come into the news by serious scandals by staff (Cunningham, 2014). In addition, Buffet wants to keep overhead as low as possible, which means less management layers (Schroeder & McGonagle, 2008).
Buffet’s business culture is based on economic principles. This means focussing on cash generation, turning every invested dollar in more than one dollar and producing long term results. In the bi-annual memo of Berkshire, Warren Buffet has a couple of bullet points regarding the organisational culture; employees always have to write in plain English to create trust and transparency, Warren creates a speak up culture in his companies, this means employees are invited to appoint potential misdeed personally to Warren .
Warren Buffets does not have a long term vision of where he wants to be within 5 or 10 years, he enjoys working every day and he also noticed that a nice job is more important than one that will look well on someone’s Curriculum Vitae . Warren is a liberal democrate and he believes that the wage gap between rich and poor should be less large, so no exorbitant salaries and bonuses for managers at Berkshire and their subsidiaries. In 2003 Warren introduced a new vetting system for corporate beneficence. In most of the companies, the board will choose the charity funds which can expect a donation. At Berkshire Hathaway the shareholders can choose from a set of charity funds and they decide which charity fund will receive a donation11.  Furthermore, with over 250.000 employees we can say that Berkshire Hathaway has a quite important role in society and therefore has to act responsible.
When Berkshire is looking for new employees to fit in their companies they look at three basic characteristics; integrity, intelligence and energy. Warren underpinned it as follows; “if one does not have the first, the other two will kill you, if you hire somebody without (integrity) you want them to be dumb and lazy”. For instance, a low integrity, high energy and high intelligence will form a fast, smart moving thief .
1.3. Organisational initiative
The next organisational initiative has to do with the fraudulent financial scandal of Salomon brothers in august 1991. The legal, managerial and ethical issues created a greed culture and took Solomon almost to bankruptcy. Buffet had invested 700 million preferred stocks and was therefore Solomons biggest shareholder, but in 1991 his role of investor changed radically by the decision of the board of directors of Solomon, they appointed Buffet as CEO. His leadership ensured that companies, employees (about 8.000 in 1991) and other stakeholders such as government again had confidence in Salomon.
Warren was questioned by judges and admitted that some employees of Salomon were guilty of abuses. He immediately took responsibility and offered full cooperation with investigating authorities and governments. In addition, the company itself also started an investigation, but does not have the judicial strength of a government13. Because Solomon was listed and scandals directly affect the stock market, Buffet maintained open communications with shareholders. Furthermore, Buffet and Deryck C. Maughan fired all parties, such as legal advisors, senior managers, and suppliers who were allied with the scandal. Next, they appointed new leaders, independent research bodies, auditors and they adopted a legal advisor to provide full transparency during the process and the future of the company13.
The culture Gotfreund (former CEO) had created was focused on short-term profit at all costs and was conflicting with the principles of Warren Buffet, which focused on long-term results. Buffet also sent letters to all employees and other stakeholders such as shareholders and governments. In the letter, he informed these people that there would be radical changes. He also indicated that managers had to report every abuse and therefore Warren put himself available at any time of the day. Warren announced the following during the court hearing and in the letter to his employees and stakeholders: “Lose money for the firm, I will be very understanding; lose a shred of reputation of the company, I will be ruthless”13.
1.4. Entrepreneurial assessment
First of all, I think being an entrepreneurial leader is not something you are temporarily. You are an entrepreneurial leader for 24 hours a day. I think based on what I have found about Warren Buffet, I can draw the conclusion that he is leading his company with an entrepreneurial spirit indeed (Dess & Lumpkin, 2005; Lumpkin & Dess, 1996).
In the organisational initiative chapter, Warren Buffet confirmed to be a leader who is capable of changing a large organisation infected with a couple of fraudulent people from bankruptcy to an organisation respected by the environment and stakeholders. In addition, he focusses on a fixed set of principles; long-term results, reputation and empowerment of employees. In order to make these decisions, he proceeds rigorously.
Each year Warren is looking for good ideas (new businesses), he only buys companies that offer distinctive products or services. This is done on the basis of a couple of rules: Warren only buys companies he understands, there has to be a capable management and of course it has to be financially attractive. By implementing this strategy and buy at the right time he creates a kind of first-mover advantage in new products. Additionally, he keeps a distance from his managers and loves to empower every employee in his company hereby he creates a fulfilling climate among employees which makes it easier to develop his businesses and retain good employees.
In this paper, social corporate responsibility is not extensively discussed, previously Warren bought companies which value was lower than its assets (Dempster Mill). When he was in an ownership position he sacked the staff and sold the business which was often in a downward spiral. Of course this is not corporate social responsible behaviour. In addition, you can wonder to what extent Warren contributes to a healthier society with its majority shares in Coca Cola. The sweet drink that is widely consumed by people.
Probably his biggest future step will be the appointment of a potential successor. Like his personality and business acumen he will think carefully about this important moment. The successor will be someone who has been working in the organisation for a long time. This person knows the culture and can monitor it. Buffet is firmly on its built empire. He said that Berkshire will remain forever because of its culture. In fact, he thinks his business more than other companies may have to continue because people