Buffet has chosen the practical working solution. Pre-empting Alan Greenspan’s declaration that “the state of corporate governance to a very large extent reflects the character of the CEO.” Buffett has opted for integrity. “CEOs want to be respected and believed,” he said. “They will be – and should be – only when they deserve to be.”

Buffett described the workings of the institutional imperative:

  1. As if governed by Newton’s First Law of Motion, an institution will resist change in its current direction;
  2. Just as work expands to fill the available time, corporate projects or acquisitions will materialise to soak up additional funds
  3. Any business craving of the leader, however foolish, will be quickly supported by detailed rate of return and strategic studies prepared by his troops
  4. The behaviour of peer companies, whether they are expanding, acquiring, setting executive compensation or whatever, will be mindlessly imitated. Berkshire Hathaway

… A year earlier he had begun buying up shares in another company for the partnership: Berkshire Hathaway, a manufacturer of textiles based in New England. By 1965, he had built this up to a sufficient size to allow him to take charge of its operations. (Only later would he become the company’s chairman).

getting into the details through people

“I could no longer have fingertip control of all the details. That made my obsession with people even more intense.” ~ jack Welch Strategic plan…

mindset

To those who cling to strategic plans for the reassurance they provide, and to those whose behaviour strategic plans orient, this mindset is deeply disturbing. Buffett relinquishes control in the face of uncertainty. … … He does not clearly articulate to people what they should do. He does not tell them how to get tot heir goal. He is reactive to the environment, rather than proactive.

Buffett’s vision of capital allocation was infused with insight. He already had the facts:

As a manager, you can’t just tell people what to do and expect them to do it. You have to find some other way, some other form of leadership. They have to be motivated personally to do it. - Commitments to business manifests their own dynamics, divorced from their original conception, aggregated around self-interest. - The psychological needs of the people for whom managers work can threaten to change the way companies are managed on their behalf. Buffett articulates the principles that guide his stewardship of other people’s money.

As an investor

Although our form is corporate, our attitude is partnership. Charlie Munger and I think of our shareholders as owner=partners, and as ourselves as managing partners… We do not view the company itself as the ultimate owner of our business assets but instead view the company as a conduit through which our shareholders own the assets.

Estimation…

Buffett has an excel spreadsheet in his brain, which helps, but there should be so few variables in his equation and so little ambiguity that the math is simple. He is not looking for absolute precision. “It is better to be approximately right than precisely wrong.” He maintains. He has not reduced this to a numerical science. “Read Benjamin Graham and Phil Fisher, read annual reports and trade reports, but don’t do equations with Greek letters in them,” he says. It’s more a question of knowing the range of possible outcomes. When this is the case, the rest follows.