Authentic leadership: characteristics, development, and organizational impact

Warren Buffett

One of the most influential business leaders in the world today is Warren Buffett. His holding company, Berkshire Hathaway, is one of the wealthiest such entities in the world. Buffett has become famous for building his wealth organically, through shrewd investments and timely divestitures. Such has been his success that not only is he idolized by millions of investors but he was even tapped as a potential Secretary of the Treasury by Barack Obama during the recent election campaign.

Buffett's investing philosophy was heavily influenced by the teachings of Benjamin Graham, under whom Buffett studied at Columbia. Graham's message of investing in fundamentals - in strong businesses - resonated with the young Buffett, who then adapted those philosophies to his own investing strategy. One of those philosophies was to identify and purchase companies whose share price was significantly below its intrinsic value (Kennon, 2009). This concept of a safety margin has guided Buffett's investments throughout his career.

It did not take long for Warren Buffett to assume leadership positions at companies in which he was invested. Buffett has always been an unassuming leader. He began writing the annual report for Berkshire Hathaway in 1970, a task he continues to this day. The tone of the report is relatively informal, compared to other annual reports. This lack of pretension is something that has defined Buffett's leadership. He still lives in the relatively modest Omaha house that he purchased in 1958, and largely covers his expenses with a modest salary.

Warren Buffett's humble nature has become a signature of sorts. He believes, for example, that his children should earn their own money. He keeps his own personal expenses to a minimum and has donated billions of his money to charity. He scorns the passing down of wealth from one generation to another, believing that the market would be better served if everybody had to earn their wealth. He also believes that some talents are disproportionately rewarded by the market than others.

These philosophies towards wealth and investing are part of Buffett's common sense approach.

His views resonate with people in part because those views are grounded, especially considering his immense wealth. For example, Buffett has criticized tax policies that see him, the world's richest man, taxed at a lower rate than his staff, who earn modest salaries. His annual reports often contain elements of Midwestern folk wisdom, which again makes his views very approachable. While Buffett was by no means poor growing up, neither was he wealthy. His relatively humble beginnings have helped him relate well to ordinary investors.

It would be unreasonable, however, to state that Buffett's down-to-earth charm is the sole reason for his large sphere of influence. It is his long track record of success as an investor that lends his views the credibility and influence that they do. His investment successes are legendary, his steady record of superior returns the most admired investing track record in the world.

By virtue of his success, Buffett has garnered an audience for his views. He is an unabashed supporter of free market capitalism, but has a true understanding of its limitations. He sees, for example, the subprime crisis as a form of poetic justice, punishing those who did not invest prudently but rather tried to create wealth from thin air.

Another core virtue of Buffett is his remarkable consistency. In his entire career, he has not wavered from his core investment philosophies. Nor has he wavered from his views on wealth, inheritance or the way that the market works. He was stated that Benjamin Graham's understanding of markets will still be fundamental to sound investment philosophy one hundred years from now.

Put together, Buffett's core values are simple in concept but difficult to execute in practice. Intrinsic value is often difficult to measure, for example, yet it is central to the Buffett investing style. Buffett's measure of success goes beyond mere acquisition of wealth. He views wealth as a means to an end, and prefers that the output of individuals have utility. For example, he has committed to putting his own wealth to charity rather than to lavish goods on himself. He has lived in the same house almost his entire adult life, and drives modest cars. He does not spend freely and has often criticized those who do. This view of wealth has helped him to accumulate such wealth for himself. The investments that he makes and the way he runs his companies are guided by the same principles with which he has always lived his life. In his view, spending should be limited and purposeful. Outputs should be created, and where they are there is value.

There is inherent good sense in these core values. Buffett's somewhat harsh assessment of the subprime crisis and the bankers who are suffering from its affects reflects the sensibility that intrinsic value is important and that the acquisition of wealth for wealth's sake is not a noble goal. Buffett has criticized conspicuous consumption, something that relates to both his upbringing and the safety philosophy of Benjamin Graham.

Buffett's no-nonsense approach is consistent through both the successes and the failures. For the most part, his strategies, philosophies and approaches have worked in his life. But there have also been instances when they have not. Buffett understands that in investing, forward-looking views are never 20/20. His views and strategies have led to some poor strategies. He invested heavily in 2007 at the outset of the subprime crisis, not understanding the full impact the crisis would have. Thus, he bought at prices far higher than had he been more patient. Patience was something that he learned young, when he bought a stock for $38 and sold it at $40, only to see it climb to $200 within a couple of years. Learning from his mistakes has also become part of Buffett's approach. Many investors fail to learn from their mistakes and suffer adverse consequences repeatedly. Buffett is certainly not immune to failure but his humility has allowed him to learn from the market even at this stage of his career.

Overall in his life, very little has not worked for Warren Buffett. Part of the reason for this is that he is not easily deterred. This persistence has allowed him to consistently excel beyond his years. He was able to put himself in a position to learn directly from his idols. In some cases, such as being hired to work under Ben Graham directly, it took several years of trying. Buffett has always viewed setbacks to be temporary, rather than permanent. He has long viewed this as a truth in the market as well. Market fluctuations, he postulates, are natural but in the long run the market will grow. He views his own success this way as well.

One of the traits that make Buffett a great leader is often not discussed in direct terms. The calm and control that he exudes during times of crisis is palpable. Part of this derives from his background but it also derives from the confidence that he has in his strategies and beliefs. As the subprime crisis began to grow, Berkshire Hathaway lost billions on derivatives and other ill-timed investments. Yet, Buffett maintained a strong sense of calm and optimism throughout. Comments he made to Fortune Magazine exemplify the matter-of-fact way that he views even the worst of situations:

The abuses kept coming back - and the terms got terrible with that. You've got a banking system that hung up with [abuses]. You've got a mortgage industry that's deleveraging, and it's going to be painful...deleveraging by its nature takes a lot of time and a lot of pain."

Fortune Magazine (April, 2008)

With the crisis unfolding and his company losing billions on bad investments, Buffett was more concerned with maintaining his core strategies, buying good American companies and running them well. Understanding the crisis was not something he deemed necessary to successful investing,. The calm he has exuded is the mark of a true leader. Crisis is not a time for panic selling or panic buying. "You shouldn't get greedy when others get greedy and you shouldn't get fearful when others get fearful." (Varchaver, 2008).

Buffett also understands the limitations to his abilities. Unlike many other corporate leaders, he does not view himself as infallible. He has criticized, for example, the complexity of the mortgage-backed securities that led to the current economic crisis. He believes that there are limits to what he can understand and he wants to run Berkshire Hathaway within these limitations. He refuses to make investments without having a clear understanding of the risks involved. He knows when it is time to delegate and has laid out a clear understanding of his role within Berkshire and within American society itself.

He also believes in transparency. Great leaders, he feels, are able to handle being imperfect. He openly admits his mistakes, and sets aside significant amounts of time to talk to Berkshire shareholders about the firm's successes and failures. He is a strong proponent of improved corporate governance and his record of transparency shows that he holds himself to the same high standards.

The most surprising thing about Buffett's leadership style is its simplicity. He ascribes to no complicated methods or models. He has distilled life down to basic wisdom and uncomplicated axioms. He ascribes much of his success to doing what he loves and being a good person that others like.

He has also emerged as a leader of leaders. Among Buffett's investment criteria is strong leadership. He views leadership as an integral part of success in this world, and ensures that each of his companies is equipped with great leadership talent. He bucks the Wall Street trend of firing leaders who fail to deliver short-term results, preferring to build his investments over the long-term (George, 2006).

What I learned about Warren Buffett is that leadership need not be complicated. Being a great leader is simply being calm, knowledgeable, honest and rational. It is not necessary to make billions to be a great leader; it is more important to love what you do and translate that to your employees.

The simplicity of Buffett's leadership is sometimes hard for others to translate to their own leadership styles. However, if you take his leadership style in total, you can see that the different components come together well. He is able to maintain consistency in his approaches in part because of his emphasis on fundamental knowledge, but also in part due to his humility. For a man who has amassed more wealth than any other human, he is by all accounts a genuine, down-to-earth man who at no point feels as though he has all of the answers. This understanding essentially forces him to maintain his level of knowledge and passion, in order that his leadership continues to deliver the same results in the future as it has in the past.

I feel one of the most difficult things to understand about authentic leaders is that they lead. They may take influence from other leaders, just as Buffett did from Benjamin Graham, but they do not concern themselves with what other people and other leaders are doing. Buffett famously rebuked the dot-com mania for its lack of fundamentals. The temptation must have been there to take the easy money, but his philosophy runs against such gambling. Instead, he rode out the boom with the same aplomb with which he is riding out the current crisis. True leaders know what they wan to do, and what resources it will take to do it. They show the way for others, rather than taking their cue from others. To calmly resist the prevailing trends and ways of doing things takes a lot of courage and a lot of confidence, and it is an essential component of authentic leadership as exemplified in Warren Buffett.