Saint Martin’s University

Warren Buffett

Photo Credit: Mark Seliger for TIME Warren Edward Buffett was born on August 30, 1930 in Omaha Nebraska to Howard and Leila Buffett. His father, Howard, was a stockbroker until elected into congress in 1942; his mother, Leila, was a homemaker. Warren Buffett is the middle child and only boy born to his parents. His sisters, Doris and Roberta, also make headlines with their generosity and successes.
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Photo Credit: classicphotos.com As a young boy Warren Buffett could be described as a math guru, he was able to calculate large tables of numbers in his head; a skill he still shows off today. Warren Buffett would often visit his father’s brokerage shop and write stock prices on the blackboard. Being so close to the industry allowed an 11 year old Warren Buffett to invest in three shares of Cities Service Preferred stock, costing him $38 per share. The shares dropped to $27 but he remained patient and waited for them to rise to $40 before selling for a small profit. Regrettably the stock soon rose to $200 but this didn’t faze young Warren Buffett, as he says “It was an early lesson in patience in investing.” (biography.com). At the age of 13 Warren Buffett ran a successful paperboy business where he filed his taxes and used his bike as a business deduction of $35. In high school Warren Buffett and a friend purchased a use pinball machine for $35 and installed it into a barbershop. The two were able to take the profits from the machine and purchase more machines. Warren Buffett sold his three machines, in three locations, to a veteran of war for $1200. By the age of 16, in 1946, he had enrolled at the University of Pennsylvania to study business. From 1949 through 1954 Warren Buffett made his first $100,000. After being rejected by the Harvard Business School, he enrolled in graduate studies at Columbia Business School. Before Warren Buffett reported to Columbia University in the fall of 1950, having already invested in the stock market; he, according to Schroeder, “Warren Buffett had invested in some tiny companies, including Tyer Rubber Company and Sargent & Co., and a somewhat larger business, hardware wholesaler Marshall-Wells” (75). While attending Columbia University, he was taught by Benjamin Graham and David Dodd, both well-known securities analysts. Buffett was a fan of Graham’s book “The Intelligent Investor,” and it was under Graham that Buffett learned the fundamentals of value investing. When Buffett graduated from Columbia he intended to work on Wall Street, but Graham convinced him to make another career choice. Back in Omaha, Buffett worked as a stockbroker and opened several partnerships. This is a demonstration of forward-looking, intelligent, and authentic traits of leadership as depicted by Kouzes and Posner all before the age of twenty years old. For every dollar Warren Buffett spent in 1950 it is equivalent to $9.75 in 2015 dollars. The following diagram depicts the flow of Kouzes and Posner’s leadership traits from leader to the lead and back:
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Warren Buffett invested in seven companies while in college: Greif Brothers Cooperage, Philadelphia Reading & Coal, Cleveland Worsted Mills Company, Western Insurance, National American Fire Insurance, Rockwood & Company, Union Street Railway, and Government Employees Insurance Company (GEICO).
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Photo Credit: One of Warren Buffett’s first major investments was in GEICO. Warren Buffett found out that Ben Graham was the Chairman of GEICO. Graham-Newman bought a huge block of GEICO stock in the past. Warren Buffett got the stock at a Ben Graham type price. Warren Buffett took all the money that was in his possession, $9800 (equivalent to almost 100 thousand dollars in 2015). But GEICO turned out to actually be a wonderful growth stock. Investors who kept their shares of GEICO when Graham-Newman distributed them made a lot of money over time. After finding this out, Warren Buffett, that Monday, less than 48 hours after arriving back at school, Warren dumped stocks worth three quarters of his net worth and used the cash to buy 350 shares of GEICO. GEICO was trading at $42 per share, a multiple of about 8 times its recent earnings per share and Warren Buffett thought the stock would be worth between $80 and $90 per share within five years. Buffett believed GEICO was a growth company. He believed its earnings per share would keep rising every five years or so. Because Warren Buffett thought he could take shares from other higher cost competitors. Warren Buffett thought GEICO had a better model, by not using agents, which drove down the cost of the insurance. GEICO provided a 50% return in the first year. After a few years, Warren Buffett sold GEICO for a profit. Eventually Warren Buffett’s company Berkshire Hathaway, purchased GEICO and Berkshire Hathaway still owns GEICO to this day (Schroeder 106). During an interview in 2005 about describing his early years of investing, Warren Buffett stated, “Measure success based on your inner score card. If you base success and/or your actions on an outer scorecard, that is, what others think, your life will be hollow” (Gardner 468). Warren Buffett has been described as a genuine leader of high moral character. Warren Buffett’s advice to other Photo Credit: Fusion Affinities
Photo Credit: Fusion Affinities leaders for what constitutes success reflects the notion of authenticity captured by the timeless advice of the ancient Greeks to be true to oneself. For these reasons, he has been singled out as an authentic leader. For some leaders the discussion of emotional labor and leadership suggests, affective events may contain display rules that make it difficult for leaders to convey emotions that are both appropriate and authentic. Drawing on social psychological conceptions of authenticity, Avolio also states, “posited and obtained empirical support for four core components of authentic leadership: self-awareness, relational transparency, balanced processing, and an internalized moral perspective” (468). Avolio further states, “Self-awareness is a process of reflecting on ““one's unique values, identity, emotions, goals, knowledge, talents and/or capabilities”” to develop an enhanced understanding of the self” (349). Thus, authentic leaders are persons who work to understand their strengths and weaknesses and their leadership should reflect an awareness of their inner motives, emotions, values, and goals. Relational transparency involves presenting one's true self as opposed to a fake or distorted self to others as the leader displays high levels of openness, self-disclosure and trust in close relationships. Balanced processing involves making accurate and balanced self-assessments and social comparisons in a fashion that is relatively free from ego-biased defense mechanisms. Finally, an internalized moral perspective refers to an internalized and integrated form of self-regulation that is guided by internal moral values and standards as opposed to external social norms or pressures.
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Warren Buffet, like many leaders before him, is known for his distinctive behaviors. Buffet’s three unique leadership behaviors are frugality, humility, and patience. Buffet has always been known for being frugal, despite his status as being one of the richest persons in the world. One of the most famous stories concerning Buffet’s frugality is when he renovated his dresser to make a bassinet for his first-born child instead of buying a brand-new bassinet. He also borrowed a bassinet from a friend for his second child. However, while being frugal has provided personal gains for Warren Buffet, it also communicates his leadership style in the workplace. As a leader, Warren Buffet is able to bring his frugality into his businesses. He is able to cut corners, save money, and open up a whole new opportunity for the next day (Namin). Being frugal also gains him a lot of respect from peers and employees. Carelessly spending money affects others but being frugal demonstrates a high emotional intelligence that people respect.
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Photo Credit: Victory Credit Union Warren Buffet is also humble. He doesn’t believe that anything should just be handed to someone; but instead working for a goal is important and it builds character. He is known for suggesting that if anyone can do something better than him, he has no problem with him or her doing it and he is happy to let them (Namin). His humility also shows through in his charitable giving. Warren Buffet announced in 2006 that once he passes away his wealth will be donated to the Bill and Melinda Gates Foundation. Warren Buffet felt that this foundation would use his money wisely and could put it to better use than he could. This shows an amazing amount of
Warren Buffett with Bill and Melinda Gates - Photo Credit: annachromy.com humility from Warren Buffet. Not only is he giving away a large amount of his fortune, he is also saying that others can use his money better than he can. Warren Buffet is able to gain a high amount of loyalty from his employees by being humble. He garners others’ respect through his actions as a human being. The third distinctive leadership behavior exhibited by Warren Buffet is his patience. Warren Buffet has an amazing amount of patience as an investor and as a leader. Warren Buffet knows that great wealth and great teamwork is not born overnight (Namin). It takes years of practice and perseverance. While his wealth is largely due to his careful persistence in the stock market, his success as a leader is due to his endurance in life. Warren Buffet knows how long it takes to build something successful. He believes it takes a large amount of patience to persevere through solving conflict and building successful teams (Namin). He also knows that in order to reach your career goals it takes a lot of time and persistence. Warren Buffet’s patience as a leader is astounding because it was one of the necessary ingredients to build his wealth and prosperous corporation.
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Photo Credit: logoeps.net Warren Buffet’s fantastic leadership ability is also due to his management centered on relationships. Warren Buffet is not a task manager. He does not micromanage aspects of his company or other managers. He is able to lead and manage through trusting each layer of management. Once Berkshire-Hathaway acquires a company, Warren Buffet has already developed a relationship with its managers and trusts them to continue doing a great job (Sorkin). He does not change anything about the company or micromanage it. This might seem like a cold-shoulder leadership approach but it isn’t. Warren Buffet shows so much confidence in the managers and companies he purchases that they want to prove his trust and work hard for him. It creates such a sense of loyalty from managers that they work hard for Warren Buffet because they respect him as a leader (Sorkin). Warren Buffet is able to influence a large amount of people using his laissez-faire management style. He is not a task manager by any means and allows the relationships and mutual trust with managers and companies he’s acquired do the talking.
Photo Credit: Transformational Women
Photo Credit: Transformational Women
It was interesting that we were able to find an article on Heuristic Transfer (transformational leadership) that included a section on Warren Buffett, in the article he was specifically illustrated (Latham). In the article the author recounts a publically debate in which Warren Buffett, Michael Jensen, professor at the University of Rochester, and three Nobel Laureates all believed that Warren Buffet’s successful record was simply a “three sigma event” – a statistical aberration of chance. The problem with this is that he and eight others were the protégé of Benjamin Graham from Columbia University. They were able to adopt his philosophies and strategies on how to look at the market and decide what actions to take. This has served him well and he has been able to use this to amass billions. When we want to talk about his leadership and that of transformational, we need to look at where this came from, it seems that his style of leading was a process from his university professor. The heir to the Buffett kingdom may not be who most think, there is a lot of speculation that his son would be his heir; this may be farther from the truth. His son’s current position in the company as President would be a logical choice, but there are currently 3 candidates that have been vying for the top job; they are: Ajit Jain, Matt Rose, or Greg Abel (Hanson and Koppenheffer). The process of transforming them into the heir apparent has begun, this process has been ongoing for more than 3 years and it is anyone’s guess when it will be complete. Buffett uses the transformational process to ensure that each of the candidates are shown how they are expected to act. The leadership of Berkshire Hathaway is an immense task, they all have leadership qualities that are known to the board and will be monitored on how they manage the holding. The text talks about how transformational leadership is used to transform for the purpose of achieving organizational goals over self-interest. They develop trust, seek to develop leadership in others, exhibit self-sacrifice and serve as moral agents. This is the life that Warren Buffett has led; he lives in the same small house he purchased in late 50’s, he has pledged half of his amassed fortune to the Bill and Linda Gates foundation, he is not flamboyant in his appearance or perks. He is working to instill the same self-sacrificing behavior on his successor, this will be the challenge for him, and he needs to ensure he instills or focuses the trust, motivation, commitment and loyalty that is needed for the running of the company. The question comes about how to define leadership, Robert H Moorman notes that if all we need is dramatic quotations then there would be little question about the importance of integrity. “The supreme quality for leadership is unquestionably integrity. Without it, no real success is possible” this quote is from President Dwight D. Eisenhower; however, Warren Buffett was quoted as saying “In looking for people to hire, you first look for three qualities: integrity, intelligence and energy. And if you don’t have the first the other two will kill you”.
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Photo Credit: mayorgaorganics.com Integrity seems to be the most important of the three that Buffett is quoted; this is because without integrity you cannot have a foundation for any kind of leadership, trust is something that has to be earned and integrity is the basis for any kind of trust. The problem is there is no significant way to measure integrity on a scale; it is measured by your actions and the perception from others, you have to be very ethical in all your dealings. This is where Warren Buffett has excelled, has he been the best investor or just an above average investor; the real answer is he has been ethical in all his dealings and has shown great integrity. This has proven to be the bedrock for how he shaped his style, and will be trying to imbue on the successor for Berkshire Hathaway, if you lead integrity first, then intelligence and energy. This is a formula for success.

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Works Cited
Avolio, B. J., & Gardner,W. L. “Authentic Leadership Development: Getting to the Root of Positive Forms of Leadership”. The Leadership Quarterly 16 (2005): 315−338. Web. 12 Feb. 2015.

Gardner, W. L., Avolio, B. J., & Walumbwa, F. O. Authentic leadership theory and practice: Origins, effects, and development. Oxford, UK: Elsevier. 2005. Print.

Hansen, David and Koppenheffer, Matt. “Who Will Replace Warren Buffett At Berkshire Hathaway” www.fool.com/investing/general/2014/05/09: Article. Web.
Latham, Gary P. "Heuristic Transfer in the Relationship Between Leadership and Employee Creativity." Journal of Leadership & Organizational Studies 1: 69-83. Print.
Moorman, Robert H. "Toward The Measurement Of Perceived Leader Integrity: Introducing A Multidimensional Approach." Journal Of Change Management 12.4 (2012): 383-398. Business Source Premier. Web. 27 Feb. 2015.
Namin-Hedayati, Farnaz, Ph.D. "Warren Buffett's Leadership Qualities, Buffett Quotes, Leadership Tips." Center For Work Life. N.p., 13 Nov. 2013. Web. 26 Feb. 2015.
Schroeder, Alice. The Snowball: Warren Buffett and the Business of Life. New York: Bantam, 2008. Print.

Sorkin, Andrew Ross. "Delegator in Chief." New York Times 24 Apr. 2011: 4(L). Biography in Context. Web. 27 Feb. 2015.
"Warren Buffett." Bio. A&E Television Networks, 2015. Web. 28 Feb. 2015.