During the summer of 2011, massive flooding in the Midwest washed away tracks and profit expectations at Burlington Northern Santa Fe, which Warren Buffett’s Berkshire Hathaway had purchased the year before.
Matt Rose, BNSF’s highly-respected CEO, knew it would cost the railroad hundreds of millions of dollars. He decided he had better call his boss in Omaha:
“I said, ‘We’re going to miss our earnings, we’re going to miss our capital, we’re going to have to spend $400 or maybe $500 million on this flood restoration. And if I was a publicly traded company, I would file an 8K and hold a conference call with investors and tell them all this.’
“And he goes, ‘Well, you’re not a publicly traded company, so why are you calling me?’ I said, ‘Well, I just felt like I needed to call somebody.’
“And he said, ‘Well, do you feel better?’ And I said, ‘Yeah, actually, I do.’”
Dennis Knautz tells this story.
Acme Brick was riding high during the housing boom, selling bricks as fast as it could make them. In 2005, Acme spent six months laying plans for a new plant and sent a detailed proposal to Buffett. The answer was no.
“He said, ‘You know what? I understand what you’re doing and can see all the work that you’ve put into this project,’ ” Knautz says. “ ‘But I just don’t think housing is going to continue at this level for a long, long period. So I just don’t think it’s the right thing for us to do. We can probably spend our money better elsewhere.’ ”
Two years later, the housing bubble popped. Housing starts fell 75 percent, and brick sales went south as well. And since then?
“You’d think there’d be lots of questions about what we’re doing,” Knautz says. “But there’s been very, very little comment from Warren about how we’re managing our business.”
If that sounds too good to be true, well, Rose and Knautz wouldn’t argue with you.
They are two of four chief executives in Fort Worth who work directly for Warren Buffett, guys who say they hit the corporate lottery the day their companies were acquired by Berkshire Hathaway. They shared their experiences at a recent Fort Worth Chamber of Commerce session, along with Randy Watson of Justin Brands and Paul Andrews, founder of the electronic parts distributor, TTI.
Most people know Warren Buffett as the Oracle of Omaha, as one of the richest men in the world, as the famous investor who’s giving away most of his wealth. What people don’t often think about is his skill as a leader.
“He’s really heralded as an investor. What he’s not heralded for, which I think he should be, he’s the world’s greatest manager,” says Robert Miles, a Berkshire shareholder and Buffettologist who wrote a book titled The Warren Buffett CEO.
Over nearly half a century, Buffett has built Berkshire Hathaway into a model conglomerate controlling some 80 companies, from Geico insurance to Dairy Queen.
In an age of Wall Street excess, Buffett remains an anachronism. He still lives in the same Omaha house where he raised his children. He buys companies to own them, not flip them. He chooses well-run businesses and keeps executives in place.
So how does he manage his CEOs? Mostly, they say, by not meddling.
Each company must file financials monthly and let Buffett know about major expenses. The executives can call as much or as little as they like. But they know that Buffett, with his legendary command of numbers, is paying attention. He’s a detail guy who doesn’t wade into daily decisions, a hands-off manager until he needs to be hands-on.
“I would describe it as very strange and almost bizarre the way he manages, because he doesn’t manage,” Rose says. “He takes companies that he likes, he spends a lot of time in terms of developing the goals of how management will be compensated and how the scorecard will look, and then he allows management to run the company.”
When TTI’s Andrews was seeking to sell his business to Buffett in 2006, he landed a meeting with the Oracle.
For a $140 billion company, there’s not much of a corporate office in Omaha—only about 20 people and no conference rooms. The two men sat on Buffett’s couch. A nervous Andrews was prepared to make his case. Buffett had only a few questions but looked Andrews right in the eye.
“What’s really interesting is that Warren saw the numbers. He decided beforehand whether he did or did not want the company,” Andrews recalls. “I think what he’s doing is he’s sizing you up, as a person versus all the numbers.”
Trust engenders respect. Andrews says he’s working harder than ever at the company he started 40 years ago. Since Buffett bought it, TTI’s revenues have nearly doubled.
Many wonder what will happen at Berkshire after Buffett is gone. At 82, he disclosed last spring that he has prostate cancer and said he has chosen a successor. BNSF’s Rose is often mentioned as a candidate.
No doubt, there’s a strong bench. Among all his achievements, Miles says, Buffett is most proud of the fact that he has never lost a CEO to a competitor.
Who’d want to work for somebody else?
Steve Kaskovich is deputy managing editor of business and enterprise for the Fort Worth Star-Telegram.