WHAT WARREN BUFFETT LOOKS FOR IN COMPANY MANAGEMENT
- Buy back of shares where the buy back is in the company’s interests, for example where the company has surplus funds and the shares can be bought back at less than intrinsic value
- Capability in allocation of capital
- Managers who stick to doing what the company does best; ‘the best business returns are usually achieved by companies that are doing something quite similar today to what they were doing five or ten years ago.’
- Ability and readiness to tackle tough problems as they arise
- The use of retained profits to increase company profitability at beyond market rates
- A conservative approach to debt and liquidity
WHAT BUFFETT DOES NOT LIKE IN COMPANY MANAGEMENT
- Managers who pursue company acquisitions for reasons other than the good of the company – ego trips, the ‘institutional imperative’ of keeping up with other company acquirers, bad judges (they buy a toad and think that it will turn into a princess when they kiss it); as he famously said in 1981, ‘[M]any managerial [princes] remain serenely confident about the future potency of their kisses – even after their corporate backyards are knee-deep in unresponsive toads’.
- Managers who pursue growth for growth’s sake, irrespective of the value of that growth to the company
- Managers who expend too much of the company’s worth by issuing valuable shares to buy overvalued assets or who use debt to do so.
- Managers who enrich themselves at company expense by with extravagant salaries and the abuse of share option arrangements