The Advice of Warren Buffett for CEOs Touches on a Key Issue Plaguing the US Economy

Generally speaking, Warren Buffett likes to use the hands-off approach with companies that he and Berkshire Hathaway invest in.

Buffet once wrote that Berkshire Hathaway feels that informing great CEOs how to operate their companies would be “the height of foolishness.”

Nevertheless, the billionaire investor once argued that the ownership of the firm may make “even the best of managers” more effective.

How so? Here is what Buffet wrote in “The Essays of Warren Buffett: Lessons for Corporate America”:

“First, we eliminate all of the ritualistic and nonproductive activities that normally go with the job of CEO. Our managers are totally in charge of their personal schedules.

Second, we give each a simple mission: Just run your business as if (1) you own 100% of it, (2) it is the only asset in the world that you and your family have or will ever have; and (3) you can’t sell or merge it for at least a century.”

The second point of Buffett is particularly important as it indirectly touches on a fundamental issue that is plaguing the US economy: public companies, indebted to their shareholders, concentrate far too much on quarterly earnings and short-term prospects.

In Buffet’s “simple mission,” he argues that companies should leave that type of short-term thinking and focus on the long-term outlook instead.

“We certainly don’t ignore the current results of our business — in most cases, they are of great importance,” Buffett wrote, “but we never want them to be achieved at the expense of our building ever-greater competitive strengths.”