08 March 2011

Learning to Say "No"

A note recently came from a friend who is taking on a new assignment.  He asked for any advice we might have to help him get off to a good start.  Our standard response to this type of inquiry is generally three-fold: 
  • Understand the limitations of the job
  • Take time to listen
  • Learn to say "no" most of the time
We were reminded of this last point about saying "no" while reading the 2010 letter to Berkshire Hathaway shareholders from its Chairman and CEO, Warren Buffett.  (Mr. Buffett is one of those rare individuals whose persona is greater than any title).     

People often think of successful leaders as those who are capable of doing almost anything.  But this is where the publicity gets in the way of reality. In fact, those at the top who achieve something significant in corporate life get there by deciding what their companies will not do.

Early in my management career, I learned the hard way that not every opportunity is strategic.  I went after things that were not always a good fit for the goals and culture of the businesses in my portfolio.  Saying "yes" too often was counter-productive.    

Is there a right sequence for good decisions?   If so, where do you start?

It begins with a leader being in touch with themselves, first.  Having a sense of purpose and values; being realistic about the situation they face; avoiding any form of self-deception which is the greatest deception of all.  This is a person who is best described as a realistic optimist.

Only after this centeredness is in place can a leader take on the unending demands of an organization (large or small) and pursue the right opportunities--especially those having to do with getting the right people in the right place at the right time.

This describes the brilliant, but imperfect allocator of capital, affectionately known as the "Oracle of Omaha."

After finishing "The Snowball," Buffett's authorized biography by Alice Schroeder, I was struck by the fact that Berkshire Hathaway, and its portfolio of diverse investments, is a reflection of how Mr. Buffett sees the world--not just a value investment philosophy taught by Benjamin Graham, one of his professors at Columbia University.

In the shareholder letter, Mr. Buffett writes that he has "reloaded his elephant gun" with some of the $38 billion in cash and cash equivalents (he prefers keeping at least $20 billion on hand just in case) and is "itchy" to make some big game acquisitions.  

Based on what business criteria?
  1. Big industrial businesses with near monopoly positions and solid sales growth
  2. At least $75 million in pre-tax income
  3. Market values of about $5 billion to $20 billion
Following Buffett in the press or from the scores of lengthy articles and books written about him will lead you to one conclusion:  This three-point filtering mechanism emanates not from a computer or calculator but from his extensive experience with people and business. 

Buffett places a premium on owning businesses where he has a high level of comfort or understanding.  This helps explain why "technology" is not on Berkshire Hathaway's short list of possible acquisitions.

Stating the obvious:

The criteria for future investments listed in the current shareholder letter leave out more than it lets in.

In the 2009 shareholder letter, Mr. Buffett wrote about Berkshire Hathaway's philosophy for making decisions and investments.  This is what he and Charlie Munger, his long-time business partner, try to live by.  It came under the heading, "What We Don't Do:"

Long ago, Charlie laid out his strongest ambition: “All I want to know is where I’m going to die, so I’ll never go there.” That bit of wisdom was inspired by Jacobi, the great Prussian mathematician, who counseled “Invert, always invert” as an aid to solving difficult problems. 

Here are a few examples of how we apply Charlie’s thinking at Berkshire... 

• Charlie and I avoid businesses whose futures we can’t evaluate, no matter how exciting their products may be.
• We will never become dependent on the kindness of strangers. Too-big-to-fail is not a fallback position at Berkshire.
• We tend to let our many subsidiaries operate on their own, without our supervising and monitoring them to any degree.
• We make no attempt to woo Wall Street. Investors who buy and sell based on media or analyst commentary are not for us.

This pattern of knowing what to exclude is a key factor in Mr. Buffett's long-term success.

Do you have a list of things the organization won't do?  Are they written down?  Do others know what they are?

Learning to say "no" most of the time is an overlooked practice of high-achieving individuals.  It's a behavior worth considering if success is a personal and corporate goal.


(C) Bredholt & Co.