2008: How can you tell if someone will be a good manager?

AUDIENCE MEMBER: Good morning, Mr. Buffett and Mr. Munger. My name is Chander Chavla (PH), and I am from Seattle, Washington.

Berkshire Hathaway has some of the best managers in the world, and I am very bad at hiring good managers. The — some of the decisions that I’ve made, which were without any phone calls from Jamie Lee Curtis, I look back and I see — you know, what was I thinking.

What can you advise on, how in one hour you can assess the capability of a person to be a good manager?

WARREN BUFFETT: Well, you have to understand that we cheat. (Laughs)

We buy businesses with good managers. So if you give me a hundred MBAs — and I have these classes come out all the time to Omaha. I’ve had about 30 schools this year, and usually there’s 75 or a hundred men and women in the classes.

I no more could take those hundred and spend a few hours and rank them from number one to a hundred in terms of their future achievements as managers, you know, than I could pick them — you know, it would be impossible for me.

But what we do is we buy businesses with great managers in place. We’ve seen those people perform for, in many cases, decades. We’ve seen their record, and they come with the business.

Now, our job is not so much to select great managers, because we do have this proven record that they come with. Our job is to retain them.

And many of the managers — a majority of the managers that work at Berkshire — are independently wealthy. We hand them checks, sometimes, in the billions, often in the hundreds of millions. So they do not have a monetary reason to work, in many cases.

So our job — we are dependent on them, incidentally. I mean, we have 19 or so people at headquarters, and we have 250,000 working for Berkshire around the world, and we can’t run their businesses.

And our job is to make sure that they have the same enthusiasm, excitement, passion, for their job after the stock certificate changes hands, than they had before.

Now, that requires some judgment on our part as to whether these people love the business or love the money. They all like money, but many of them — well, our managers in particular — they love their businesses. I mean, they’ve worked at them — they’re a work of art to them, and they’ve been in the family sometimes as many as four generations.

So we have to see the passion in their eyes, and if we see that, then we have to behave in a way that that passion remains.

Can’t be done by contract. We don’t have contracts. It won’t — that doesn’t work.

But we can try to create an environment — and Berkshire, frankly, is the ideal environment — it’s even an ideal environment because of events like this.

Our managers feel appreciated. And they are appreciated. They’re not just appreciated by me and Charlie; they’re appreciated by you. And we want to give you a chance to applaud them. (Applause.)

WARREN BUFFETT: So I can’t be of enormous help. And if you’re looking at a group of MBAs, you know, it’s not easy. I mean, they know — they sort of learn by that point in life how to fool you, in terms of what answers you want to hear and all of that sort of thing.

I would look for the person with passion for the job. I mean, the person that is always doing more than their share. You look for people that are goods communicators and all of that sort of thing.

But I like my way better. It’s a lot easier just to take somebody that’s been batting .400 in baseball and say, “I think I’ll stick them in the lineup.”

And the nice thing about our game is that, you know, in baseball, unless you’re Nolan Ryan or somebody, you have to hang up things at 40 or thereabouts, but in our game, they go on and on and on.

I mean, I use as an example — we had a famous Mrs. B from the Furniture Mart, and she worked for us until she was 103, and then she left and she died the next year. And that is a lesson to our managers that — (Laughter)

Charlie?

CHARLIE MUNGER: Well, that was very useful advice. It reminds me very much of the late Howard Ahmanson.

And a young and starving business student once asked him for advice as to how to get ahead, and Howard said, “Well, I always keep a few million dollars laying around in case a good opportunity suddenly turns up.” (Laughter)