Warren Buffett Management Style

Buffett views himself as a capital allocator above anything else. His primary responsibility is to
allocate capital to businesses with good economics and keep their existing management to lead the company.

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When Buffett acquires a controlling interest in a business, he makes clear to the owner the following:

• He will not interfere with the running of the company.
• He will make the hiring and compensation a decision of the top executive.
• Capital allocated to the business will have a price tag (a hurdle rate) attached. This process is
  to motivate owners to send excess capital that does not return more than its cost to Berkshire headquarters
  rather than investing it at low returns. This cash is then free to be invested in opportunities
  that offer higher returns.

Buffett's hands-off approach has held strong appeal and created room for his managers to perform
as owners and ultimate decision makers of their businesses. This acquisition strategy enabled Buffett
to buy companies at fair prices because the sellers wanted room to operate independently after selling.

Besides his skills in managing Berkshire's cash flow, Buffett is skilled in managing the company's
balance sheet. Since taking over Berkshire Hathaway, Buffett has weighed every decision against its
impact on the balance sheet. He has succeeded in building Berkshire into one of the eight companies
(as of 005) that are still rated by Moody's as Aaa, the highest credit rating achievable and thus
with the lowest cost of debt. Buffett takes comfort in the knowledge that, for the foreseeable
future, his company will not be one of those shaken by economic or natural catastrophes. He repeated
over the years that his catastrophe insurance operation is the only one he knew that can keep the checks
clearing during financial turmoil.

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