Critical Evaluation of Warren Buffett's Leadership Style

CRITICAL ANALYSIS OF LEADERSHIP STYLE OF WARREN BUFFET
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Introduction
In any organisation, there are several factors that play a key role in determining organisational success, including the size of the opportunity, availability of capital, capable employees, and business model feasibility and scalability. One factor that aligns all the above-mentioned factors in achieving organisational objectives is organisational leadership (Hao and Yazdanifard, 2015, p. 2). The importance of an effective leader in an organisation cannot be overstated as a leader (whether good or bad) can influence the organisation that can resonate across the entire organisation. This could be attributed to the fact that a good leader can establish an organisational culture that can motivate the team towards a direction and purpose. Therefore, for an organisation to achieve success, an effective leader is a must (Hao, and Yazdanifard, 2015, p. 2).
In today's time, when organisations operate in a constantly shifting landscape and uncertainty, it is necessary for a leader to be agile and resilient, so that course correction (if needed) can be undertaken rapidly. Also, the organisational context defines the functions that the leader in an organisation must perform, including training employees and monitoring their progress (Meraku, 2017, p. 337).
Thus, considering the complexity associated with leadership, the leadership style of a business leader is analysed. The leader selected for the analysis is Warrant Buffet, Chairman and the CEO of Berkshire Hathaway, a US-based investment holding company that owns significant stakes in several businesses. The rationale behind selecting Warren Buffet for leadership analysis is that while he owns significant ownership in several businesses and has a strong influence on these businesses at the management level, he is not involved in the day-to-day operations of most of these businesses (Miles, 2033, p. 7).
This analysis is conducted by first describing the leader's background to understand the leadership position, followed by developing a theoretical framework to analyse the leadership behaviour. This is followed by giving some recommendations to make the leadership more effective.
Background of the Leader
Warren Edward Buffet is a US-based businessperson who is the Chairman and the CEO of the investment holding company Berkshire Hathaway (Kumar, 2013, p. 5). He is regarded as the most successful investor in the world, with a net worth of over $125 billion (April 2022), thereby making him the fifth wealthiest person in the world (Bloomberg, 2022).
His investment philosophy revolves around the concept of value investing. He started his career by working as an investment salesman at Buffet-Falk & Co. from 1951 to 1954. His next job included working under Benjamin Graham at Graham-Newsman Corp. from 1954 to 1956 (Kumar, 2013, p. 15). Benjamin Graham is often considered to be the pioneer of value investing, i.e., purchasing assets at a discounted price than the intrinsic price. Benjamin Graham has been a major influence on Warren Buffet in developing his investment philosophy (Miles, 2033, p. 13).
Warren Buffet's investment philosophy can be understood using the following case: In 1956, he established Buffet Partnership Ltd., which invested in several companies through a partnership model. In 1959, the partnership acquired 25% of the map maker, Sanborn Map Company. As per Warren Buffet, the intrinsic price of the company was $65; however, it was being sold at $45 per share. With the support of dissatisfied shareholders, Buffet got himself a seat on the board of directors and had 44% of shareholders supporting him. To avoid a hostile takeover, the company offered to repurchase the shares of Buffet and other shareholders in 1961, and Warrant Buffet generated an ROI (Return on Investment) of 50% in two years (Kumar, 2013, p. 18).
In 1962, he became a millionaire and acquired a textile manufacturing firm, Berkshire Hathaway, which was restructured into a holding company with diversified interests. The first investment of Berkshire investment was in Hochschild, Kohn and Co, a Baltimore-based department store. Significant investments followed this in various companies, including Washington Post Company (1973), American Broadcasting Company (1979), Salomon Inc (1987), and The Coca Cola Company (1988) (Kumar, 2013, p. 45).
Warren Buffet became a billionaire in 1990 when Berkshire Hathaway became public. In 2002, he entered into an $11 billion worth forward contract against US dollars, which gained over $2 billion. During the 2007-08 Subprime Mortgage Crisis, he made significant investments in Goldman Sachs. He became the wealthiest person in the world in 2008, displacing Bill Gates, who was the wealthiest person for the past 13 years. In the next decade, he also made significant investments in several businesses, including IBM (2011), Media General (2012), and Press of Atlantic (2013) (Kumar, 2013, p. 51).
Since 1970, Warren Buffet has been writing an annual letter to its shareholders, which is always looked forward to as he is considered to be a great storyteller and a communicator. His work is always considered to be 'words of wisdom,' including his warning on the impact of inflation on reducing capital availability and debunking theories like the efficient market hypothesis that suggest consistent return can be generated. He is also a supporter of index funds for passive investing and had suggested that S&P 500 index will outperform hedge funds, which was proven to be true in 2017 (Hagstorm, 2021, p. 24). Warren Buffet is also a philanthropist and has committed to giving 99% of his wealth to charity. The largest contribution is to the Bill and Melinda Gates Foundation (Kumar, 2013, p. 6).
Warrant Buffet has been described as having several personal characteristics that strongly influence motivating employees. These characteristics include being an optimistic, jolly, great mentor, deep thinker, appreciating others, and having an adaptive nature (Hagstorm, 2021, p. 34). He has also been described as showing confidence in his associates, which motivates them to achieve success. Buffet has been described as a visionary and also able to convince others to believe in his vision. Buffet has also been described as taking accountability and responsibility (Hagstorm, 2021, p. 34). While Warrant Buffet is considered to have several qualities and characteristics that others admire, however, to identify his leadership style, there is a need to develop a leadership style theoretical framework as done next.
Leadership Styles Framework
Different leadership styles need to be applied in different organizational contexts, and different academicians have identified various leadership styles along various dimensions (Val and Kemp, 2016, p.1). According to Khan et al. (2016, p.1), several classifications, theories, and explanations about leadership can be found in the contemporary literature. Most researchers and practitioners consent that leadership thinking has progressed over the years, with each new research either adding to or opposing the existing literature. While none of the theories is completely irrelevant, they are also not completely acceptable. Therefore, the theories have been modified with time to make them appropriate in the context (Khan et al., 2016, p. 1)
Broadly, based on insights from Khan et al. (2016) and Val and Kemp (2016) leadership styles can be grouped into five categories: The first leadership style is Authoritarian Leadership, in which the leader has complete authority in decision making, and the employees follow the leader's decisions in the organisation. The benefits of this leadership style include fast decision-making, quick information sharing, increased productivity, and effective handling of the crisis. The drawbacks of this leadership style include resentment by employees, low employee morale, and low engagement. This type of leadership style is suitable when the leader has much more experience than other team members (Val and Kemp, 2016, pp.1-2). The second leadership style is Participative Leadership, in which the leader engages other team members and discusses any decision-making with team members. The benefits of this leadership style include increased team morale, increased acceptance, increased collaboration, and increased employee retention. The drawbacks of this leadership style include increased likelihood of conflict, slow decision making, and requires employee willingness to participate. This type of leadership is suitable when the expertise level of the leader is not much higher than that of employees (Val and Kemp, 2016, p. 2). The third leadership style is Delegative Leadership, in which the leader assigns the decision-making to a member of the team who has the expertise and competence to make the decision. The benefits of this leadership style include increased avoiding burnout for the leader, increased participation by the delegate, fostering growth for the delegate, and promoting strategic use of skills of the delegate. The drawbacks of this leadership style include increased resistance by employees towards delegating, reduced accountability for the leader, and the perspective of other employees might not get considered. This type of leadership is suitable when the expertise level of the delegate is higher than that of the leader, or the delegate is capable of making the decision without involving the leader (Val and Kemp, 2016, p. 2). The fourth leadership style is Transactional Leadership, in which a 'transaction' is defined that refers to various expectations the leader has from team members and how these team members will be compensated for meeting the expectation that the leader has from them. The benefits of this leadership style include a well-defined role for employees, considered to be fair and easy to understand. The drawbacks of this leadership style include discouraging creativity, reduced commitment, and no individual growth. This type of leadership is suitable when there is a pre-defined process and rewards are associated with results (Khan et al., 2016, pp.3-4). The fifth leadership style is Transformational Leadership, in which the leader establishes a vision for the organisation and motivates other employees to...