What Warren Buffett Gets Wrong About Leadership

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Originally published in Inc.

By Joel Peterson

No one wants to challenge the Delphic yet down-home wisdom of Warren Buffett. One of his better-known aphorisms reads as follows: “When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.”

Translation: It requires more than intellectual brilliance to turn around a failing business.

That’s not entirely accurate.

I know this from personal experience — as a management professor at Stanford, as a corporate board member, as an entrepreneur and as a senior executive. The very best CEOs can do wonders for just about any company, good or bad. However, you need several skills beyond brains, work ethic and courage:

  1. Execute: The best executives all have smarts, IQ doesn’t necessarily translate to leadership. Great leaders might have the highest test scores — and they might not. Where the best leaders are off the charts is at execution, meaning that they use data to make the best decisions, develop practical ideas into wise choices, and turn uncertainties into almost certainties.
  2. Walk the walk: Doing what you say, consistently, is hard for everyone. But people want leaders whose actions match their words. When they don’t, employees’ trust in senior management fades.
  3. Tell big from little: Leadership requires more than just solid judgment and unerring dependability. Setting and achieving goals is paramount, as is narrowing down which goals are key, which can be done the best, and which are of secondary importance. “He who chases two rabbits catches none” is an adage for a reason. Often, this requires not doing many things that are very good in order to accomplish the one (or maybe two) of most importance.
  4. Build an A-level team : Top leaders know business is a team sport. That means hiring A-level talent. But it’s more important to get the best out of each player, so you have an A-level team.
  5. Back it up with a budget :No, budgets aren’t the sexiest topic for a CEO. But the allocation of operational capital does point out a leader’s goals. They tell everyone where resources will be deployed — and not. They also establish time frames, accountability, and trade-offs.

Trust me, boards struggle to find the rare CEO candidate who has all these strengths. And when they do, they act — fast. Though they are rare, these are leaders who can turn businesses with “a reputation for bad economics” into a one that is brilliant.

Here’s the bottom line: Inspiring, action-oriented leaders are the kind of people who know how to execute on the most important issues, build a strong team, motivate their employees, and move ahead in the face of adversity. To develop these skills, look beyond the boardroom and focus on personal relationships.

Get to know your employees, work down in the trenches with them, and focus on the day-to-day basics of getting the job done. That’s how real leaders — and effective CEOs — are born.


Joel C. Peterson is the chairman of JetBlue Airways and a professor of business at Stanford University in Palo Alto, CA.

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