The CEO's Warren Buffett Would Love- and Why

Margie is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Your child. You always want the best for them, and will often make decisions that create short term pain, in exchange for their long-term well being. This is a large part of what being a good parent is about.
The same can be said about corporations; a founder who has put his blood sweat and tears into a company is much more likely to treat it as his "child" then a MBA outsider who gets hired to ramp up short term profits at the expense of the company's long-term well being.

Warren Buffet, the world's premier investor, of Berkshire Hathaway (NYSE: BRK-B) often states that excellent management is one of the key factors in his decision-making on whether or not to buy or sell a given stock. Today I want to give an example of CEOs of companies that Warren would be likely to buy (if he understood them,) who have the company's best interest at heart, rather than their own. (ala Mark Hurd which I wrote about yesterday)

Steve Wynn, Wynn Resorts

Steve was the long-term CEO of Mirage Resorts, before being bought out by MGM. He did a phenomenal job at Mirage, creating the Vegas edict, " if you build it, they will come." It is largely because of him that today we see the high-end hotels that Las Vegas offers. Not long after Mirage was purchased, Steve Wynn went out and founded Wynn Resorts (NASDAQ: WYNN), which now has casinos in Las Vegas and Macao, and is in my opinion the premier gaming company in the world.

As the original Wynn resort was being completed, Steve personally conducted every interview, down to the cleaning crew, of every man in women that was eventually hired to work in his hotel casino. He cared so much to get it right, this multi-billionaire was interviewing even low level staff.

Whenever I see him on TV, he truly seems to care about the welfare of his employees. He states over and over that this is the primary interface through which his customers view his resorts, and that happy employees lead to happier and more loyal customers, less turnover, and thus greater profits in the long-term.

Sergey Brin and Larry Page, Google

The founders of Google (NASDAQ: GOOG) have created a truly wonderful environment for their employees. You can find many posts around the Internet specifically addressing this issue. People love working for the company. The benefits that Google offers are too many to mention in full, but some include free gourmet food, child care, and an in-house music studio ... (The list goes on.)

To be sure, part of the reason that Google is able to offer these amenities is because of their global reach, and the fact that one good and well designed idea can reap literally billions of dollars in profits. A supermarket, operating on lower margins, no matter how kind and good the manager and owner are simply cannot economically afford such perks.

And after last quarters earnings report where Google missed analyst estimates, short-term investors might not all be happy with Google's hiring spree, and the 50,000 plus people they have on their payroll worldwide. Certainly, Google could up near term profits by cutting research and development for all the wonderful things that they will bring to society in the future, and the stock price might go up with the increased earnings, but as a long-term investor, I would much rather have visionaries who are going to create new and useful products that will benefit us all long term, than have a near term bounce in the stock price.

I want to direct you to this putzed that I have republished by Steve Yegge. He accidentally made this post public on Google Plus where he meant it on an internal basis for Google.  The post is amusing, but more importantly indicative of the passion and desire employees have for Google to be successful, and whether or not you know much about engineering is a useful and informative read.

Jeff Bezos, Amazon

This doesn't mean that all CEOs on my list are well liked or popular amongst their employees. Here is Yegge's, who also worked at Amazon (NASDAQ: AMZN) for 6 1/2 years, amusing description of Jeff Bezos.

"He hands out little yellow stickies with his name on them, reminding people "who runs the company" when they disagree with him. The guy is a regular... well, Steve Jobs, I guess. Except without the fashion or design sense. Bezos is super smart; don't get me wrong. He just makes ordinary control freaks look like stoned hippies."

However, you have to give credit to Bezos where it is due. He's a visionary. Most people wouldn't think of it, but he realized early on, that his online bookstore needed to be an extensible, programmable platform, which is what has allowed Amazon to grow into the behemoth it is today.

But mainly, Bezos doesn't give a damn about short term profits. Currently Amazon has a PE ratio approaching an astronomical 2,800. Nevertheless Jeff Bezos, continues to reinvest all his profits into new products and services, believing that it would be foolish not to invest $1 today to make a $1.50 tomorrow. Obviously Wall Street recognizes this to some degree, thus allowing the stock to trade at such lofty valuations.

Regardless of whether or not Amazon is a good investment based on current ratios, the simple fact is that Bezos cares about the long-term viability of his company, rather than short term profits.

Bottom Line:

This is not to say that all founders of companies make excellent long-term CEOs. Jerry Yang was once heralded as a visionary for Yahoo! (NASDAQ: YHOO), and there's no doubt that he truly cared about his company, but Yahoo has lost its way, and Jerry's decision to down Microsoft's overly generous offer for the company, served neither employees or shareholders. 

Also, this coloumn doesn't preclude that there aren't excellent CEOs who didn't found/ grow up with the company.

Nevertheless, CEOs who truly care about their company's success are generally long-term thinkers. The fact that everybody on this list is a founder of the company is not random, because, as I stated, founders often see their company much as their "baby." Wouldn't you rather have such a person caring for your investment?

PS- Im sure some of you readers will say that Warren Buffett is known for his stodginess and might not aprove of all the generous perks. My point is that Buffett is thinks on a long term horizon, as do these CEO's. If having happier employees increases productivity beyond the costs associated with perks, Buffet would encourage it. 

Interested in Learning More?

You'd be hard pressed to find a track record better than Warren Buffett's. With the Oracle of Omaha at the helm, Berkshire Hathaway has grown book value per share at a compounded annual rate of 19.8%! Despite an incredible historical track record, investors have to understand the key issues to watch moving forward. To help investors, The Fool's resident Berkshire Hathaway expert Joe Magyer has created this premium research report on the company. Inside you'll receive ongoing updates as key news hits, as well as reasons to both buy and sell the stock. Claim a copy by clicking here now.


margiecfl has positions in Google and Berkshire Hathaway. The Motley Fool owns shares of Amazon.com, Berkshire Hathaway, and Google. Motley Fool newsletter services recommend Amazon.com, Berkshire Hathaway, Google, and Yahoo!. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

blog comments powered by Disqus

Compare Brokers

Fool Disclosure