Not since the mystery of "Who Shot JR?" has our nation collectively pondered a single question: who the devil is going to succeed Warren Buffett to run Berkshire Hathaway? Mr. Buffett will be 85 years old in August and, unlike a majority of our readers, was actually very much around, and yes, running Berkshire Hathaway back in 1980 when JR took a bullet. In fact, this past weekend Berkshire Hathaway celebrated its 50th Annual Meeting / tent revival / gathering of 40,000+ of the faithful in Omaha. With respect to Buffett and more generally, CEO succession is a question repeatedly invoked and typically answered pessimistically. If a founder or CEO's singular skills and charisma drive an organization, so the thinking goes, then the company’s outlook ought to be negative after they leave. In this way, when Steve Jobs suddenly announced his departure, not to mention his untimely death, Apple’s stock initially tumbled due to investor uncertainty about whether the culture of design and innovation he had instilled would carry on.
Now we will stipulate that Buffett is sui generis. But that doesn't necessarily mean that Berkshire has a bleak future beyond Buffett. The Oracle of Omaha himself was optimistic saying that, “Berkshire’s culture runs as deep as any large company” and that he even expects the culture to “continue and become even stronger.” Buffett further believes the culture is “institutionalized” in the daily routines of the company. It had better be. Despite Buffett’s optimism, business history is littered with examples of companies that stumbled after their influential founder’s departure. For example, following Walt Disney’s death in 1966, the company faltered for two decades trying to recreate the magic of the founder. It was not until Michael Eisner’s entry in 1984 that the company regained its footing. Additionally, Sam Walton famously drove Wal-Mart’s “Every day low prices” culture and while his immediate successor, David Glass, did quite well in maintaining this culture, over the years the company began to drift away from this vision, which ultimately undermined sales and profits.
Max Weber, the early 20th century German sociologist and one of the first scholars of institutional leadership, argued that the initial, charismatic leadership that typically unites a nascent organization will inevitably be replaced by "rationalized authority" once the charismatic leader steps down or passes away. Weber called this the “iron-cage” of rationality. That is, while a founder typically instills a certain non-left brain vision for the company to go along with the “rational” aspects of facts, figures and the do’s and don’ts of an MBA education, after he or she leaves, it can be difficult for the former to survive. Taking Wal-Mart as an example, there may have been nothing wrong with the post-Walton strategy from a “rational,” business education perspective, but it strayed from the unmitigated focus on the singular idea of "Always Low Prices" that made Wal-Mart, Wal-Mart.
Far be it from us to denounce rationality. As Buffett's omnipresent nonagenarian co-investor-sidekick-best friend Charlie Munger quipped at last weekend's meeting, "Being rational is a moral imperative. You should never be stupider than you need to be." But rationality isn't enough; it is necessary, but not sufficient. Organizations need interstitial glue that augments and transcends rationality, in other words, culture. Weber believed the cage of rationality was inevitable. At Brand Culture, we respectfully disagree. We believe that organizations can maintain and nurture organizational culture faithful to the vision of past charismatic leaders.
Company cultures are living things. They are not bumper stickers or “about us” sections on a website. They must be reproduced on a daily basis. This impermanence and mutability is exactly why culture can be so difficult to maintain after a charismatic leader departs. The leader’s personality is no longer around to reproduce the culture and what remains are the rationalized, routinized activities of business. However, instilling and institutionalizing a collective Shared Purpose within a company can counter this push toward overwhelming rationality. This requires finding the right symbols, leadership, structures, communication systems, recognition and reward practices and an environment that not only fits with the founding vision, but recreates it on a daily basis for workers and customers alike.
It remains to be seen whether or not the Berkshire Hathaway culture “continues for decades and decades and decades to come” as Buffett predicts. But there certainly are some positive signs that the company has indeed done much to reproduce the Buffett culture in daily practice through a Shared Purpose. For instance, Buffett places an extremely high—some say too high—emphasis on trust. Berkshire reproduces trust through the actual structure of the organization: it has no general counsel to oversee the holding company’s numerous units, nor even a human resources department. The company is entirely based on hiring people that can be trusted and leaving them to do their jobs. If this is any indication of the efforts Buffet has made to maintain his culture, Berkshire may well escape Weber’s iron cage. It's historically been a sucker bet to count Buffett out.