The Warren Buffett school: they have free rein, ready capital and the best boss a CEO could want. They run Berkshire Hathaway companies, and you've only begun to envy them - Careers - chief executive officer

Chief Executive, The, Dec, 2002 by Russ Banham

Successfu1, confident, well-adjusted...these chief executives don't mind working for another CEO, especially one considered by many to be the world's best. That CEO is Warren Buffett, the avuncular chief of the Berkshire Hathaway holding company.

To secure a place in Berkshire Hathaway's vaunted and pricey portfolio, these individuals--or their fathers, mothers or retired bosses--sold the companies they helped build and nurture. In return, their companies stayed solvent, their employees kept working and they gained access to Berkshire's $30 billion in capital and triple-A credit rating. Moreover, they needn't answer to Wall Street analysts nor to impatient shareholders.

They run their companies as they did before, under the benevolent stewardship of one of corporate America's best-loved billionaires. Robert P. Miles, author of the bestseller The Warren Buffett CEO, likens Buffett's holdings to a museum of business. "Buffett sees his job as curator, bringing paint and brushes to the artist," observes Miles. "Like a good art patron, he lets them paint the way they always have."

Chief Executive spoke with several authors of Buffett books and six Berkshire Hathaway CEOs to learn what it takes to catch the Omaha financier's eye.

What Warren Likes

Miles and two other Buffett book authors, Robert Hagstrom and Andy Kilpatrick, say the heads of the 37 subsidiaries in which Buffett chooses to invest are cut from a single cloth. "Buffett always says he seeks three character traits: integrity, energy and intelligence, in that order," explains Miles. "He's also said that if you don't have the first trait, the other two will kill you and the business."

Against a backdrop of corporate scandals and CEO mistrust, Buffett seems a stark contrast. He shunned the Internet bubble. He led changes in the way executives are compensated. He is a high-profile proponent of expensing stock options. He has more feeling for his employees and customers than some CEOs seem capable of mustering for a single shareholder. And he's reassuringly human. At this year's annual Berkshire meeting, Buffett entertained shareholders by playing the ukulele and singing, "When NASDAQ's down, you'll never frown, Berkshire's here to stay."

Buffett's investing criteria are outlined in his yearly reports to shareholders (see sidebar, below). "Buffett has said repeatedly if a company falls within these criteria, don't call an investment banker, call him," Miles says.

Buffett insists that his CEOs run their companies as they did before he acquired them. He asks only that they follow his management philosophy, which Hagstrom, author of The Essential Buffett and The Warren Buffett Way, sums up as "acting rationally about capital allocation, being candid at all times and resisting the lemming tendency of companies to imitate one another for no good reason.

His second tenet, honesty, comes up again and again. "Buffett believes that the best managers are those who are willing to admit their mistakes, which makes them less likely to repeat them and more likely to correct them," says Hagstrom, who when he isn't writing about Buffett is a senior vice president at the Baltimore financial services firm Legg Mason. "He also believes there is no such thing as a perfectly run business, so if you're not admitting mistakes, you must be sweeping them under the carpet."

Kilpatrick, author of Of Permanent Value: The Story of Warren Buffett and a stockbroker at Prudential Securities, says Buffett's real talent is assessing people. "He can look someone in the eye and tell in an instant if the person has character," vows Kilpatrick. "That may be going a little bit mystic, but he's rarely wrong.

Some Buffett watchers have been surprised in recent months by his modest investments in struggling companies like Level 3 Communications, a fiber optics network operating in the red, and The Williams Cos., an energy group. Buffett is known for preferring old economy companies and firms that are already in the black. "He doesn't like technology companies because he doesn't understand technology," says Miles. "He invests in companies like Gillette because he loves the fact that millions of men grow whiskers every night." But the investments were not a complete surprise. Buffett has said that if markets fell significantly he would use it as a buying opportunity.

So what does it take to become a Buffett CEO? Most are men, with the exception of Susan Jacques at Omaha-based Borsheim's Jewelry (see sidebar, "Serendipity and Smarts," p. 40). Their average age is 64; the 72year-old Buffett doesn't believe in retirement. Typically they're either third- or fourth-generation family managers of privately held companies, or have been promoted from within.

Buffet seldom grants interviews and this story is no exception, but six of his managers agreed to share their experiences as Buffett brigadiers: Eliot Tatelman, Melvyn Wolff, Jeffrey Comment, Harrold Melton, Scott Hymas and Susan Jacques.

Becoming Berkshire

Estate taxes drove Melvyn Wolff and his sister, Shirley Toomim, into the Buffett fold. The sole owners of Houston-based Star Furniture realized that when they met their maker, their business "would have to be sold under the hammer to justify the tax," Wolff explains. "We cared deeply about the employees and had to do something. So we engaged Salomon Brothers to give us advice."