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Management lessons from Warren Buffett
Engineering Echelons
Collin P. Wheeler
May 09, 2025 • Estimated Reading Time: 8 minutes
Hey, it’s Collin. Welcome to Engineering Echelons, a newsletter full of ideas and insights to help engineers excel at management.
Here’s what I’ve got for you this week.
New and noteworthy news
Something to consider
Some insights to delve into
And more…
First time reading? You can subscribe here.
Alright, let’s get into it.
Noteworthy Headlines
Construction in the Crosshairs (KPMG)
Highlights:
The US construction sector is facing twin pressures from trade policy and labor shortages.
The US construction industry imports 10% of all inputs
Specialty Contractors Drive Construction’s Jobs Gain in April (ENR)
Highlights:
Specialty trade contractors (both residential and nonresidential) showed an overall gain of 9,000 positions.
Building contractors added 2,900 positions.
Heavy civil engineering construction declined by 500 positions.
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Management Perspective
This past weekend, I attended the annual Berkshire Hathaway shareholders meeting in Omaha, NE. I’ve been to this meeting a few times before, but this one was significant because at the end, Buffett announced that he was recommending his #2 to replace him as CEO, effective at the end of the year. The following day, the board approved Buffett’s recommendation.
At 94 years old, Buffett will remain board chairman and help Greg Abel, the soon-to-be CEO, with large acquisitions. But it marked the beginning of a transition to a Berkshire Hathaway without Warren Buffett, something that hasn’t happened in 60 years.
Buffett has immense business knowledge that he has compounded over a long lifetime, and he has been generous in sharing what he has learned. This week, I’m including the best of what Buffett has shared over the years for managing companies.
Use Clear Yardsticks to Judge Management Performance
Yardsticks seldom are discarded while yielding favorable readings. But when results deteriorate, most managers favor disposition of the yardstick rather than disposition of the manager.
. . .
To managers faced with such deterioration, a more flexible mesurement system often suggests itself: just shoot the arrow of business performance into a blank canvas and then carefully draw the bullseye around the implanted arrow.
Good News and Bad News
At Berkshire, we believe in Charlie’s dictum — “Just tell me the bad news; the good news will take care of itself” — and that is the behavior we expect from our managers when they are reporting to us.
Management Compensation
We do not put a cap on bonuses, and the potential for rewards is not hierarchical. The manager of a relatively small unit can earn far more than the manager of a larger unit if results indicate he should. We believe, further, that such factors as seniority and age should not affect incentive compensation (though they sometimes influence basic compensation). A 20-year-old who can hit 0.300 is as valuable as a 40-year-old performing as well.
Discipline in Hiring
Thirty years ago Tom Murphy, then CEO of Cap Cities, drove this point home to me with a hypothetical tale about an employee who asked his boss for permission to hire an assistant. The employee assumed that adding $20,000 to the annual payroll would be inconsequential. But his boss told him the proposal should be evaluated as a $3 million decision, given that an additional person would probably cost at least that amount over his lifetime, factoring in raises, benefits and other expenses (more people, more toilet paper). And unless the company fell on very hard times, the employee added would be unlikely to be dismissed, however marginal his contribution to the business.
We look for three things when we hire people. We look for intelligence, we look for intitiative (energy), and we look for integrity. And if they don’t have the latter, the first two will kill you. Because if you’re going to get somebody without integrity, you want them lazy and dumb.
Reducing Risk
Our Vice Chairman, Charlie Munger, has always emphasized the study of mistakes rather than successes, both in business and other aspects of life. He does so in the spirit of the man who said: “All I want to know is where I’m going to die so I’ll never go there.”
Management Insights
Jensen Huang on pain and suffering:
“People with very high expectations have very low resilience, and, unfortunately, resilience matters in success. I don’t know how to teach [resilience] to you except for I hope suffering happens to you. . . . to this day I use the words ‘pain and suffering’ with great glee and the reason I mean that in a happy way because you want to train and refine the character of your company. You want greatness out of them, and greatness is not intelligence. Greatness comes from character, and character isn’t formed out of smart people. It’s formed out of people who suffered.”
—
Robert Greene on where real pleasure comes from:
“Real pleasure comes from overcoming challenges, feeling confidence in your abilities, gaining fluency in skills, and experiencing the power this brings. You develop patience. Boredom no longer signals the need for distraction, but rather the need for new challenges to conquer.”
—
Simon Sinek on trust:
“Trust begins to emerge when we have a sense that another person or organization is driven by things other than their own self-gain.”
Management Resource
10 Strategies for Leading in Uncertain Times (MIT Sloan Management Review)
Whiplashing tariffs. Seesawing markets. Shaking off residuals from the Covid years. Funding sources are getting redirected.
There’s a lot of change and unknown at the moment. As a leader, your job has gotten harder. And more important.
Here are a few strategies to help you lead better.
Get in Touch
Did something strike a chord? Tell me about it.
Or…
Let me know if you’ve found something worth sharing.
Let me know what challenges you’re having as a manager.
Let me know what challenges you see other managers having.
Send me an email at [email protected]
Looking forward to hearing from you. See you next time.
Collin
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