Warren Buffett's advice for CEOs touches on a key issue plaguing the US economy

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October 21, 2017 1:17 PM

Those at Berkshire feel that telling great CEOs how to run their companies is the "height of foolishness." However, they have a simple mission for managers.

Warren Buffett generally likes to take a hands-off approach when it come to investing in companies, but he has some advice for CEOs on how to run a business better.
His advice indirectly touches on a key problem plaguing the US, that CEOs focus on the short-term and quarterly earnings instead of long-term objectives.

Warren Buffett, generally speaking, likes to take the hands-off approach with companies he and Berkshire Hathaway invest in.

He once wrote that Berkshire feels that telling great CEOs how to run their companies would be "the height of foolishness."

Nevertheless, the billionaire investor also once argued that the firm's ownership may make "even the best of managers" more effective.

How so? Here's what he wrote in "The Essays of Warren Buffett: Lessons for Corporate America":

"First, we eliminate all of the ritualistic and nonproductive activities that normally go with the job of CEO. Our managers are totally in charge of their personal schedules.

Second, we give each a simple mission: Just run your business as if (1) you own 100% of it, (2) it is the only asset in the world that you and your family have or will ever have; and (3) you can't sell or merge it for at least a century."

Buffett's second point is particularly salient as it indirectly touches on a key issue plaguing the US economy: public companies, beholden to their shareholders, focus far too much on short-term prospects and quarterly earnings.

In his "simple mission," the Buffett argues that companies should abandon that type of short-term thinking and instead focus on the long-term outlook.

"We certainly don't ignore the current results of our business — in most cases, they are of great importance," Buffett wrote, "but we never want them to be achieved at the expense of our building ever-greater competitive strengths."

Check out "The Essays of Warren Buffett: Lessons for Corporate America" here.

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