The Wrong CEO - Highest Risk Factor

Warren Buffett identified having the wrong CEO in charge as the most significant risk factor for a company. And, this risk is not listed among the pages of “Risk Factors” included with security offerings.

Buffett is the legendary CEO of the Berkshire Hathaway investment fund. His fund hires and fires the CEOs of companies that the fund controls and influences the hiring decisions of other companies where the fund is an investor.

At the recent Berkshire Hathaway annual shareholder meeting, Buffett said, “the biggest danger they have is that section in the prospectus called …(certain risk factors). The number one risk factor, you never see it, the number one risk factor is that this business gets the wrong management.”

You would think that the board of directors would make a change if the wrong CEO is running things poorly. Buffett went on to say, “You get a guy or woman in charge if they are personable, the directors like them, they don’t know what they’re doing, but they know how to put on an appearance. That’s the single biggest danger… It’s worse yet if he’s a nice person doing his best.”

The CEO must be the ultimate decision-maker and visionary for the company. The board cannot run the company. The board is responsible for putting the right CEO in place and setting goals and expectations for the CEO’s leadership.

I was board chair of a company with a talented and energetic CEO. The CEO openly acknowledged that he was not the right person for the job at that point in the company’s history. Even in that situation, bringing on a new CEO was hard to do.

The Takeaway – Getting the right person in place for the job requirements as they are today is hard to do. But making this happen is in the best interests of the company, the board, and the CEO.

See my earlier conversation with Bracken Darrell, CEO of Logitech, about periodically firing yourself. Click HERE.

(Thanks to Julia La Roche, Yahoo Finance, for reporting on the Buffett meeting.)

Behind the Door
Sometimes I pause to look at a door. I don’t know who lives there. The color, the texture, and the composition of steps, frame, door handle, light, and mailbox suggest the owner. I wonder who lives behind the door.