Charlie Munger once said Berkshire Hathaway Inc.’s (NYSE:BRK) (NYSE:BRK) biggest structural edge is what it largely lacks at headquarters, which is layers of corporate bureaucracy.
Tiny Omaha Office Beats Big Bureaucracies
The late vice chairman argued that a tiny Omaha home office helped the conglomerate move faster than rivals burdened by big central staffs. Speaking at a 2018 Daily Journal Corp. shareholder meeting, Munger used the answer to sketch his broader view that bureaucracy steadily breeds waste inside successful institutions.
“One of the reasons that Berkshire has been so successful is that there’s practically nobody at headquarters. We have almost no corporate bureaucracy. We have a few internal auditors who go out from there and check this or that. But basically we have no bureaucracy,” Munger explained.
“Having no bureaucracy is a huge advantage if the people who are running are sensible people. Think of how poorly all of us have behaved in big bureaucracy, even though we have a lot of talent, because we couldn’t change anything… there’s a lot of horror and waste in bureaucracy and it’s inevitable. It’s as natural as old age and death,” he added.
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Berkshire’s Decentralized Structure Relies On Trust
In comments later highlighted by Fortune, he said, “It’s the efficiency gained if you eliminate bureaucracy. I think bureaucracy is like a cancer. So we’re very anti-bureaucracy.”
He said Berkshire’s system combines extreme decentralization in its operating companies with tightly centralized capital allocation in Omaha but without a “big bureaucracy,” relying on deep trust in subsidiary managers and an unusually small head office.
Shared Anti-Bureaucracy Sentiment
Munger’s hostility to red tape echoes a wider backlash in corporate America. Personal finance host Dave Ramsey has said he built his firm to avoid the worst parts of corporate America, telling his “EntreLeadership” audience, “I hate things that feel like corporate America.”
Amazon.com Inc. (NASDAQ:AMZN) CEO Andy Jassy has likewise vowed to slash managerial layers, telling employees his senior leadership team “hate bureaucracy” and backing tools such as an internal “bureaucracy mailbox” that lets workers flag wasteful rules.
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