Disciples of the investing firm Berkshire Hathaway and its legendary leader, Warren Buffett (Trades, Portfolio), know that his mentors in investing were Benjamin Graham and Charlie Munger (Trades, Portfolio). But when Lawrence Cunningham, author of the recently-published Berkshire Beyond Buffett, asked the Berkshire CEO who should write the foreword, Buffett immediately suggested his friend of more than 40 years –Â Tom Murphy.
“Most of what I learned about management, I learned from Murph,” Buffett told Cunningham. “I kick myself because I should have applied it much earlier.”
Along with Buffett himself, Murphy is one of eight CEOs praised in The Outsiders, a cult business classic beloved of investors like Bill Ackman, which attempts to define what differentiates a small number of leaders who massively outperform the market. Buffett is quoted in that book as saying that “Tom Murphy and [his long-time business partner] Dan Burke were probably the greatest two-person combination in management that the world has ever seen or maybe ever will see.”
Over about 40 years at the helm of their media conglomerate, Murphy and Burke developed a simple set of principles –Â decentralization, hiring the best possible people and giving them autonomy, and imposing rigorous cost controls –Â and took them to extremes. It’s not hard to see those principles at work at Berkshire, Cunningham says, where CEOs at the firm’s subsidiaries are given a lot of trust to execute and embody the company’s culture.
Buffett himself put a substantial amount of money and reputation behind the pair. He provided $550 million of the $3.2 billion with which Capital Cities, the firm Murphy and Burke ran, took over the much-larger ABC in 1985. It was his largest investment to date, and was the only thing that made the deal –Â at the time, the largest non-oil deal in history –Â possible.
This is the story of how Murphy developed his management credo and passed it on to the man typically lauded as the world’s greatest investor.
The making of a management philosophy
From Murphy’s foreword to Berkshire Beyond Buffett:
We are both proponents of a decentralized management philosophy: of hiring key people carefully; of pushing decisions down the organization; and of setting overall principles and resisting temptation to be involved with details. In other words, don’t hire a dog and try to do the barking.
It’s the kind of homespun wisdom you can easily imagine coming out of Buffett’s own mouth. The two men met in 1969 through a business-school classmate of Murphy’s, nearly 20 years before they had a formal business relationship. Capital Cities at the time was a growing but still modest-sized media company.
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