Doubling down on the better “Buffett bet”

In reading some of the news from Warren Buffett’s Berkshire-Hathaway annual meeting, held in early May 2016, I was intrigued by two things. One, how much Mr. Buffett criticized corporate and investment leadership, and two, his report on what is known as “the bet.” It’s the latter I want to focus on. I believe there is a better bet.

Mr. Buffett has always said that investors are better off putting money in an S&P 500 index fund rather than those recommended by professional stock advisors. So back in 2006, he made a multi-year bet with hedge fund Protégé Partners, claiming that over a decade, the cumulative returns of five FoFs (fund of funds) hedge funds picked by Protégé would not perform as well as the Vanguard’s Admiral S&P 500 index fund, picked by Buffett. The bet was a million dollars, which is to be donated to the winning participant’s favorite charity.

At this year’s annual meeting, Mr. Buffett showed that as of 2015, the S&P 500 index fund had a cumulative return of 65.7% versus the hedge fund’s pick of 21.9%. However, it is what Mr. Buffett did not talk about that I think investors and corporate leaders will find worth taking a look at, and perhaps doubling down on.

First, let me reference the primary source of my information. In 2014, Rajendra Sisodia and two other authors published the second edition of their seminal book, Firms of Endearment: How World-Class Companies Profit from Passion and Purpose. The book describes how companies that do well as investments compare with companies that both do well as investments and also do good in the world. The latter group of companies they call Firms of Endearment (FoE).

In their “investor analysis,” the authors compared financial returns for four categories of businesses:

  1. i) S&P 500 firms [500]
  2. ii) “Good to Great companies (GtG) [11]
  3. iii) US Firms of Endearment (FoE US) [57]
  4. iv) International Firms of Endearment (FoE OUTUS) [15]

The FoE companies are described as follows (note the distinction between shareholders and stakeholders):

“ … [the] best manifest a high standard of humanistic performance … a company that endears itself to shareholders by bringing the interests of all stakeholder groups into strategic alignment. No stakeholder group benefits at the expense of any other stakeholder group, and each prospers as the others do.”

Their hypothesis:
FoE companies would “… probably perform better than the ‘average company,’ but generally not by a huge amount. After all, they pay their employees exceptionally well, do not squeeze their suppliers, deliver great products and experiences at fair prices to customers, are conscious of their environmental impact, and spend significant resources in the community—surely, all this should lead to a reduction in profits and thus the stock price.”


“The public FoEs returned 1,026% for investors over the ten years ending June 30, 2006, compared to 122% for the S&P 500; that’s more than an 8-to-1 ratio!”

When Mr. Buffett reads this, I am sure he will buy a copy of Firms of Endearment (apparently he’s a voracious reader), and maybe he will double down on FoEs.

Obviously, in the space where I cannot go as deep as I would like on this subject, but suffice it to say that through the first four decades of my work with CEOs and boards the thinking about “humanistic performance” has seldom been invoked unprompted. But now, entering my fifth decade of working with the top of the house, this thinking––and its deeper connection to human potential––is becoming part of the conversation.

And in more and more cases, we are beginning to facilitate leadership’s shift through the cognitive dissonance to a new “belief-place.”

This place is inside everyone. It’s deeply human and spiritual, a place where our indomitable human spirit resides and where our human brilliance flourishes. Standing in this transformational place, leaders can map the road to a business and a culture built on, and by, “a strategy within a strategy”––a strategy dedicated to allowing the human potential to thrive far beyond existing levels. Human brilliance and innovation abundantly emerge from such alignment.

Currently, in the United States, less than 1/3 of employees are engaged in their work, most of them are following orders and placing glow in the dark rocks around the office. This means over 100 million people are not engaged, not giving of their full potential, as they do not feel respected and treated fairly by their companies. Imagine the performance levels if these numbers were significantly improved. FoEs have already proven the case, it’s now a matter of so many other leaders coming to realize it: i) Having a higher purpose; ii) Having the personal will and commitment; iii) Knowing how to do it; and iv) Implementing a process that allows the inherent human potential to lift the business to unprecedented levels of performance, prosperity, and well-being.

At its core, this new “belief-place” is about a different way of doing business, about seeing how the greatest potential for performance, including financial, lies in the untapped human potential of employees (i.e., 2/3 disengaged today). When leaders make this quantum shift in perception and stand in this belief-place––one that’s far different than the current paradigm––they see the opportunity sitting right in front of them: the magnitude of the underutilized, innate human potential in every employee, every business, every community.

Leaders and investors with wise discernment do not need the “Oracle of Omaha” to point out what should be a blinding glimpse of the obvious: Long-term financial performance is directly tied to the human potential in an organization and if 70% of that potential is disengaged––even 50% or 25%––then regardless of what the performance metrics show, profitability included, results can only be mediocre relative to potential.

The first step in accessing full human potential is to make a quantum shift to a new belief-place, embracing cognitive dissonance and exploring the possibilities that ground-breaking thinking can create. It begins with new insight and a deeper understanding of the “what, why and how” leaders can access full human potential.
Ref: Firms of Endearment: How World-Class Companies Profit from Passion and Purpose, by Raj Sisodia, Jag Sheth, David Wolfe, Pearson Education, 2014.