Devoted to Managers and those that seek to improve their management skills

“In making acquisitions, Charlie and I have tended to avoid companies with significant post retirement liabilities.”

In the light of the problems connected to the automotive industry, this is a very wise strategy to employ by Buffett and Munger for Berkshire Hathaway (BRK-A). The unrealistic plans extracted by unions from the American automotive industry were never workable - to say the least. Other industries are facing this as well.

The problem is in making promises you can't keep. We can't run businesses hoping that our watch is over before the crap hits the fan. It's not fair to workers or to management.

The first priority of a business, other than its customers, is to ensure that realistic programs are in place that can be supported by not only current, but future cash flow. If it can't be, then it shouldn't be implemented.

You may ask then: How can we know future cash flows? I think of the term "reasonable" when considering projecting future income. It all has to do with the business you're in. If you chose a business with a competitive advantage that's difficult to duplicate, you are in a position of predicting fairly accurate future income for the business.

Based upon those projections, you can make responsible decisions that have a healthy chance of succeeding over the years. But to simply cave in and give up benefits that you may have no real chance of fulfilling your obligations in, is like lighting dynamite hoping it doesn't go off during your tenure at the company.

This is one of the tough arenas of managing that we need to be willing to face. We aren't in the business of charity or of making promise like governments do to get elected; promises that eventually come back to haunt them, but they won't be accountable for.

In business we aren't afforded that luxory. You have to take in more than you spend. To borrow against an uncertain future to pay for the present is a sure way bring your business to an end.

Other Buffett Resources:

Wisdom of Warren Buffett

Warren Buffett, investor

Warren Buffett: The trouble with being a legend

Warren Buffett: 'I told you so'

Company growth

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