For long-term business success, few factors are as important as the quality of a company’s management. Warren Buffett believes that investors should focus on two key areas when evaluating leadership.
At the 1994 Berkshire Hathaway Annual Meeting, Buffett explained, “You judge management by two yardsticks: how well they run the business, and how well they treat their shareholders.”
The first involves understanding the business and assessing how management has performed over time—especially how they’ve allocated capital compared to competitors. It’s essential to consider the conditions they inherited and how effectively they’ve handled them.
The second measure is shareholder treatment. According to Buffett, good managers tend to act in the best interest of owners, while poor ones often neglect shareholders.
In Buffett’s experience, these two traits usually go hand in hand: managers who perform poorly often show little regard for shareholders. For investors, that’s a red flag worth watching.
Hear Buffett’s full explanation
See the complete Lessons From Warren Buffett series
© 2025 David Mazor
Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.