The CEO Conundrum: Your Biggest Fan & Capital Allocator

CEOs must be both leaders and capital allocators — These roles have little in common — Buffett was right to take control. 

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THE CEO CONUNDRUM: YOUR BIGGEST FAN & CAPITAL ALLOCATOR

Warren Buffett famously, and ingeniously, removed the responsibility for capital allocation from his CEOs. By upstreaming all cash to Berkshire Hathaway, Buffett greatly simplified the role his CEOs play.

This practice should be adopted elsewhere as not only do CEOs already have too much responsibility, but the role of capital allocator requires a skillset completely incompatible with the rest of the CEO role.

The Basics: Running the Business

The first and primary role of a CEO is to run the business. Most CEOs achieve their rank after spending many years moving up the company hierarchy. With such experience, these individuals have the relationships, business knowledge, and technical skills required to ensure the business operates on a day-to-day basis.

Notably, rising through a corporate hierarchy often means a CEO has a specific background that must be broadened for the role. With essentially every function operating underneath the CEO, successful leaders grow their skillset, and, in conjunction with their teams, guide daily operations across all facets of the business.

The Best: Your Biggest Fan

Exceptional CEOs go beyond running the business: they lead and inspire.

The best leaders serve as their employees’ “Biggest Fan."¹ Great leaders root unconditionally for team success. They cheer loudly, support fully, and do anything to help members win. Through this support, they ultimately get the best out of their people.

This concept rests on simple behaviors. Fans listen actively and engage deeply, encourage during setbacks, share credit publicly, and trust people with high-stakes responsibilities. These actions turn routine leadership into genuine advocacy.

Inspiration flows from felt support and when people know their leader is their biggest fan, they take risks, innovate, and persist through challenges. Ultimately, top talent stays, attracts more talent, and culture strengthens.

CEOs must focus on delivering inspired leadership, as extracting maximum value from employees is the highest leverage opportunity in any business.

Beyond The CEO: Capital Allocators

With the understanding that outstanding CEOs must lead and inspire, in addition to ensuring the day-to-day functioning of the business, it becomes clear that additional capital allocation responsibility is generally dilutive to performance.

For capital-intensive businesses, large capital spending projects require a CEO’s expertise, but they distract from daily operations. Adding M&A duties to a CEO role takes time away from customer interaction and organic sales growth.

Share buybacks are typically done on an ongoing basis, agnostic to price. Investing without regard for price rarely delivers excellent results. If CEOs wanted to update spreadsheets and watch their share price daily, they would be equity investors, not CEOs.

The Unfortunate Solution

As usual, Warren Buffett and Berkshire Hathaway provide a crystal-clear best practice that should be widely adopted: separate the role of capital allocator from CEO. Berkshire’s results, both on operational and capital allocation effectiveness, validate this strategy.

Yet, the world fails to live up to the Berkshire standard. There are too many intellectual and egotistical barriers to implementing this best practice.

In our next essay, we’ll discuss how CEOs can separate capital allocation from their daily jobs and create an environment that can foster the incredible success demonstrated by Berkshire Hathaway.

 ¹ See Admired Leadership for details on this concept. We highly recommend Admired Leadership’s training.