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What Warren Buffett Can Teach Us About Recruiting

What Warren Buffett Can Teach Us About Recruiting

Legendary investor and business magnate Warren Buffett amassed a fortune of over $80 billion by understanding the true potential of his investments. OCG Wellington’s James Brodey talks about what Buffett’s philosophy can teach us about recruiting, here.

There is a well-known theory in economics called the Efficient Market Hypothesis (EMH) which holds that, due to the abundance of information available to both the buyer and the seller of shares, the agreed price will always reflect the true value of that share. This means that it is impossible to "beat the market" because stock market efficiency causes existing share prices to always incorporate and reflect all relevant information. According to the EMH, stocks always trade at their fair value on stock exchanges, making it impossible for investors to either purchase undervalued stocks or sell stocks for inflated prices. As such, it should be impossible to outperform the overall market through expert stock selection or market timing.

This theory turns out to be wrong, and it is one of the reasons Warren Buffett is worth billions. Shares don’t “always incorporate and reflect all relevant information”. This is due to the fact that the bulk of investors work on gut-feel, instinct and information peripheral to the actual earnings of a business. Buffett has long believed that to understand the true value of an asset, one has to gain a deeper understanding of the business, to gain an insight into its potential to generate earnings. This takes time and effort: Buffett famously has a basket on his desk marked “Too Hard”. A potential company may sit in this basket for years until he is absolutely certain it is the right time to invest.

Using this approach is also very useful when it comes to recruiting staff. Understanding the true potential of an individual can reap significant returns, but to truly understand that potential takes time, patience and the ability to look beyond the obvious. The process of picking staff and picking stocks is very similar. A hiring manager is presented with a number of options (applications) that need to be narrowed down to a shorter list of potential candidates to interview and then pick a winner to invest in.

As a hiring manager, you will be familiar with the process of shortlisting, where applicants are put into three piles: “Yes”, “No” and “Maybe”. The “Yes” and “No” candidates are easy to sort and will quickly find a home. It’s the “Maybes” that are more problematic. In theory, these are applicants that you see something in but are not 100% sure about, so they often get put aside to come back to at a later stage. The problem with this category is that, in reality, it’s little more than a face-saving fiction. Most often it is a way of saying no slowly. Only later do those evasive judgements demand a second look when last year’s “Maybes” become next year’s superstars. When there is no escaping the uncomfortable question: “What did we miss?”

A good example of a CV that fits into the “Maybe” category is the “jagged” CV. The term was coined by George Anders to describe a CV that offers promise but takes time and experience to explore and better understand. These are people who don’t fit the typical mould; who offer something more or different but are difficult to categorize. Digging deeper often requires an interview, which again takes time and insight. And even that is sometimes not enough. Hiring managers rely a lot on behavioural-based interviews which are great at assessing how someone is likely to perform but provide limited insight into values or motivations. There are sometimes components of an interview that explore motivations and values, but in terms of time allocated, these tend to be on the periphery. In many cases, it is because managers are time poor, and these questions are time-intensive.

With time being the central issue, how can you ensure that your efforts are directed at value adding work? First, take a deep breath. Spend some time thinking about the best way to source the individual. Advertising tends to be the go-to option, but this will add extra work to your already busy schedule. An in-house recruitment team may do an initial screening, which can often prove a god-send. However, if you don’t have this luxury, then engaging external help from a professional recruiter will give you access to a shortlist of pre-qualified and interviewed candidates.

This will give you the opportunity to thoroughly assess the value of the asset that is now sitting in front of you in an interview. Take the opportunity during the interview to really get to know the person. Spend more time exploring their motivation and values – this person is going to hopefully be with you for a long time, so make sure that they are a good fit for the team and the organization.

If there is a lesson to be learned from Warren Buffett when assessing the value of an asset, it is to take your time and do a thorough job. Don’t make a decision until you have all the information you need about the whole person, not just their ability to perform to a certain standard. Those hiring managers or professional recruiters who put in the time, who do the research, who gather the information, who have a deep understanding of their market and the skills available, end up picking the real winners; the assets that turn out to be an outstanding investment.
James Brodey

James Brodey | Senior Consultant

James has worked in internal recruitment and Organisational Development in Wellington for the past 12 years. He immigrated to New Zealand in 2006 with his Kiwi wife (he has since acquired his New Zealand citizenship), after having a successful career as a Director of Beresford Blake Thomas in London and with CP Ships as an internal recruiter. Since coming to New Zealand he has worked for the Department of Internal Affairs, New Zealand Police, and Worksafe New Zealand, predominantly as an internal recruiter.

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