The Power of What's Missing

Charlie Munger once described Berkshire Hathaway Inc. (BRK.B)'s biggest structural advantage, and it wasn't a proprietary technology or exclusive market position. It was what the company deliberately chose not to have: a sprawling corporate headquarters stuffed with layers of managers and administrative staff.

The late vice chairman argued at a 2018 Daily Journal Corp. shareholder meeting that Berkshire's tiny Omaha home office allowed the conglomerate to outmaneuver rivals weighed down by bloated central bureaucracies. His answer revealed a broader philosophy about how successful institutions inevitably breed waste over time.

"One of the reasons that Berkshire has been so successful is that there's practically nobody at headquarters. We have almost no corporate bureaucracy. We have a few internal auditors who go out from there and check this or that. But basically we have no bureaucracy," Munger explained.

He continued: "Having no bureaucracy is a huge advantage if the people who are running are sensible people. Think of how poorly all of us have behaved in big bureaucracy, even though we have a lot of talent, because we couldn't change anything... there's a lot of horror and waste in bureaucracy and it's inevitable. It's as natural as old age and death."

Trust Over Layers

Munger later told Fortune that eliminating bureaucracy creates pure efficiency gains. "I think bureaucracy is like a cancer. So we're very anti-bureaucracy," he said.

Berkshire's operating model combines extreme decentralization across its portfolio companies with tightly centralized capital allocation decisions made in Omaha. The whole system runs without the typical corporate machinery, relying instead on deep trust in subsidiary managers and keeping the head office staff remarkably lean.

A Philosophy Catching On

Munger's disdain for organizational red tape reflects a growing backlash in corporate America. Personal finance personality Dave Ramsey has publicly said he built his company to avoid what he calls the worst aspects of corporate culture, telling his "EntreLeadership" audience that he hates anything that feels like traditional corporate America.

Amazon.com Inc. (AMZN) CEO Andy Jassy has taken a similar stance, promising to cut managerial layers throughout the organization. He's told employees that his senior leadership team actively hates bureaucracy and has backed initiatives like an internal "bureaucracy mailbox" where workers can flag wasteful rules and processes they encounter.

The message from these leaders is clear: sometimes the best way to stay competitive is to ruthlessly eliminate the organizational layers that naturally accumulate as companies grow.