Did Charlie Munger advocate for establishing KPI systems for acquired companies, and what was his reasoning?

Charlie Munger's View on Setting KPIs for Acquired Companies

Hey there! I'm a huge fan of Munger and Buffett and have studied their investment philosophy for years. Simply put, Charlie Munger does not advocate imposing strict KPI (Key Performance Indicator) evaluation systems on acquired companies. In Berkshire Hathaway’s acquisition practices, he and Buffett have always emphasized a "trust and delegate" approach, rather than micromanaging people with numbers. Let me break down why he thinks this way, using plain language.

First, Munger’s Overall Investment Philosophy

Munger is supremely rational but also deeply values human nature. He believes a great company is like a healthy tree—once you acquire it, don’t fuss over pruning or watering it constantly. Just find a reliable gardener (the existing management) and let them tend to it. At Berkshire-owned companies like See’s Candies or GEICO, headquarters never sends people to meddle in daily operations. Munger often says, "We don’t manage companies; we manage managers." This means: pick the right people, give them freedom, and avoid tying their hands with KPIs.

Why He Opposes KPI Evaluations?

1. KPIs Breed Bureaucracy: Munger believes setting KPIs is like strapping employees into a straitjacket. To hit targets, people might game the system short-term (e.g., pushing sales aggressively), but it harms the company long-term. For example, high sales KPIs could incentivize selling low-quality products, ruining reputation. Munger despises such "short-termism," famously warning: "Poorly designed incentives can lead to disaster."

2. Trusting Excellent Managers: When acquiring companies, Munger and Buffett prioritize "moats" (competitive advantages) and trustworthy leaders. They argue these managers know their business better than headquarters—why impose KPIs? Granting autonomy fuels innovation. For instance, many Berkshire subsidiaries make independent decisions on investments or hiring. Headquarters only steps in for major issues and never sets quarterly KPIs.

3. Focus on Long-Term Value, Not Numbers: Munger’s philosophy is "buy and hold," targeting value decades ahead, not next year’s 10% profit bump. KPIs often encourage short-term thinking, distracting managers from big-picture priorities like R&D or culture-building. Munger often quotes: "To a man with a hammer, everything looks like a nail." KPIs are that hammer—overusing them blinds you to what truly matters.

Are There Exceptions?

Of course, Munger isn’t against all evaluations. He admits oversight is needed if management falters. But at Berkshire, they acquire only companies that "don’t need managing," making KPIs unnecessary. In books (e.g., Poor Charlie’s Almanack) and interviews, Munger stresses that the best incentives stem from "intrinsic motivation," not external KPI whips.

In short, based on my experience, Munger’s approach is incredibly practical, especially for long-term investors. If you’re involved in corporate M&A, learn from him: resist the urge to control everything. Letting go often yields greater rewards. Feel free to ask me anything else!