As recently reported in the Wall Street Journal, Warren Buffett just announced a new management structure for Berkshire Hathaway. This occurred, in part, to prepare for succession once Mr. Buffett is gone. When discussing one of the new leaders, Ajit Jain,  Mr. Buffett stated that if he, his longtime partner Charley Munger and Mr. Jain were stuck in a sinking boat, the most important person to save would be Mr. Jain!

This is not the first time I have heard of the Life Boat Theory of management.

Gene, my old boss and mentor from USG Corp., had a theory and a story about everything. And most of these contained valuable lessons about leadership.

After my company, Donn, was acquired by USG, they combined us with their similar businesses to form USG Interiors. Nothing about this merger or combination was going smoothly especially the people part. So, USG’s Chairman decided to move Gene in as Interior’s CEO which made him my direct boss.

The Donn business and its managers were still headquartered in Ohio at the time.

Gene decides to fly to Ohio for a day to meet Donn’s key people and see our operation. As the CFO of the former Donn and now Interiors, I am asked to organize this important trip. No problem.

I create a detailed agenda. I will pick Gene up at the airport and spend a little time. Gene will then meet, in half hour intervals, the other key Donn people and tour our facilities. By late afternoon back to the airport.

Except Gene decided to spend the entire morning with me which forced the whole agenda to compress.

Although I knew many of the senior USG people from their purchase of Donn, I had never meet Gene. Apparently, he had heard a lot about me! During the couple of hours that we were alone, we had a very frank conversation about everything that was going good and mostly not good with this new Interiors business.

By the time we rode back to the airport, Gene and I had gone from relative strangers to sharing mutual respect and even trust. Gene then ask us to move to Chicago where I could best handle the Interior’s CFO role. We made the move and never regretted it.

But what about the Life Boat Theory?

After we moved to Chicago,  Gene and I were working very well together.  One day I ask him why he spent all that time with me that first day in Ohio.

Gene smiled and said it all goes back to his training as an officer in the Navy. If your ship is sinking, each officer is assigned to be in charge of a certain life boat. Whatever roles the crew played in normal times are now dramatically changed. And as the officer in charge of a life boat, you need to decide not only who you want on your boat but also which order you will try to save them from drowning. And again, the skills one had on the main ship may mean very little in this new crisis.

So,  that first day that Gene and I spent time in Ohio, he was trying to figure out if I should be the first one he wanted in the Interiors life boat with him.

I was always grateful that I passed that test.

And, as with many things I learned from Gene, I used this several times in my career.

It does not just apply to a management crisis but to any major transition that occurs.  A major financial restructuring or downsizing could cause you to re-evaluate your priorities and your team. In USG’s financial crisis, a whole new group of senior business and financial managers were chosen. Starting a new job at a new firm can also lead you to quickly evaluate and rank the team you inherited. When I was hired as the CFO at IMC Global, I had to orchestrate a major bank and bond financing without a Treasurer in-place.

Just like in Gene’s Navy life boat story, at times in business and life, you need to quickly choose the best team for the situation that can help save you and your firm!

Gene never met Warren Buffett, but they would have gotten along very well!