Tom Murphy

Use share repurchasing as a capital allocation tool during periods of market distress when valuations are attractive.

During the bear market of the mid-1970s to early 1980s, Murphy became an aggressive purchaser of his own shares at single-digit price-to-earnings multiples. He eventually repurchased close to 50 percent of outstanding shares. This allocation decision alone generated excellent returns and increased per-share value.

“I only wish I had bought more.”

Use leverage strategically to amplify returns from proven operational improvements. Once an asset is paid down, leverage it again to acquire new assets.

Murphy used debt strategically to fund acquisitions of additional properties that Burke could then improve operationally. Once improved and paid down, he would leverage those assets again. This created a virtuous cycle of growth and returns.

“We take the assets and once we've paid them off, we leverage them again to buy other assets.”

Focus on industries with attractive economic characteristics and similar business models. Resist diversification into unrelated fields.

While CBS diversified into toys and sports teams, Murphy stayed focused on media properties with similar advertising-driven economics. He moved from TV to radio to publishing to cable, but all businesses had comparable characteristics. This focus enabled operational excellence and expertise leverage.

When evaluating hiring decisions, think about the total lifetime cost of an employee, not just the annual salary. Account for benefits, raises, and all associated expenses over their tenure.

Murphy taught Warren Buffett to think about hiring differently. Instead of viewing a $20,000 annual salary as a minor cost, he calculated the true expense over a 30-year career, including benefits, raises, and even items like toilet paper the employee would use. This shifted the mindset from incremental to total cost thinking.

“An additional person would probably cost at least $3 million over their lifetime, factoring in raises, benefits, and other expenses, down to the amount the company would have to buy more toilet paper.”

Hire for intelligence, ability, and drive over direct industry experience. Talented generalists with fresh perspectives often outperform experienced industry veterans.

Neither Murphy nor Burke had broadcast experience when hired into the media industry. They specifically recruited talented younger people without industry backgrounds because they valued the ability to think differently over entrenched conventional wisdom. This approach generated unusually low turnover and exceptional performance.

“We'd been fortunate enough to have it ourselves and we knew it could work.”

Embrace new technologies that represent genuine improvements, even if they threaten your existing business model. Recognize opportunity over threat.

Both Murphy and Ted Turner recognized cable television not as a threat to broadcast stations but as an opportunity. Most broadcasters saw cable as cannibalistic, but Murphy understood it was a better product offering and a chance to reach larger markets.

Leadership is demonstrated through consistent example, not directives. Lead the behaviors you want to see in your organization.

When Murphy began taking cabs instead of limousines at ABC, this practice rippled through the executive ranks. When asked if this was leading by example, he responded simply, 'Is there any other way?' This philosophy embedded cost consciousness into the culture more effectively than any memo could.

“Is there any other way?”

Build a partnership that leverages complementary skills. Separate operational management from capital allocation and strategy.

Murphy and Burke divided responsibilities: Burke handled daily operations and rooting out inefficiencies while Murphy focused on capital allocation and acquisitions. This clear division of labor with mutual respect created a more effective organization than either could achieve alone.

“Burke believed his job was to create the free cash flow and Murphy's job was to spend it.”

Decentralization is a cornerstone of effective management. Hire talented people and give them real autonomy and authority to make decisions in their domain.

Capital Cities operated with remarkably flat structure and minimal headquarters staff. Station and property managers had autonomous control over their operations and rarely heard from New York unless missing targets. This approach reduced both costs and organizational friction while enabling rapid decision making.

“Decentralization is the cornerstone of our philosophy. Our goal is to hire the best people we can and give them the responsibility and authority they need to perform their jobs.”

The most important business decisions are relatively few. Most business success comes from excellence in daily execution and many small decisions.

Murphy emphasized that while the occasional very large acquisition mattered, the bulk of value creation came from consistent operational excellence and thousands of daily cost and efficiency decisions. This frames how leadership time and focus should be allocated.

“The business of business is a lot of little decisions every day mixed up with a very few big decisions.”

Be willing to delay important decisions when calm deliberation serves you better. You can always tell someone to go to hell tomorrow.

Murphy gave Buffett advice on managing difficult interpersonal decisions. Rather than reacting emotionally or immediately to a conflict, sleep on it and revisit with clearer perspective the next day. This simple practice improves decision quality and preserves relationships.

“You can always tell someone to go to hell tomorrow. You haven't missed that opportunity.”

Minimize headquarters overhead and functional staff. Keep corporate headquarters 'anorexic' to maintain low costs and empower operating managers.

Capital Cities had no vice presidents in marketing, strategic planning, human resources, or public relations. Publishers and station managers held power and prestige. This radical decentralization kept costs low and decisions close to customers.

You cannot always control revenue, but you can always control costs. Make cost vigilance a core cultural value and competitive advantage.

Murphy and Burke built cost consciousness into Capital Cities' DNA as the primary defense against the unpredictable revenue swings inherent in advertising-driven businesses. This mindset permeated every decision, from painting only the visible sides of buildings to scrutinizing even minor expenses.

“You can't control your revenues, you can control your costs.”

Be careful, not cheap. Invest in competitive advantages while remaining vigilant against wasteful spending.

Capital Cities ruthlessly eliminated unnecessary expenses but invested heavily in local news leadership because they discovered that the number one ranked news station captured a disproportionate share of local advertising revenue. They distinguished between smart spending and waste.

“The company was careful, not cheap.”

View the profit margin of each operating unit as a report card to headquarters. Use margins as the primary metric for evaluating management performance.

Capital Cities tracked profit margins obsessively as the key metric for judging whether local managers were executing well. Managers were expected to outperform peers and maintain high margins. This metric aligned incentives and made performance transparent across the organization.

Reject the temptation to follow industry fashion in strategy. Think independently about what creates value versus what is merely popular.

While CBS and other media companies chased the conglomerate fad of the 1960s and 1970s by diversifying into unrelated businesses, Murphy ignored this trend and stayed focused on media. He was willing to be the only one doing something different when logic supported it.

Develop expertise in your core business before making large acquisitions. Multi-decade focus builds conviction and operational capability needed to succeed at scale.

Murphy spent 30 years building expertise in broadcasting before making his largest acquisition of ABC. By the time he acquired ABC, he had deep operational knowledge and could confidently improve margins from 30 percent to over 50 percent in two years. This conviction came from proven expertise.

When you have conviction about something, be willing to make a very large bet. But conviction should be built on years of proven operational expertise.

Murphy bet over 100 percent of Capital Cities' enterprise value on the ABC acquisition because he had conviction that he could improve ABC's margins through superior operations. This wasn't recklessness but confidence built on 30 years of proven results.

Stay disciplined in acquisitions. Only make deals you have conviction about, and be willing to walk away from deals that don't meet your criteria.

Murphy would ask sellers what they thought their property was worth. If fair, he would take it. If too high, he would counter with his best price once and then walk away if rejected. He never negotiated intensively or participated in competitive bidding. This discipline saved capital and ensured good returns.

“I get paid not just to make deals, but to make good deals.”

The goal is not to build the largest company, but to arrive at your destination first using the least fuel. Focus on value creation rather than size.

Tom Murphy rejected the conglomerate trend of his era to build larger, more diversified companies. Instead, he focused Capital Cities on becoming more valuable by staying disciplined about capital allocation and operational efficiency. This philosophy guided every decision from acquisitions to cost management.

“The goal is to not have the longest train, but to arrive at the station first using the least fuel.”