The greatest investor the world has ever seen, Warren Buffett, has a relatively simple philosophy when it comes to allocating his considerable investment dollars.

Buffett believes that to be a successful investor, you have to buy great businesses, with great management, at the right price. Then, once you have bought them, leave them alone to do what they do best – make money. What constitutes a great business and the right price is another matter. However, Buffett has become the world’s wealthiest investor, averaging an incredible 23% a year return on his money over 40 years, through his hands off approach to the businesses he owns.

The Buffett approach to business ownership, as exercised through his listed holding company Berkshire Hathaway, makes an interesting contrast to the investment history of one of Australia’s largest and most privileged companies, Telstra. Based purely on its track record, Telstra differs from Buffett in two respects: it simply cannot keep its hands off the companies that it buys into and, as a result, its investments invariably turn sour.

The news today that Kaz founder, Peter Kazacos, is stepping aside from his role as joint managing director of the company he made great, to allow Telstra implant Mike Foster to flex his muscles in the top job, is a case in point. If Buffett were to pay $330 million for a company like Kaz, part of the deal would undoubtedly be that Kazacos, his management team and his best workers would have to stay on and keep the company running in the same way that made it a successful business in the first place. The idea of Berkshire Hathaway replacing a successful business founder with its own manager would be anathema to Buffett. For Telstra, however, as it has shown in the past with companies such as Advantra, a similar business to Kaz, trying to remake a business in its own image is standard practice.

As telecommunications industry analyst, Paul Budde, reminded us when we spoke in 2004, “Of all the buyouts Telstra has done since the 1980s, not one has been successful. They try to dominate their companies. Advantra was doing well under IBM. Then Telstra got involved and half the staff – the ones who made the company great – walked away. My fear is that in 12 to 18 months, all the good people from Kaz will be gone and what will be left is a few clerks.”

Well it appears that the chickens have come home to roost and we have now reached a turning point in the history of Kaz. The original driving force and namesake of the company has stepped down to take on the role of executive director, a title without a job description. One can imagine that the time will come in the not too distant future when Kazacos will pocket his share of the spoils from the Kaz sale and ride off into the sunset. No doubt many of the company’s best people from senior management down will eventually follow suit. What will be left is essentially just another Telstra services division.

Telstra, however, believes it will be able to remake Kaz into an IT services and consulting colossus that can successfully compete in Australia with the likes of IBM, CSC and EDS. It will be interesting to see how Telstra intends to accomplish this without the good people that together comprised what was once a great Australian IT services company.