"I think you judge management by two yardsticks," Buffett said. "One is how well they run the business, and I think you can learn a lot about that by reading about both what they've accomplished and what their competitors have accomplished, and seeing how they have allocated capital over time."

The Oracle of Omaha explains how the average investor can assess an executive team's competence in a clip found using CNBC's Warren Buffett Archive . He made his comments during Berkshire Hathaway 's annual shareholder meeting in 1994.

Warren Buffett believes the quality of a company's management is a key factor on whether a stock will be a good investment.

He said it is important to see how a manager performed relative to the company's status and competitive position in its industry after he or she first took a leadership role.

"Look at what they have accomplished, considering what the hand was that they were dealt when they took over compared to what is going on in the industry," he added.

For the second method Buffett said investors should read up on how the management treated shareholders in the past.

"You want to figure out ... how well that they treat their owners," he said. "Read the proxy statements, see what they think of — see how they treat themselves versus how they treat the shareholders. … The poor managers also turn out to be the ones that really don't think that much about the shareholders, too. The two often go hand in hand."

Buffett cited Microsoft's Bill Gates, Tom Murphy then at Capital Cities and Donald Keough then at Coca-Cola as examples of outstanding managers who worked for shareholders.