Benjamin Moore and Berkshire: Centuries of Repute
Sometimes the up-to-the-minute nature of contemporary life obscures ancient principles. A case in point is the news surrounding last week’s and last year’s firings by Berkshire Hathaway of the CEOs of its subsidiary, Benjamin Moore & Co. But the values that Benjamin Moore has embraced for more than a century and those Berkshire has embraced for nearly half a century speak louder than the gossipy whispers associated with these two sad episodes (hat drop to New York Post).
In 1883 Brooklyn, twenty-seven-year-old Benjamin Moore, along with his forty-three-year-old brother Robert, created the paint company that remains in business today. He articulated several business principles to guide his company:
- A fair deal for everyone.
- The giving of value received without any graft or chicanery.
- Recognition of the value of truth in the representation of our products and an effort at all times to keep the standard of our goods up to the highest mark.
- The practice of strict economy without the spirit of parsimony, and the exercise of intelligent industry in the spirit of integrity.
Moore’s motto was “quality, start to finish.” It charged a premium price for it, even when that sacrificed market share. To reinforce its investment in quality, the Moore brothers began the practice of selling paint through independent distributors. Other paint makers might sell in hardware stores, or as private-label products of customer retailers, or in their own retail stores. Benjamin Moore & Co. always strictly adhered to the model of distributing exclusively through certified dealers. Those distributors, in turn, have invested considerable effort in building their businesses to keep their end of the bargain.
Benjamin Moore & Co. won a reputation for leadership in addressing safety and environmental matters. Some of the company’s growth in the 1940s was based on research and development of more durable and environmentally friendly paints, including latex-based paints. In 1968, Benjamin Moore removed lead from paint formulations. In the 1970s, after passage of the Occupational Safety and Health Act (OSHA), the company developed a niche market of industrial operations to provide quality color-coded coatings to meet the new standards.
Benjamin Moore made environmental consciousness good for business. For example, in the 1980s, federal agencies implemented rules limiting release of harmful Volatile Organic Compounds (VOCs). The company met the regulations by producing paints tailored to the various ways they were implemented by different agencies in different regions. In 1992, it opened a paint farm to test products for environmental soundness and a corporate-wide training center to promote environmental efficiency. Throughout the 1990s, the company led the industry in its commitment to the highest environmental, health, and safety standards. For instance, its Pristine Eco-Spec line of acrylic latex interior paints, introduced in 1999, released no harmful VOCs. Customer demand for such responsible products is high and people willingly pay a premium for it.
Salient displays of the company’s tradition of integrity concerned endless efforts on behalf of its distributors to improve their positions and draw new entrepreneurs into the business. In the 1960s, the company advanced the funds required to begin a distributorship, then about $200,000, to minority entrepreneurs. In the 1980s, the company offered distributors financing to support their purchases of its computerized color systems. After the 1992 Los Angeles riots, Benjamin Moore won praise for such longstanding programs focused on neighborhood investment projects. The company stressed that all such programs were not products of altruism but good business practices.
In 2000, Benjamin Moore’s directors sought additional capital to expand. Unable to find satisfactory terms after consulting a leading investment bank, one director, Robert Mundheim, volunteered to call Buffett, who he had known when serving as general counsel of Salomon Inc. in the 1990s. Benjamin Moore was Berkshire’s kind of company and, after Buffett and Munger met with its current and past CEOs, a deal was made. As part of the deal, Berkshire promised to maintain the company’s 117-year history of relying solely on its thousands of independent dealers, a valuable asset to the business comprised of people who had invested their livelihood in the dealerships.
At Berkshire, promises are sacrosanct, as honoring commitments is a habit of any reputable business. As a result, in 2012 and again in 2013 when Benjamin Moore’s CEO proposed a new business plan that would end the exclusivity arrangement—selling via big-box retailers such as Home Depot and Walmart—Buffett asked them to resign. Their route might have boosted volume. But not only had Berkshire made the pledge, the company, dating to its founding by Benjamin and Robert Moore, always said and believed that quality, and that distribution system, were more important than market share. As attractive as market share is, integrity trumps it. The rapid firing of two CEOs reinforces a sense that at Berkshire, managers inclined to violate Berkshire norms—and they exist, albeit in small numbers—should find work elsewhere.
Lawrence A. Cunningham, the editor of The Essays of Warren Buffett: Lessons for Corporate America (3d ed. 2013), is working on a book about Berkshire Hathaway.