Category: Book Reviews

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Chapter 8 of Berkshire Beyond Buffett: An Excerpt and Link

untitledThe following is an excerpt from Chapter 8, Autonomy, from Berkshire Beyond Buffett: The Enduring Value of Values; the full text of the chapter, which considers the case for Berkshire’s distinctive trust-based model of corporate governance, can be downloaded free from SSRN here.

. . . Berkshire corporate policy strikes a balance between autonomy and authority. Buffett issues written instructions every two years that reflect the balance. The missive states the mandates Berkshire places on subsidiary CEOs: (1) guard Berkshire’s reputation; (2) report bad news early; (3) confer about post-retirement benefit changes and large capital expenditures (including acquisitions, which are encouraged); (4) adopt a fifty-year time horizon; (5) refer any opportunities for a Berkshire acquisition to Omaha; and (6) submit written successor recommendations. Otherwise, Berkshire stresses that managers were chosen because of their excellence and are urged to act on that excellence.   

Berkshire defers as much as possible to subsidiary chief executives on operational matters with scarcely any central supervision. All quotidian decisions would qualify: GEICO’s advertising budget and underwriting standards; loan terms at Clayton Homes and environmental quality of Benjamin Moore paints; the product mix and pricing at Johns Manville, the furniture stores and jewelry shops. The same applies to decisions about hiring, merchandising, inventory, and receivables management, whether Acme Brick, Garan, or The Pampered Chef. Berkshire’s deference extends to subsidiary decisions on succession to senior positions, including chief executive officer, as seen in such cases as Dairy Queen and Justin Brands.

Munger has said Berkshire’s oversight is just short of abdication. In a wild example, Lou Vincenti, the chief executive at Berkshire’s Wesco Financial subsidiary since its acquisition in 1973, ran the company for several years while suffering from Alzheimer’s disease—without Buffett or Munger aware of the condition. “We loved him so much,” Munger said, “that even after we found out, we kept him in his job until the week that he went off to the Alzheimer’s home. He liked coming in, and he wasn’t doing us any harm.” The two lightened a grim situation, quipping that they wished to have more subsidiaries so earnest and reputable that they could be managed by people with such debilitating medical conditions.   

There are obvious exceptions to Berkshire’s tenet of autonomy. Large capital expenditures—or the chance of that—lead reinsurance executives to run outsize policies and risks by headquarters. Berkshire intervenes in extraordinary circumstances, for example, the costly deterioration in underwriting standards at Gen Re and threatened repudiation of a Berkshire commitment to distributors at Benjamin Moore. Mandatory or not, Berkshire was involved in R. C. Willey’s expansion outside of Utah and rightly asserts itself in costly capital allocation decisions like those concerning purchasing aviation simulators at FlightSafety or increasing the size of the core fleet at NetJets.

 Ironically, gains from Berkshire’s hands-off management are highlighted by an occasion when Buffett made an exception. Buffett persuaded GEICO managers to launch a credit card business for its policyholders. Buffett hatched the idea after puzzling for years to imagine an additional product to offer its millions of loyal car insurance customers. GEICO’s management warned Buffett against the move, expressing concern that the likely result would be to get a high volume of business from its least creditworthy customers and little from its most reliable ones. By 2009, GEICO had lost more than $6 million in the credit card business and took another $44 million hit when it sold the portfolio of receivables at a discount to face value. The costly venture would not have been pursued had Berkshire stuck to its autonomy principle.

The more important—and more difficult—question is the price of autonomy.  Buffett has explained Berkshire’s preference for autonomy and assessment of the related costs: 

We tend to let our many subsidiaries operate on their own, without our supervising and monitoring them to any degree. That means we are sometimes late in spotting management problems and that [disagreeable] operating and capital decisions are occasionally made. . . . Most of our managers, however, use the independence we grant them magnificently, rewarding our confidence by maintaining an owner-oriented attitude that is invaluable and too seldom found in huge organizations. We would rather suffer the visible costs of a few bad decisions than incur the many invisible costs that come from decisions made too slowly—or not at all—because of a stifling bureaucracy.

Berkshire’s approach is so unusual that the occasional crises that result provoke public debate about which is better in corporate culture: Berkshire’s model of autonomy-and-trust or the more common approach of command-and-control. Few episodes have been more wrenching and instructive for Berkshire culture than when David L. Sokol, an esteemed senior executive with his hand in many Berkshire subsidiaries, was suspected of insider trading in an acquisition candidate’s stock. . . .

[To read the full chapter, which can be downloaded for free, click here and hit download]

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U Delaware Chaplin Tyler Lecture

I’m honored to be giving this lecture at my alma mater, and thanks go to Charles Elson for the opportunity and Kim Ragan for organizing the event.  It’s the first in the book tour that will take me to many other great universities with thanks to many more wonderful colleagues nationwide.  More details as they are finalized.

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BOOK REVIEW: Linder & Levit, The Good Lawyer: Seeking Quality in the Practice of Law

happylawyer-levitReview of The Good Lawyer: Seeking Quality in the Practice of Law by Douglas O. Linder & Nancy Levit (Oxford University Press 2014)

Linder and Levit have – yet again – confronted some of the most challenging questions faced by lawyers who seek to find satisfaction in our careers. The Good Lawyer: Seeking Quality in the Practice of Law builds on the authors’ first book, The Happy Lawyer: Making a Good Life in the Law. One of the central questions posed in the first book—how do you become a happy lawyer—seems to be answered in part by the second book. Linder and Levit draw on numerous different disciplines that show a strong link between doing good work and being happy, between personal lives and professional roles.

The Good Lawyer emphasizes a set of qualities, skills, and attitudes shared by people the authors identify as “good lawyers.” As they note, lawyers who practice in different fields – intellectual property, securities fraud, employment discrimination – may need to develop distinct, and particularized, skills, but, regardless of their practice area, lawyers are proudest of themselves when they do meaningful work for clients about whom they care. Consequently, all lawyers, whether they work for private firms, the government, or in a public interest setting or as solo practitioners, can appreciate and use the particular attributes that Linder and Levit identify. Those attributes are addressed in nine of the book’s ten chapters, and they range from empathy to moral courage, cognitive skills, willpower, civility, honesty, and open-mindedness. As they explore the good lawyers’ attributes, the authors draw on behavioral economics, Tonglen Buddhism, cognitive psychology, and the law to support and explain their points.

While the book has some endnotes (under 30 pages, actually), it also has humor and even a checklist, although the checklist is primarily enumerated suggestions rather than a protocol. And it has lots of stories, which make the book even more of a joy to read. The stories provide context and drama. Linder and Levit visit courageous lawyers in the Jim Crow South, explore the psychodrama exercises Gerry Spence offers to trial lawyers at Thunderhead Ranch in Wyoming, introduce Lex Machina, a Stanford project to create a database that helps lawyers predict winning strategies, and probe the expert testimony in the trial of Sam Sheppard.

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New Book: Berkshire Beyond Buffett

As people speculate about what will happen to Berkshire Hathaway after Warren Buffett is no longer around, I’ve written what I hope to be the definitive book explaining how Berkshire will continue to prosper, thanks to the culture that Buffett has forged at Berkshire.

The book, Berkshire Beyond Buffett: The Enduring Value of Values, will be released in October, as we put the finishing touches on it this summer.

Available for pre-ordering now at amazon (and B&N, BAM and elsewhere), the book has been endorsed by Adam Grant of Penn’s Wharton School, and author of Give and Take, in the following terms:

How did Warren Buffett build such a great firm as Berkshire Hathaway? To unravel this mystery, Lawrence Cunningham takes a deep dive inside the cultures of Berkshire’s subsidiaries, highlighting the value of integrity, kinship, and autonomy — and revealing how building moats around the castles may help the firm outlast its visionary founder.

Bob Hagstrom, best-selling author of the 1995 book, The Warren Buffett Way, has endorsed Berkshire Beyond Buffett in this way:

Lawrence Cunningham is well known to the Berkshire community, as Buffett’s pick for cataloging and organizing his famous annual reports in The Essays of Warren Buffett: Lessons for Corporate America. Now Cunningham takes us in a new direction, inside the companies that make up Berkshire.  Berkshire Beyond Buffett is an insightful and important book.

Tom Murphy, the legendary businessman who built ABC before selling it to Walt Disney, has generously contributed the foreword to the book–itself worth the price!   As Tom explains:

Berkshire’s trajectory has been so seamless that Warren’s professional transition has gone almost unnoticed. The man who began business life as a precocious “stock picker” has morphed into chief executive of one of the largest collections of businesses in the world. Larry’s book astutely chronicles this development.

Berkshire’s scale and Buffett’s stature make the book timely and relevant, as suggested by news coverage this morning by Bloomberg Business Week of the company’s $30 billion commitment to renewable energy.  The book is based in part on interviews and surveys I conducted with dozens of Berkshire executives, including many chief executives of the fifty subsidiary companies whose cultures and histories I recount in the book.  The following is from the book jacket, courtesy of Columbia University Press:

Berkshire Hathaway, the $300 billion conglomerate that Warren Buffett built, is among the world’s largest and most famous corporations. Yet, for all its power and celebrity, few people understand Berkshire, and many assume it cannot survive without Buffett. This book proves that assumption wrong.

In a comprehensive portrait of the distinct corporate culture that unites and sustains Berkshire’s fifty direct subsidiaries, Lawrence A. Cunningham unearths the traits that assure the conglomerate’s perpetual prosperity.  Riveting stories recount each subsidiary’s origins, triumphs, and journey to Berkshire and reveal the strategies managers use to generate economic value from intangible values, such as thrift, integrity, entrepreneurship, autonomy, and a sense of permanence.

Rich with lessons for those wishing to profit from the Berkshire model, this engaging book is a valuable read for entrepreneurs, business owners, managers, and investors, and it makes an important resource for scholars of corporate stewardship. General readers will enjoy learning how an iconoclastic businessman transformed a struggling textile company into a corporate fortress destined to be his lasting legacy.

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JP Morgan Summer Reading List

The 15th Bi-Annual JP Morgan Reading List is out, with a characteristically rich selection of ten recommended titles in several categories (business, sports, art, adventure, science, cooking, philanthropy, and personal growth). Among the fine books, I’d heartily endorse as number one Col. Chris Hadfield’s An Astronaut’s Guide to Life on Earth, a gripping and engaging account of space travels with lessons for life.

A notable new feature this year is a retrospective on the 15th anniversary.  The editors explain:

The Reading List began as a way for us to share timely, thoughtful and relevant titles that piqued our interest. . . . [T]his year we have reached the 15-year mark.  To celebrate this anniversary, we asked some of our favorite authors from previous lists to share with us their thoughts on writing, imagination, inspiration and the creative process.  Here are their fascinating responses . . . .

Among those 15 authors are Malcolm Gladwell (Tipping Point), Jim Collins (Good to Great), Tom Friedman (The World is Flat), George Taber (Judgment of Paris), and yours truly (How To Think Like Benjamin Graham and Invest Like Warren Buffett).

I speak to how my work on a given topic often needs to reach different audiences using different media.  In addition to (1) books such as the one they featured for a general audience, I gave the examples, concerning investors and financial oversight, of (2) a white paper for a professional group, (3) an article for academic researchers, (4) a textbook for my students, and (5) blog posts here at Concurring Opinions for the widest audience of all.

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BOOK REVIEW: Carbone and Cahn’s Marriage Markets: How Inequality Is Remaking the American Family

Marriage Markets 01Marriage Markets: How Inequality Is Remaking the American Family. By June Carbone and Naomi Cahn (published by Oxford University Press May 2014).

Marriage Markets: How Inequality Is Remaking the American Family, just out from Oxford University Press, is a sweeping chronicle of the intersection of family demographics and family law—and the ways in which class divides matter.

June Carbone, the Robina Chair in Law, Science, and Technology at the University of Minnesota Law School, and Naomi Cahn, the Harold H. Greene Professor of Law at George Washington University Law School, argue that “marriage [is] a defining element in the class divide remaking America.” The central premise of Marriage Markets is an explanation of how the top and bottom economic classes are spinning in different directions in terms of family formation. Carbone and Cahn argue that increasing income inequality influences the markets for marriage. In the top economic quintile, four out of five couples are married; in the bottom quintile, less than one in five couples are married.

Greater education and income is correlated with a later time of first marriage, and, Carbone and Cahn note that “one of the biggest changes in mating preferences since 1960 is that men care three times as much as they once did about the income of a potential mate.” Yet, the employment arena is changing for men—more highly educated men have gained economic ground, while those with just a high school education or in blue collar jobs have lost ground. In all but one group in American society, marriage rates have fallen. “The only group in American society whose marriage rates at ages 30-50 have grown are the top five percent of American women by income.” The nature of marriage is changing too. More married women have careers than in previous era; more men spend increased amounts of time on childcare and housework.

Carbone and Cahn describe these developments in terms of the concept of “marriage markets.” Many scholars from all political and philosophical persuasions object to the very idea of treating intimate relationships as something that should ever be the product of calculation or exchange. Yet, most also agree that supply and demand affect “price.” Carbone and Cahn add that sex ratio imbalances produce virtuous and vicious cycles that influence expectations, alter behavior, and ultimately transform cultural practices.   Sociologists Marcia Guttentag and Paul Secord demonstrated in the eighties, in an influential book on sex ratios, Too Many Women? The Sex Ratio Question, that relationships are in fact the product of a market. If the men outnumbered the women in a given group, Guttentag and Secord argued, men competed among each other to land the “best” women. Women in turn tend to select for some mix of worldly success and good behavior, so an excess of men tends to produce “virtuous cycles” in which men compete to satisfy women by working hard, remaining faithful, and investing in their children. The fact that men outnumber women among high earners eager to pair with each other, Carbone and Cahn argue, provides an explanation for why the marriage rates at the top have remained relatively stable and why divorce rates remain relatively low.

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Fourth Annual Book Review Issue of the Tulsa Law Review Available Online

Professor Ken Kersch and Professor Linda McClain recently announced that the fourth annual book review issue of the Tulsa Law Review (Volume 49, No. 2, Winter 2013) is now in print and available online. At the Tulsa Law Review’s website, you will find a Table of Contents, the List of Books Reviewed, and PDFs of all of the review essays. As the Preface to the issue indicates, at Professor Sandy Levinson’s and Professor Mark Graber’s request, Profs. Kersch and McClain assumed the co-editorship of the annual book review issue over a year ago, with the aim of building on their strong foundation in launching the series and publishing three superb issues. Volume 49 includes twenty-five essays by law professors, political scientists, historians, and sociologists reviewing forty-nine significant law-related books. The issue carries forward an interdisciplinary conversation that demonstrates the special value of the book review essay as a uniquely informative form of scholarship. Those interested in ordering a print copy should contact the new Editor-in-Chief, Jacob Damrill, at jacob-damrill@utulsa.edu

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Contracts in the Real World Gets CHOICE Award for Outstanding Title

Pop K CoverThe American Library Association last year named my book, Contracts in the Real World: Stories of Popular Contracts and Why They Matter (Cambridge University Press 2012), an “outstanding title” in its annual CHOICE awards.  The following kind entry accompanied the announcement, supplied by A. R. S. Lorenz of Ramapo College.  I’m grateful to the Association–and to the many 1Ls who have bought and used the book profitably in their courses!

 

 

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Gabriel Garcia Marquez’s Chronicle of a Death Foretold

Garcia Marquez - Chronicle of a Death ForetoldI am deeply saddened by the passing of Gabriel Garcia Marquez, one of the world’s best contemporary authors. His magical realist style brims with life and zest — and his descriptions are unique and unforgettable. His most famous work is the magisterial One Hundred Years of Solitude, but my personal favorite is Chronicle of a Death Foretold.

I teach this great work in my law and literature class. It is a novella about a murder and its legal consequences that takes place in a small town. What is amazing about the book is that it is quite short — it is really just a long short story — yet unlike most works of its length, it focuses on not just the microcosm of one character but the macrocosm of an entire town, with an enormous array of characters. So much is packed into this short work, and I marvel at how each time I read it I discover interesting new details. The novella reminds me of a Breugel painting, a canvas filled with so much detail, so many interesting things going on.

Chronicle of a Death Foretold begins with one of Garcia Marquez’s signature openings, so gripping and enriched with unexpected details that it is impossible to stop reading:

On the day they were going to kill him, Santiago Nasar got up at five-thirty in the morning to wait for the boat the bishop was coming on. He’d dreamed he was going through a grove of timber trees where a gentle drizzle was falling, and for an instant he was happy in his dream, but when he awoke he felt completely spattered with bird shit.

The book is written by a narrator 27 years after the murder, pieced together by various interviews, memories, and documents. Chronicling memories that have faded, stories that diverge and contradict each other, the narrator writes in part like an investigative journalist piecing together an expose and in part like a detective investigating a crime. The narrative isn’t told in a linear way but in various fragments that are pasted together like a collage.

We know who will be murdered on the first page, and we find out the culprits very early on. And yet, Chronicle of a Death Foretold is a murder mystery. What it shows, as the narrator recreates the final days of Santiago Nasar’s life, is how each and every character played a role in the murder. Some were indifferent, some were too absorbed in their own pursuits to pay much attention, some were vindictive, with hidden malice, and some just didn’t take things seriously. So many are to blame, yet most played but a small part, and others who played larger roles acted in part based on societal pressures.

But beyond the individual characters, the ultimate indictment is against the town itself and its norms. This is a collective crime. We see how norms of race, class, and gender all combine to create a bitter stew, how many characters feel trapped by traditions and beliefs that lead them to act in unsavory ways. The indictment is thorough — the individuals and the very fabric of their society all interact to produce this tragedy.

I teach this work in my law and literature class to show how puny a force the law can be, and how the law can be too myopic in its focus. The law in this story fails to address the roots of what happened; it just focuses on a few branches and ignores most of the tree.

I marvel at this work every time I read it — the beauty of the prose, the vividness of the description, the brevity of the story that has enough detail for a book ten times as long, and the ability to capture a whole town and its culture and values in so many dimensions — without becoming too abstract or didactic.

If you haven’t read this book, I strongly recommend it to you. It is gripping, challenging, fascinating, and insightful. It is a true masterpiece, and can be read in just an afternoon. Often overshadowed by Garcia Marquez’s great novels — One Hundred Years of Solitude and Love in the Time of CholeraChronicle of a Death Foretold, despite its brevity, is as rich and sweeping.

Cross-posted at LinkedIn

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Economic Dynamics and Economic Justice: Making Law Catastrophic, Middling, or Better?

Contrary to Livermore,’s post,  in my view Driesen’s book is particularly powerful as a window into the  profound absurdity and destructiveness of the neoclassical economic framework, rather than as a middle-ground tweaking some of its techniques.  Driesen’s economic dynamics lens makes a more important contribution than many contemporary legal variations on neoclassical economic themes by shifting some major assumptions, though this book does not explore that altered terrain as far as it might.

At first glance, Driesen’s foregrounding of the “dynamic” question of change over time may, as Livermore suggests, seem to be consistent with the basic premise of neoclassical law and economics:   that incentives matter, and that law should focus ex ante, looking forward at those effects.   A closer look through Driesen’s economic dynamics lens reveals how law and economics tends to instead take a covert ex post view that enshrines some snapshots of the status quo as a neutral baseline.  The focus on “efficiency” – on maximizing an abstract pie of “welfare”  given existing constraints –  constructs the consequences of law as essentially fixed by other people’s private choices, beyond the power and politics of the policy analyst and government, without consideration of how past and present and future rights or wrongs constrain or enable those choices.  In this neoclassical view, the job of law is narrowed to the technical task of measuring some imagined sum of these individual preferences shaped through rational microeconomic bargains that represent a middling stasis of existing values and resources, reached through tough tradeoffs that nonetheless promise to constantly bring us toward that glimmering goal of maximizing overall societal gain (“welfare”) from scarce resources.

Driesen reverses that frame by focusing on complex change over time as the main thing we can know with certainty.  In the economic dynamic vision, “law creates a temporally extended commitment to a better future.” (Driesen p. 52). Read More