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Tagged: Berkshire Hathaway

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Buffett’s Evolution: From Stock-Picking Disciple of Ben Graham to Business-Building Devotee of Tom Murphy

While everyone knows that Warren Buffett modeled himself after Ben Graham for the stock picking that made Buffett famous in the latter 20th century, virtually no one knows a more important point for the 21st century: he has modeled himself after Tom Murphy in assembling a mighty conglomerate.   Murphy, a legendary executive with great skills in the field of acquisitions that resulted in the Capital Cities communications empire, engineered the 1985 $3.5 billion takeover by Capital Cities of ABC before selling it all to to Disney a decade later for $19 billion.  You did not hear that explicitly at Saturday’s Berkshire Hathaway annual meeting, but Warren mentioned it to me at brunch on Sunday and, when you think about it, it’s a point implicit deep in the meeting’s themes and many questions.

In fact, Berkshire mBBB COvereetings are wonderful for their predictability.   Few questions surprise informed participants and most seasoned observers can give the correct outlines of answers before hearing Buffett or vice chairman Charlie Munger speak. While exact issues vary year to year and the company and its leaders evolve, the core principles are few, simple, and unwavering.  The meetings reinforce the venerability and durability of Berkshire’s bedrock principles even as they drive important underlying shifts that accumulate over many years.  Three examples and their upshot illustrate, all of which I expand on in a new book due out later this year (pictured; pre-order here).

Permanence versus Size/Break Up. People since the 1980s have argued that as Berkshire grows, it gets more difficult to outperform. Buffett has always agreed that scale is an anchor. And it’s true that these critics have always been right that it gets harder but always wrong that it is impossible to outperform.   People for at least a decade have wondered whether it might be desirable to divide Berkshire’s 50+ direct subsidiaries into multiple corporations or spin-off some businesses.  The answer has always been and remains no.  Berkshire’s most fundamental principle is permanence, always has been, always will be. Divisions and divestitures are antithetical to that proposition.

Trust and Autonomy versus Internal Control. Every time there is a problem at a given subsidiary or with a given person—spotlighted at 2011’s meeting by subsidiary CEO David Sokol’s buying stock in Lubrizol before pitching it as an acquisition target—people want to know whether Berkshire gives its personnel too much autonomy. The answer is Berkshire is totally decentralized and always will be-another distinctive bedrock principle. The rationale has always been the same: yes, tight leashes and controls might help avoid this or that costly embarrassment but the gains from a trust-based culture of autonomy, while less visible, dwarf those costs.

Capital Allocation: Berkshire has always adopted the doubled-barreled approach to capital allocation, buying minority stakes in common stocks as well as entire subsidiaries (and subs of subs).  The significant change at Berkshire in the past two decades is moving from a mix of 80% stocks with 20% subsidiaries to the opposite, now 80% subsidiaries with 20% stocks.  That underscores the unnoticed change: in addition to Munger, Buffett’s most important model is not only Graham but Murphy, who built Capital Cities/ABC in the way that Buffett has consciously emulated in the recent building of Berkshire.

For me, this year’s meeting was a particularly joy because I’ve just completed the manuscript of my next book, Berkshire Beyond Buffett: The Enduring Value of Values (Columbia University Press, available October 2014). It articulates and consolidates these themes through a close and delightful look at its fifty-plus subsidiaries, based in part on interviews and surveys of many subsidiary CEOs and other Berkshire insiders and shareholders.   The draft jacket copy follows. Read More

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When There’s Nothing Else to Say

Are the following two paragraphs likely to have been composed with originality, independently by two different people, or does it seem likely that one was adapted from the other?

“We’re pleased to have the opportunity to become a part of what we believe to be the finest family of companies ever assembled under one corporate name. Warren Buffett, Chairman of Berkshire Hathaway has demonstrated a legendary record of protecting the unique characteristics of individual businesses in a diverse portfolio of companies. We’re excited to be a part of it.”

“We couldn’t be more pleased than to have the opportunity to become a part of what we believe to be the finest family of companies ever assembled under one corporate name. Warren Buffett has demonstrated a legendary track record for growth and we want to be part of it.”

These are from Berkshire Hathaway press releases, several years apart (1997 and 2000), quoting senior executives of generations-old family companies being sold to the conglomerate Warren Buffett leads.  My hunch is that cribbing occurred, but of a fairly innocuous sort.

A Berkshire manager, experienced in drafting press releases, asked the selling executive for a comment.  Having never given a comment for a business press release of this sort, the recipient asked for examples or suggestions of what to say.

Taking a habit from the page of corporate lawyers, the Berkshire manager likely culled some examples from precedent and sent them over.  The family businessman then read through the samples, picked the one he liked the best, touched up the wording a bit and sent it back.

I came across this curious incident in the context of a larger research project on Berkshire Hathaway’s acquisitions over the past forty years. Part of the project concerns annotating and documenting the joint expectations at the outset.  To do that, I’m reading through public company disclosure documents, minutes of meetings and other resources, including press releases. 

Press releases announcing corporate mergers are prone to hyperbole and generalities and I’ve found quite a bit of that. Yet, especially when a public company is involved, they are also carefully vetted.  And I’ve seen quite a bit of useful, distilled, clear detail in the Berkshire press releases, including the pair quoted.  

Written independently or not, this pair reflects a widespread perception in the business world that Berkshire is a unique corporate home where Buffett has been exceptionally good at helping companies grow.   

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Symposium Redux: Essays and Lessons

The Essays of Warren Buffett: Lessons for Corporate America is as rich as the man, judging by the variety and depth of commentary contributed to this week’s on-line symposium about the new third edition of the 300-page book.

A dozen luminaries from various walks of life and backgrounds, and with very different viewpoints, addressed issues such as target audience; thematic approach; selected content; what is Berkshire?; and even who is Warren Buffett?

Seventeen years after hosting an in-person conference on the subject, I remain awestruck at the varied impressions that can be generated by the same set of material. Herewith, a recap of this week’s contributions, at least as I saw them, leading off with a hearty thanks to all who contributed to the symposium.  Read More

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Mr. Buffett Joins a Board

Don Graham (courtesy of WaPo)

Mr. Graham contributed this post to the symposium featuring L. Cunningham’s third edition of The Essays of Warren Buffett: Lessons for Corporate America (2013).

In September 1974, I joined the board of The Washington Post Company.  Two other directors were elected at roughly the same time:  George J. Gillespie III, a partner at Cravath, Swaine and Moore; and Warren E. Buffett, ceo of Berkshire Hathaway.   Adding Warren to the board was one of the best decisions (in a life full of great ones) for Katharine Graham, the ceo of The Washington Post Company, and my mother.  (George’s contributions are a story for another day).

I’m pretty certain that Kay was, at the time, the only woman ceo in the Fortune 1,000.  Her autobiography, Personal History, won the Pulitzer Prize for biography in 1998 and was a number one bestseller.  Her book emphasized how utterly uncertain she was at all times, how unsure of her own judgment, how modest.  If conceit normally enters the bloodstream when one takes on the title ceo, Kay was an exception.

There were two people she worked with who gave my mother the belief that she could do the job:  Ben Bradlee, the executive editor of the Post, and Warren Buffett (later Meg Greenfield, the Post’s editorial page editor, would be added to the group).

Kay Graham, who had never heard of Mr. Buffett before he bought stock in her company, quickly figured out after meeting Buffett and Charlie Munger, Berkshire vice chairman, that they were the two smartest business people she’d ever met. Many advisers told her not to put Warren on the board; she ignored their advice and in effect made him her lead director.

Warren was an active, smart director from the first meeting.  He had more time then than now; he advised her on basic corporate matters; on management choices; and on acquisitions (the story of his input on acquisitions for The Washington Post Company is told in wonderful detail in Personal History).

The story I want to tell in this blog post has to do with Mr. Buffett’s first two interventions in our company’s business life.  Warren extensively advised Kay Graham (in writing, in both cases) to change major corporate policies.  Neither involved reversing policies she herself had been involved in.  Read More