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Berkshire Beyond Buffett

Berkshire Beyond Buffett: The Enduring Value of Values

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    Berkshire Beyond Buffett
    Book Description:

    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 manufacturer into a corporate fortress destined to be his lasting legacy.

    eISBN: 978-0-231-53869-5
    Subjects: Management & Organizational Behavior, Business, Finance

Table of Contents

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  1. Front Matter
    (pp. I-VI)
  2. Table of Contents
    (pp. VII-VIII)
    (pp. IX-XIV)
    Tom Murphy

    It’s hard to remember a time when Warren Buffett wasn’t well known. But in 1986, when a small TV and newspaper company named Capital Cities bought the broadcasting giant ABC, few people recognized the name of the man who financed 18 percent of the deal. A small number of investors knew about his record, and Wall Street was learning. But the general public had yet to meet this low-profile Omaha analyst, a man who would become America’s premier teacher of all things business and attract an international media following eager for his insights. Warren Buffett would one day help make...

    (pp. XV-XVIII)
    (pp. XIX-XXIV)
  6. Introduction
    (pp. 1-6)

    Berkshire Hathaway is an accident. No one planned it out. No strategic plan was ever devised. With many unusual features, from its governance to its philosophy, Berkshire is unique in corporate history. And from humble roots in 1965, Berkshire is now one of the largest corporations the world has ever seen.

    The company and its iconic leader, Warren E. Buffett, became famous for savvy stock picking through the 1990s, acquiring lucrative minority stakes in public companies, including American Express, Coca-Cola, the Washington Post Company, and Wells Fargo. Today, Berkshire is a huge conglomerate with wholly owned businesses in every artery...

  7. PART I

    • 1 Origins
      (pp. 9-20)

      In 1956, a twenty-six-year-old Warren Buffett formed Buffett Partnership Ltd., an investment firm run from his native Omaha. His philosophy was to find companies priced below book value; such bargain opportunities were common then and yielded gains, though several failed eventually because they lacked durable competitive advantages. One of those companies, of which Buffett took control in 1965, was Berkshire Hathaway, Inc.

      At the time of its acquisition, Berkshire Hathaway was a New England textile manufacturer. It was the product of a 1955 merger between two companies with late-nineteenth-century origins—Berkshire Fine Spinning Associates, a 1929 amalgamation of textile companies,...

    • 2 Diversity
      (pp. 21-35)

      By 1986, Berkshire owned a range of companies, from candy to insurance, and with its next two acquisitions continued to diversify. Early that year, the management of the Scott Fetzer Company, led by Ralph E. Schey, had proposed a leveraged buyout. The plan drew attention from takeover artists, including the notorious raider, Ivan Boesky.¹ Buffett followed the high-profile battle in the newspapers and finally wrote Schey a letter. He stressed Berkshire’s aversion to hostile bids, and told Schey to call if he wanted to discuss a friendly deal. The acquisition that resulted brought to Berkshire a new mix of businesses,...

    • 3 Culture
      (pp. 36-42)

      On corporate culture, Buffett is fond of quoting Winston Churchill: “You shape your houses and then they shape you.”¹ Companies self-select for membership in the Berkshire family. Business owners do not sell to Berkshire (and Berkshire does not buy businesses) unless they concur with the norms and standards of the culture.

      Corporate culture is complex at any organization but especially at a conglomerate of Berkshire’s scale and diversity. Corporate culture is defined by a set of shared beliefs, practices, and outlooks that determine a corporation’s expectations and influence the behavior of its personnel toward colleagues, customers, and owners alike.² The...

  8. PART II

    • 4 Budget-conscious and Earnest
      (pp. 45-58)

      1936,San Antonio,Texas. Leo Goodwin, a fifty-year-old insurance manager, was working closely with U.S. military personnel at USAA, an insurer that catered to the military.¹ He was concerned that his customers were paying too much for car insurance and calculated that by putting the least risky drivers into an insurance pool and selling policies without agents, a company could discount prices by up to 20 percent and still turn a profit. This simple idea blossomed into GEICO, a car insurance company that is one of the cornerstones of Berkshire’s business, epitomizing the first of the Berkshire values I’ll explore...

    • 5 Reputation
      (pp. 59-71)

      Among the culprits of the 2008 financial crisis was one corner of the real estate industry that peddled irresponsible mortgages to unsuspecting and impecunious homeowners. When revealed, the dubious practices put many banks and finance companies out of business and sent millions of homes into foreclosure. Within the sector hit hardest, manufactured housing, a single exception stood out in the industry: a Berkshire subsidiary called Clayton Homes, Inc. Clayton Homes is a stellar example of a business that has benefited financially from its reputation.

      Its founder, James L. Clayton, was born in 1934 on a Tennessee sharecropper’s farm in a...

    • 6 Kinship
      (pp. 72-85)

      Until the year before Rose Blumkin died in 1998 at age 104, she was gainfully occupied in the job she had held most of her adult life: chairman of the Nebraska Furniture Mart, Inc., her family business.¹ A decade earlier, she engaged in a family feud over her retirement—insisting on working despite the urging of her grandchildren, by then in their sixties, to step down. Berkshire stayed out of the dispute, respecting the principle of autonomy, but in the end played a unique mediating role to help resolve the family quarrel.

      The Nebraska Furniture Mart story represents a good...

    • 7 Self-starters
      (pp. 86-104)

      Among Berkshire’s entrepreneurs are several recipients of the Horatio Alger Award, given annually by the society of that name to businesspeople who epitomize the dream of moving from poverty to prosperity in a single generation.¹ In addition to Jim Clayton, winners include Albert Lee Ueltschi, a Kentucky-born entrepreneur who founded FlightSafety International Inc. While many associate entrepreneurship with a habit of incubating businesses and moving on to the next one, Berkshire’s entrepreneurs are more inclined to focus on innovation within a business and to toil assiduously in that one domain.

      In the case of Ueltschi (pronouncedyool-chee), it was all...

    • 8 Hands Off
      (pp. 105-118)

      At corporate headquarters in Omaha, Berkshire employs two dozen people; worldwide, Berkshire subsidiaries employ more than 300,000. The practice at the top is hands-off, stressing decentralization and individual autonomy—values that define Berkshire culture. In contrast, most business organizations are hierarchies with a bureaucratic chain of command. They act through committees and meetings, with multiple layers of reporting and review.

      Berkshire’s hands-off management approach was made by choice but became necessary by default—with such a large number of subsidiaries in such a broad range of businesses, strict hands-on control would not be feasible. The choice to operate in a...

    • 9 Investor Savvy
      (pp. 119-136)

      McLane Co. Inc., a grocery wholesaler and distributor, generates more revenue than most countries’ gross domestic product: $46 billion in 2013.¹ The company’s mammoth size resulted from steady accretive expansion during the late twentieth century, spreading across the U.S. one region at a time. Since its humble nineteenth-century founding, however, the company has done what Berkshire does: reinvest earnings in its most profitable opportunities.

      Robert McLane began this practice in 1894, when running a grocery store in the small central Texas farming town of Cameron, and spent the next two decades nurturing the business into a regional player.² Efficient distribution...

    • 10 Rudimentary
      (pp. 137-152)

      National Indemnity’s website awkwardly avows that it “might be one of the largest insurance companies you’ve never heard of.” Many Berkshire companies can make a similar claim. Unless you are a Berkshire devotee or have some connection to given companies, before reading this book you were unlikely to be familiar with many Berkshire subsidiaries, including FlightSafety, ISCAR/IMC, Lubrizol, or MiTek. On the other hand, many Berkshire subsidiaries have instant brand name recognition: Dairy Queen, Fruit of the Loom, GEICO, and Justin. But what unites all of these Berkshire subsidiaries is a sense of modesty and simplicity.

      Berkshire companies engage in...

    • 11 Eternal
      (pp. 153-161)

      During the period between Christmas and New Year’s Eve of 2011, Jim Weber regularly checked his email, but not his voice mail. Back in the office on January 2, he retrieved his phone messages. One had been left five days earlier: “Jim, this is Warren Buffett. I have an idea I want to run by you. Please give me a call.” Weber was mortified that he had not returned a message from Warren Buffett after almost a week had elapsed.¹

      When Weber made the call, Buffett said “Tell me about Fruit of the Loom and Brooks. To what degree are...

    • 12 All One
      (pp. 162-173)

      Suppose you are an analyst asked to evaluate a diverse conglomerate comprised of hundreds of different companies in numerous sectors, including financial services, transportation, energy, construction, manufacturing, and so on. The businesses are low-tech and unglamorous. They are also leaders in their industries. The companies were acquired at different times without any master plan.

      The conglomerate’s aging chairman and vice-chairman have guided the company during the four decades since its inception. The two billionaires make essentially all important corporate decisions, with scant oversight from the board of directors. Adhering to a hands-off management policy emphasizing individual autonomy, all other decisions...

    • 13 Berkshire’s Portfolio
      (pp. 174-190)

      When Berkshire was negotiating to acquire Burlington Northern Santa Fe Railway, Roger Nober, the railroad’s general counsel, observed that Berkshire’s other rail investments could pose regulatory concerns.¹ Buffett readily agreed to divest any stock investments as necessary, and Berkshire soon sold its 1 percent stake in Norfolk Southern Corporation and 2 percent position in Union Pacific Railroad Co.² He would not have agreed to sell a subsidiary to satisfy the same regulatory concerns. Similarly, if Berkshire faced insurance claims exceeding cash reserves, the stocks would be liquidated first, before any subsidiary. For Berkshire culture, relative permanence is just one of...


    • 14 Succession
      (pp. 193-210)

      In January 2012, clients of Larson-Juhl, a custom picture frame maker that Berkshire Hathaway acquired a decade earlier, received a letter from Drew Van Pelt. The young executive, new to the industry, announced he had become chief executive of the company and reported the departure of his predecessor, Steve McKenzie, after two decades at Larson-Juhl.¹ The move came as a complete surprise to many.

      Larson-Juhl’s roots date to 1893, with the formation of Pacific Picture Frame in Seattle. Pacific grew as the industry did, booming with the invention of frame clamps and improved machinery to cut mats. In 1968, Pacific...

    • 15 Challenges
      (pp. 211-220)

      In 2001, Julian Robertson, founder of the pre-eminent Tiger Fund, signaled to Buffett his willingness to sell a large stake in XTRA Corporation, the truck leasing company.¹ Upping the ante, Berkshire proposed to XTRA’s board a tender offer to the public company’s shareholders, which it endorsed, and Berkshire soon closed.

      XTRA is the industry leader in renting and leasing trailers for trucks to commercial organizations. Founded in 1957, it went public in 1961, listing on the New York Stock Exchange and joining the Dow Jones index of twenty transportation stocks. Today it manages vast fleets for large corporate customers such...

    • 16 B.E.R.K.S.H.I.R.E.
      (pp. 221-230)

      Annually from 2000 through 2009, among the largest donors listed in theChronicle of Philanthropywas Lorry I. Lokey.¹ Lokey founded Business Wire, which Berkshire acquired in 2005 for $600 million. A native of Portland, Oregon, and a graduate of Stanford University, Lokey’s donations target universities, including Portland State, Stanford, and the University of Oregon. Lokey’s total giving as of the time of Berkshire’s acquisition was $160 million; since then, the total has surpassed $400 million.²

      After service in the Army in World War II, Lokey was as an editor of thePacific Stars & Stripes. He majored in journalism...

  10. Epilogue
    (pp. 231-232)

    Warren Buffett is sui generis, and there is no other company like Berkshire Hathaway. The company cannot be replicated, and the man cannot be replaced. But having infused the business with a set of transcendent values, the company promises to survive the man. As usual, Warren’s words are apt: “The special Berkshire culture is deeply ingrained throughout our subsidiaries, and these operations won’t miss a beat when I die.”¹ We all hope the proverbial truck is another decade or more off and will lament its arrival whenever it comes. Yet, as Buffett quipped at the 1997 conference where we introduced...

  11. Appendix
    (pp. 233-250)
  12. Notes
    (pp. 251-290)
  13. Selected Bibliography
    (pp. 291-292)
  14. Index
    (pp. 293-308)