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Abel, Gregory E.: BHE under, 35; as vice chairman of Berkshire, 6, 126
acquisition: agreements, 47–50; approval of, 103–4; of Benjamin Moore, 41, 55; “best efforts” clauses, 51–52, 53; board of directors role in, 8; broker alternatives in, 39–40; business methods of, 39–41; Celler-Kefauver Act influencing, 121; of Clayton Homes, 108; compensation arrangements during, 52–53, 70–71; criteria, xiii; critics, 123; of Detlev Louis Motorradvertriebs, xiii–xvii; of Dexter Shoe, 104–5; employment contracts, 52–53; errors in judgment on, 103–8; of family businesses, 107–8; of Gen Re, 105–6; of Heinz, 55–57, 83–84; informal promise on, 47; by ITW, 92; of Lubrizol Corporation, 130–31; manager contracts, 54; by Marmon Group, 94; of Marmon Group, 96; of NFM, 49–50; of NICO, 48–50; of Scott Fetzer Company, 50–53; segmented decentralization upon, 35–37; spirit of agreement in, 55–58; strategy, xvii–xviii, 39; Texaco guilty of disrupting, 57–58; of Texas electric utilities, 106; of XTRA Lease, 104
advisory board model, 64–65
Alleghany Corporation, 88–89
audit committee: function of, 7; on Sokol case, 132, 134–35
autonomy: ITW commitment to, 92; as management principle, xi; management qualifications, 17; at Marmon Group, 94, 96; risks of, 82; of subsidiary CEOs, 119–20
Benjamin Moore: acquisition of, 41, 55; executive shuffles at, 110–11
Berkshire Hathaway Inc. (Berkshire): Abel and Ajit Jain as vice chairmen of, 6, 126; acquisition criteria of, xiii; advisory board model of, 64–65; Alleghany Corporation resemblance to, 88–89; Bank of America investment from, 77–78; birth of, 3; board of directors of, 6–10, 10; Warren Buffett as controlling shareholder of, 3–4; Warren Buffett on size of, 124; Warren Buffett on uniqueness of, 85; business method types, 30; into conglomerate, transforming, 19, 122–23; CSI resemblance to, 98–99; Danaher resemblance to, 96–98; divestitures of, 143n2; embracement of, x; Fairfax Financial Holdings resemblance to, 89–91; family businesses appealing to, 107–8; financial crisis and, 77, 121; Goldman Sachs investment from, 77; innovation promoted by, x, xii; insurance sector comparisons to, 87–91; ITW resemblance to, 91–94; management principles of, xi; managers of, 15, 17–21; Markel Corporation resemblance to, 87–88; Marmon Group resemblance to, 94–96; Munger as vice chairman of, 5; organizational chart of, hypothetical, 33; owner orientation at, 69–72; owners of, 11–15, 14, 16; PE firms contrasts and comparisons to, 79–83, 86; public perception sensitivity of, 152n14; revenue of, 119; shareholder activism contrasts with, 75–79; stock splits shunned by, 23; succession plan of, 125–28; 3G working with, 83–85, 106; trust as essence of success at, ix, 99–100; win-win approach of, 82. See also Buffett, Warren; specific topics
board of directors: acquisition role of, 8; annual meetings of, 8–9; audit committee, 7, 132, 134–35; Warren Buffett handpicking, xix, 7; Warren Buffett serving on multiple, 60–61; CEOs replaced by, 61–62; CEOs selected by, 59; list of current, 9, 10; monitoring board model, 6–7, 64–65; performance standards measured by, 60; qualities for successful, 63; as shareholders, 7–8, 10; trust of, 59. See also specific board members
“boardroom atmosphere,” 62–63
Brooks Running Shoe Co., 35–36
Buffett, Warren: acquisition approval by, 103–4; acquisition strategy of, xvii–xviii, 39; as Berkshire controlling shareholder, 3–4; on Berkshire model benefits and costs, 129; on Berkshire size, 124; on Berkshire uniqueness, 85; board of directors handpicked by, xix, 7; on “boardroom atmosphere,” 62–63; CalPERs and ISS challenging, 61; CEOs favored by, 59–60; Class A shares of, 11; on compliance, 145n1, 151n12; departure speculation on, 125, 127–28; on Dexter Shoe acquisition mistake, 105; on executive compensation, 24; on finance reporting, 67; Heinz acquisition criticism toward, 84; informal promises of, 46–47; investment track record of, ix; letters to shareholders, 19–20, 24–26, 48–49, 52–53, 84, 85, 124; letter to subsidiary CEOs, 17; margin of safety concept of, x; on “moats,” 138n8; Munger relationship with, 5; partnership attitude of, xix, 22; reputation as high-quality shareholder, 76–77; shareholder activism aversion from, 75–79; as shareholder advocate, 60–61; Sokol denounced by, 133; succession plan of, 125–28; as Wall Street critic, 76; writing style of, 25–26
business methods: of acquisition, 39–41; of decentralization, 33, 33–39, 37; of finance, 30–32; of internal capital allocation, 32–33; types of, 30
California Public Employees’ Retirement System (CalPERs), 61
capital allocation, internal, 32–33
Capitalism, Democracy, and Ralph’s Pretty Good Grocery (Mueller), 45, 46–47
Celler-Kefauver Act (1950), 121
Cerberus Capital Management, 108
charitable contribution program, 22–23
Class A shares: of Warren Buffett, 11; Class B share conversion from, 24; voting power of, 142n2
Class B shares: creation of, 23–24; voting power of, 142n2
command-and-control culture, xx–xxi
contracts, 57–57. See also specific types
corporate governance: advisory board model of, 64–65; internal control system of, 66–67; on monitoring board model, 6–7; norms and rules, 67–69; skepticism from contemporary, 9; skepticism of, 112
cost-benefit calculations, 67–68
Danaher: Culp of, 98; founding of, 96–97; Sherman as CEO of, 97
debt: bank, 32; Warren Buffett favoring cash over, 76; PE firms financing with, 79
decentralization: business methods of, 33, 33–39, 37; compensation in relation to, 69–70; at ITW, 93–94; as management principle, xi; Marmon Group 80/20 principle of, 95–96; reporting, 34, 37, 37, 38; segmented, 34, 35–37; strategy, 69; for subsidiaries, 15, 17; sustained, 34, 35
divestitures: of Berkshire, 143n2; from PE firms, 83; rarity of, 13
employment contracts, 52–53
empowerment: autonomy for, xi; from responsibility, 69
entrepreneurs: Berkshire model embraced by, x; motivation of, 72
Essays of Warren Buffett, The (Buffett, W.): interview on, x; popularity of, ix; shareholder letters distributed in, 24–25
Fairfax Financial Holdings, 89–91
finance: business methods of, 30–32; internal control system for, 67; large corporations of, 120–21; public relations for, 114–16; statements, 47–50
financial crisis (2008): Berkshire investments alleviating, 77, 121; Dodd-Frank Act in relation to, 115, 120
handshakes: as contracts, 57–58; fondness of, xx
individual investors: institutional investors compared to, 11; list of notable, 14
informal promises/agreements: of Warren Buffett, 46–47; formal agreements in relation to, 55–58; handshakes as, xx, 57–58
institutional investors: individual investors compared to, 11; list of quality, 16
insurance float: exposé on, 113–14; as leverage preference, 30–31
insurance operations: Ajit Jain overseeing, 6, 126; public relations for, 113–14, 147n3; reporting decentralization and, 38
internal capital allocation, 32–33
internal control system, 66–67
investments: Warren Buffett track record in, ix; margin of safety concept for, x
Jain, Ajit: insight of, 72; as vice chairman of Berkshire, 6, 126
judgment, errors in: on acquisition, 103–8; on CEOs, 108–11
Kraft Heinz Company: formation of, 56; Unilever sought by, 85
lawsuits: against Clayton Homes, 108, 115; against NICO, 113; by shareholders, 151n13
Lemann, Jorge Paulo, 84–85
leverage: insurance float and deferred taxes as, 30–31; PE firms using, xxi
loans: bank debt from, 32; risks of, 31
Louis, Detlev: death of, xv–xvi; Detlev Louis Motorradvertriebs founded by, xiii–xiv; forward integration strategy of, xv
Louis, Ute: Detlev Louis Motorradvertriebs joined by, xiv; Detlev Louis Motorradvertriebs run by, xv–xvi; Detlev Louis Motorradvertriebs sold by, xvi–xvii
management/managers: autonomy qualifications for, 17; of Berkshire, 15, 17–21; principles, xi; succession success of, 15, 17–19; trust of, 129
margin of safety concept, x
Markel Corporation, 87–88
Marmon Group: acquisition by, 94; acquisition of, 96; 80/20 principle of decentralization at, 95–96; Nichols running, 94–95; under Ptak, 37, 37, 95–96; reporting decentralization example, 37, 37
meetings, annual: of board of directors, 8–9; as partnership practice, 26–29; trust-based culture reiterated at, 133–34
MidAmerican Energy Company, 54
monitoring board model: advisory board model over, 64–65; corporate governance on, 6–7
Munger, Charles T.: Howard Buffett in relation to, 126; on Gen Re acquisition, 105; merger agreement drafted by, 50–51; on Sokol case, 133–34; veto power of, 105, 126; as vice chairman of Berkshire, 5
Nichols, John: as ITW CEO, 92; Marmon Group run by, 94–95
noninsurance operations, 6, 126
Of Permanent Value (Kilpatrick), 14
organizational success, 138n6
partnership attitude: of Warren Buffett, xix, 22; Denham on, 27–28; informal promise on, 46–47; Lorne on, 28; Owner’s Manual on, 3, 4
partnership practices: annual meetings as, 26–29; policy, 22–24; shareholder letters as, 24–26
performance standards: for CEOs, 60; failure to comply with, 61–62
policy: dividends, 12, 23; partnership practice, 22–24
private equity (PE) firms: Berkshire contrasts and comparisons to, 79–83, 86; Detlev Louis Motorradvertriebs acquisition standpoint from, xvi; divestitures from, 83; intermediaries of, 79, 81; leverage used by, xxi; shareholders of, 82; short-term gain priority of, 80; tax influence from, 81; 3G as, 83–85, 106
reporting decentralization: definition of, 34; Marmon Group example of, 37, 37; succession handled with, 38
rules-oriented approach, 67–68
Salomon: Warren Buffett as interim chairman of, 76; compliance at, 145n1, 151n12; Denham as CEO of, 27; Gutfreund as CEO of, 62, 76
Sarbanes-Oxley Act (2002), 65
Scott Fetzer Company, 50–53
Securities and Exchange Commission (SEC), 134–35
segmented decentralization: upon acquisition, 35–37; definition of, 34
shareholder activism: Warren Buffett aversion to, 75–79; regarding Warren Buffett succession, 127–28; toward ITW, 93; trust eroded by, xxi
shareholders: advocate of, 60–61; board of directors as, 7–8, 10; Warren Buffett as Berkshire controlling, 3–4; Warren Buffett reputation as high-quality, 76–77; charitable contribution program, 22–23; communication with, 4–5; dividends policy, 12, 23; engagement of, xix; Fairfax Financial Holdings appreciation of, 90–91; family business acquisitions impacting, 107–8; lawsuits by, 151n13; Markel Corporation appreciation of, 88; as owners, 11, 46; of PE firms, 82; quality, 141n12; of Scott Fetzer Company, 51–52
Sokol, David: Berkowitz on, 150nn9–10; Warren Buffett questioning, 133; Citi relations with, 130–31; front running by, 54; insider trading suspected of, 130, 132; of MidAmerican Energy Company, 54; Munger on trust regarding, 133–34; as NetJets CEO, 109, 110; public perception hurt by, 152n14; resignation of, 131–32; SEC decision on, 134–35; shareholder lawsuits regarding, 151n13
“Sokol Affair Tarnishes Buffett Style,” 150nn9–10
spirit of agreement, 55–58
stocks: Class A share, 11, 24, 142n2; Class B share, 23–24, 142n2; compensation from, 7–8, 70; front running, 54; insider trading of, 130, 132. See also shareholders
subsidiaries: Alleghany Corporation relationship with, 89; at annual meetings, 8–9; autonomy for CEOs of, 119–20; Warren Buffett letter to CEOs of, 17; commitment to holding, 13; decentralization for, 15, 17; divestitures of, 13, 83, 143n2; Fairfax Financial Holdings relationship with, 90; non-supervision of, 129; self-containment of, 34; shareholder letters on, 19–20; wealth of, 13–14. See also specific subsidiaries
succession: executive shuffles of, 108–11; reporting decentralization for handling, 38; success of management, 15, 17–19
succession plan: Abel and Ajit Jain elected as part of, 6, 126; of Berkshire, 125–28; effectiveness of, xxii
sustained decentralization: BHE illustrating, 35; definition of, 34
taxes: deferred, 30–31; dividends policy regarding, 12; PE firms influence on, 81
Texas electric utilities, 106
3G: Berkshire working with, 83–85, 106; shareholder letters on, 84, 85
trust: of board of directors, 59; controls and, 66–67; CSI on, 98–99; as essence of Berkshire model, ix, 99–100; Fairfax Financial Holdings on role of, 90–91; importance of, x–xi; Prem Jain on, 28–29; Lincoln on, 69; of management, 129; Markel Corporation on role of, 88; Mueller on, 45, 46–47; organizational success from, 138n6; shareholder activism eroding, xxi
trust-based culture: challenges with, 103; over command-and-control culture, xx–xxi; diversity of companies using, xii; of insurance, 87; as “moats,” xi–xii; Munger reiterating, 133–34; norms in, 67–69
underwriting: Gen Re losses from, 106; importance of proper, 31–32, 142n1
vice chairmen: Abel and Ajit Jain as, 6, 126; Munger as, 5
Warren Buffett Shareholder, The: Denham quoted from, 27–28; Prem Jain quoted from, 28–29; Lorne quoted from, 28