Last Saturday’s Berkshire Hathaway’s Annual Meeting was preceded by a five hour Q & A with the two founders: Warrant Buffett and Charlie Munger. Both are over 90 and answered multiple questions about the numerous business decisions at BRK as well as thoughts about life.
Many of their observations were relevant to any organization because of the scope and scale of the companies BRK owns.
However the most important lesson is their example of transparent leadership and accountability. Buffett’s board is self-selected. He is Chairman and CEO, roles that will be divided when he leaves. The company has the fourth or fifth market capitalization of any publicly traded firm. Its net worth of over $500 billion is one of the largest in corporate America.
At age 92 with an unmatched performance record over six decades, Buffet did not have to put himself into the public and shareholders’ conversation as he did. There was no script. In addition to the tens of thousands in the live attendance there were hundreds of thousands following the life MSNBC telecast around the world.
His leadership example is one every credit union could follow. In doing so, the CEO and Boards would honor their member-owners’ loyalty, communicate competence, and fulfill the cooperative democratic governance model.
Following are few of his many insights. However the most important message is this simple example of a CEO’s public dialogue with his owners.
Buffett’s Business Observations
- Why problems with commercial real estate seem inevitable. The value of any property is only what the buyer can borrow without signing their name to back the loan. Market value depends on how much a buyer can borrow, that is the availability of credit. Downtown office buildings are being hollowed out and banks don’t want the properties. Many properties have seen their value decline, and refinancing or sale in the new interest rate environment will be more difficult.
- Money is too easy to raise—startups are selling ideas, not performance; People are just trying to outsmart each other not out-manage.
- Opportunity comes to BRK when people do dumb things partly the result of easy money.
- Wall street and company managers are overwhelmingly focused on the short-term, not how well you will be in five or ten years.
- How well will a brand travel? Buffett gave numerous examples of learning about consumer behavior from his multiple retail businesses. For example when trying to expand the See’s candy franchise, he learned that consumer’s preference for chocolate is different on the two coasts than in the Midwest. The See’s brand has “limited magic” and does not fit well in other markets.
- Why does BRK own so much of Apple? Consumer loyalty—users will give up their second car before they would their iPhone.
- Because BRK pays no dividends and reinvests all earnings back into its businesses, it makes investments in its power companies that give it an advantage over its dividend paying utility competitors. This is especially important when new power sources and transmission capabilities are required to make renewables an increasing component of energy supply.
- BRK’s secret to success: Keep a small headquarters staff (about two dozen people) and practice extreme decentralization for managers to run their business.
- Live your life by writing your obituary and then reverse engineering it.
- On AI: it will change everything except how people think and behave. AI does not replace the gene.
- How American industry and society performed in WW II: Americans understood the challenge creating a unity of purpose and the mechanisms and urgency to organize capital and industry to win the war. That unity is lacking today.
- Must refine our democracy -how to keep good parts and call out the worrying. The country has moved from partisanship to tribalism.
- Charlie Munger on why he left law practice: “Working in a large law firm and moving up is like winning a pie eating contest where the prize is getting more pie.”
- Why do formerly independent companies and managers agree to be bought out by BRK to become part of a large conglomerate. “We let them operate independently without worrying about analyst’ opinions, stock prices, bank lines, or trade associations’ priorities. They can just run their business. There is nothing like working for yourself.”
- Shouldn’t the second half of life be better than the first?
- Society has trouble preparing for events that seem remote (another pandemic, climate change).
Full details of this live Q & A can be found here: Buffett@response.cnbc.com, the Warren Buffett Watch.