2009: What's Berkshire's post-mortem on GenRe?

CAROL LOOMIS: “In the past, you have stated that management should —”
This question comes from Ingrid Hendershot. “In the past, you have stated that management should be required, after several years, to do a post-mortem on acquisitions it makes. Would you each provide us with your post-mortem on Berkshire’s largest acquisition, General Re?”

WARREN BUFFETT: Yeah, I don’t think — I’ll comment on General Re, but I don’t think we generally should make our post-mortems public. I don’t think — I think that, if we acquired —

We do believe in post-mortems. We strongly believe in them. We think they’re conducted at far too few companies. It’s easy to propose a deal and it’s much harder to account for it later on.

And — Charlie is a big fan of rubbing anybody’s nose in their own problems.
And it absolutely should be done. I don’t think it necessarily should be made public.
I don’t think that you attract businesses by — and managers — by pointing out — even though you are the one that made the mistake, as the acquirer, in your projections — pointing out the shortfalls that may have occurred with the managers that are maybe doing a very good job to try and overcome the fact that you made a mistake in buying it in the first place. So I don’t want to — I wouldn’t want to get into that.

WARREN BUFFETT: Gen Re has worked out well after a terrible, terrible start. And I was dead wrong, in 1998, when I bought it, in thinking that it was the Gen Re of 15 years earlier, which had absolutely the premier reputation in the insurance world.
And some practices, in terms of reserving and underwriting, had changed somewhat. But I’m happy to say that, thanks to the combined work of Tad Montross, who is with us here today, and Joe, that the —

CHARLIE MUNGER: That’s Joe Brandon.

WARREN BUFFETT: Yeah, Joe Brandon, of course. But Joe and Tad, when they took over in, what, September of 2001, actually — right about the time of the World Trade Center problem — they took after all of the problems. They went right after them, reserving, underwriting, whatever it might be.
And Gen Re is the company now that I thought it was when I purchased it in 1998.
So we’re proud of them. It was a very tough job. It wasn’t one that was going to get done by itself. And that, to some extent, when you tighten up on an organization that has fallen into some lax ways, it can — you know, that is not an easy job.
Both of them, or each of them, they could’ve left for some other place and made just as much money, maybe more money, not had to face the problems that they faced at Gen Re. But they hung in there. And now we have an organization that we feel terrific about and has a great future.

Charlie?

CHARLIE MUNGER: Well, I think that’s right. And — but it’s very important that you have an ability to turn your lemons into lemonade.

And we were very, very lucky to have Joe and Tad to help us in the process. It wasn’t pleasant. And it wasn’t pretty. And it was very successful.

And it wasn’t something that ordinary managers would’ve been at all likely to do. You had to be very tough-minded to fix General Re. And they really did fix it.

WARREN BUFFETT: When we do the post-mortems, we, in a sense, are looking at our own handiwork. I mean, we make the decisions.

You know, it’s not some strategy department someplace, or vice president in charge of acquisitions, or some management consultant that comes in and tells us we ought to buy this or that. We’re looking at our decisions.

And that’s very important. And we talk about that. And we’ve made some dumb decisions. And most of them have been mine. Because I’m the guy that’s sitting in Omaha, making most of the decisions.

But it would really be a mistake to discuss, in public, my dumb decisions, which might reflect, you know, on some of the managers in some of the arenas. So we will not disclose those. But we will tell you that there are dumb decisions made around Berkshire.

CHARLIE MUNGER: The really brilliant decision in the General Re transaction was made by Joe Brandon. He was the one who decided that Berkshire should buy General Re. And he caused the transaction. And it wouldn’t have happened, I think, if he hadn’t been there. Would you agree with that?

WARREN BUFFETT: Yeah, that’s true.

CHARLIE MUNGER: And Joe was the steward for the General Re shareholders. We got a decent result, and they got a fabulous result. So if capitalism has any heroes in that transaction, why, Joe’s the hero.