2013: How does Buffett weigh the benefits of adding earnings with the risk of leaving a harder-to-manage company for successors?
JONATHAN BRANDT: Thanks, Warren.
You probably have a couple of dozen direct reports from the multitude of noninsurance businesses that Berkshire owns, and this arrangement seems to work wonderfully for you.
But I wonder if this could potentially pose a challenge to your successors.
Adding smaller units like Oriental Trading and the newspaper group, even if they are economically sound transactions individually, could arguably add to the unwieldiness of the organization.
How do you weigh the benefits of adding earnings with the risk of leaving a less-focused and harder-to-manage company for even highly capable successors?
WARREN BUFFETT: Yeah. I think my successor will probably organize things a little differently on that, Jonathan, but not dramatically so.
And we’ll certainly never leave the principle of our CEOs running their businesses in virtually all important ways except, perhaps — except for capital allocation.
But, I actually have delegated a few units to an assistant of mine, and my guess is that my successor will modestly organize things in a somewhat different way.
I’ve grown up with these companies and with the people and everything, and so it’s a lot easier for me to communicate with dozens of managers, sometimes very infrequently, because they don’t need it. It just — sometimes it’s their own preference to some degree.
And somebody coming in fresh would want, obviously, to be — to understand very well — and that person will understand, in fact, understands now — very well, the major units.
But you’re right, when you get down to units that we have, you know, some businesses that make, you know, only 5 or $10 million a year or something like that.
And my guess is that it gets rearranged a little bit, but that won’t really make any difference.
I mean, the real money is made by the big businesses. It will continue to be made by the big businesses, and the insurance business, and a little change in reporting arrangements, maybe one more person at headquarters if they go crazy, will really take care of things.
CHARLIE MUNGER: Well, I think, of course, it would be unwieldy to have so many businesses, a lot of them small, if we were trying to run them through an imperial headquarters that dominated all the details.
But our system is totally different. If your system is decentralization, almost to the point of abdication, what difference does it make how many subsidiaries you have?
WARREN BUFFETT: Yeah. It’s working pretty well now.
CHARLIE MUNGER: Yeah.
WARREN BUFFETT: It’ll work pretty well afterwards, too.
But my successor is not going to do things identically. It’d be a mistake.
But the culture will remain unchanged. And the preeminence of the managers of the operating units will remain unchanged, and then every now and then something comes along and a change needs to be made. Sometimes it’s through death or disability, or sometimes a mistake is made.
But, in the end, we’re now trying to acquire companies that are at least at the $75 million pretax level.
Incidentally, the best acquisitions — to some extent, the best acquisitions — certainly from my standpoint makes it easier — is the one — is these bolt-ons that I talked about in the annual report, in which we did, I think, 2-and-a-half billion worth of last year, because they fall under the purview of managers that we’ve got terrific confidence in and they add really nothing to what happens at headquarters.
And, of course, the best bolt-ons out of all are when we do buy a — buy out — a minority interest.
When we buy $2 billion worth more of ISCAR, or a billion-and-a-half more of Marmon, with another billion-and-a-half to come in the next year, you know, that’s adding earning power without it, you know, posing any more work.
Those are the ultimate in bolt-on acquisitions, getting more of a good thing.
Charlie, any more on that, or—?
CHARLIE MUNGER: Well, if you stop to think about it, if it were all that difficult, what we’re doing now would be impossible, and it isn’t.
WARREN BUFFETT: I’ll have to think about that a little. (Laughter)
CHARLIE MUNGER: Well, think if 50 years — 20 years ago — they said to you, can you make something this size with a staff of ten or something in a little office in Omaha? People would’ve thought that’s ridiculous. But it’s happened, and it works.
WARREN BUFFETT: Well, we’ll let it go at that.