1996: Is Berkshire a one-man show?
AUDIENCE MEMBER: Mr. Buffett, my name is Hank Strickland (PH). I’m from Fairfax, Virginia, which, if it were a city, would be the tenth largest in the United States. I’m here as a stockholder. And my daughter, who’s also my broker, is here with me.
We were also out there Friday night when we watched you warming up for the beginning of the ballgame. And we noted that you didn’t drop the ball. You seemed to be able to get it to the guy that was warming you up.
We noticed your first pitch, which I had difficulty characterizing as either being a passed ball or a wild pitch.
WARREN BUFFETT: It was a premature sinker, actually. (Laughter)
Very hard to hit, I might add. (Laughter)
AUDIENCE MEMBER: And, then, you moved spritely into the stands, did a lot of picture taking, photo opportunities, signed autographs, vaulted over a rail or two. And we noted, with great enthusiasm, your fitness.
Now that all having been said, many people would characterize Berkshire as a one-man company, with all due respect to Charlie. And many of this audience here, I’m sure, are retired or semi-retired. It’s not unthinkable that, perhaps, you might want to retire, or for good — God’s sakes —
WARREN BUFFETT: It’s unthinkable. I don’t want that one to go by. (Applause)
AUDIENCE MEMBER: Or for something — something worse could happen. And for those of us —
WARREN BUFFETT: That would be the worst, I think — (Laughter)
AUDIENCE MEMBER: Well I —
WARREN BUFFETT: I think death would be second. (Laughter)
AUDIENCE MEMBER: I could think of some things some of us might want to do to protect our sizeable investments, say, having owned Berkshire since Blue Shamp — Blue Chip Stamp days. But anyway, we could put in a stop order, might take out an insurance policy.
We might ask Charlie to masquerade as Warren after you’ve moved on. Those don’t seem like very attractive options. So, I’m very serious now.
How would you respond to the question of a stockholder that’s really concerned about Berkshire being a one-man show?
WARREN BUFFETT: Yeah. Well, Berkshire is not a one-man show. It’s a two-man show, in terms of capital allocation. There’s no question about that, at present.
But it’s run by many managers that are doing an outstanding job and that don’t need any guidance from Charlie or me as they go along.
But I might say that, you know, I will die with all of my Berkshire stock, essentially. And that will — stock will be held, either in the family or in a foundation, depending on the order of death, for a long time thereafter.
So, there’s no one that’s more concerned about the subsequent management issue than I. I mean, this is not something that ends, at all, on my death. And it doesn’t end for the Buffett family or The Buffett Foundation. So, it’s a subject that Charlie and I have both thought about.
The most likely situation — you got to get away from the idea that it’s a one-man show because, right now, we’ve got 33,000 people working for Berkshire out there, you know, as we speak.
And I’m sitting around, you know, watching movies about myself or something. I mean, you can see how vital I am to the place. (Laughter) So the — but the question —
And the other thing we do, besides allocate capital, is we do identify these managers. And hopefully, we make it attractive for them to stay and work for Berkshire.
But that — you know, that doesn’t require 150 IQ or anything to do that. It does require a certain sensitivity to why people want to get up in the morning and do what they do.
And when I’m not around, the logical, at some point — it depends on exactly when it happens, again. But Charlie’s a little older than I am. And it’s likely that it will be broken into a two-person function again, but not exactly the way Charlie and I function.
And that is that there will be someone in charge of investments and capital allocation. I mentioned Lou Simpson’s position, because he is younger than I am, in the annual report, and then someone in charge of operations. And we have that person in the organization now.
Now, I don’t know what the situation will be when I die, because it could be in 20 minutes or it could be in 20 years. And when that — so, I can’t specifically name the individuals.
We have the individuals now for both those functions. We’ll have the individuals for the same functions 20 years from now. I don’t know whether they’ll be the same people.
But it’s quite a logical way to run the business. GEICO was run that way and still is run that way and has been for some years.
It’s always struck me as terribly illogical, the way property-casualty insurance companies are run, because they’ve been dominated by the underwriting side of the business. And here they have this important investment side, but it’s always been — virtually every company’s been subservient to the underwriting.
And GEICO, very logically, set up a co-CEO arrangement some years back where — originally Bill Snyder before that — but Tony Nicely ran the underwriting end of the business and Lou Simpson ran the investment side.
And those are two very different functions. Same person, logically, doesn’t fit both functions in most cases. I mean, it’s a rarity when the same person happens to hit for both functions.
So GEICO worked very well that way. Still works that way. Lou runs investments. Tony runs underwriting.
And Berkshire — slightly different — it’s a variant on it. But, essentially, at Berkshire headquarters, you need someone overseeing and not meddling in them too much, but making sure you’ve got the right manager and you’re treating him fairly.
You need someone on the operating side. You need someone on the investment/capital allocation side. We’ve got those people now. And we’ll have them, you know, whenever it happens, too.
That’s the — that is the structure. And we’ve got some very good businesses.
And, you know, nobody’s buying See’s Candy because they think I’m sitting in some office in Omaha. And no one’s buying a GEICO insurance policy because, you know, my name is there as chairman or CEO. The businesses are marvelous businesses. They’ll continue very well.
And there will be a capital allocation problem then just like there is now. And there will be the problem of keeping good managers in place and treating them fairly. And that’s a solvable problem.
So, that’s the future as seen from Kiewit Plaza.
Charlie?
CHARLIE MUNGER: Yes. If you just run your mind through all the assets, I think you will quickly decide that there are large momentums in place that would do very well without us.
I mean, is Coca-Cola going to suddenly stop selling because some manager’s dead at Berkshire Hathaway?
You know, are the people going to stop using Gillette razor blades? Is GEICO suddenly going to stop being intelligently run? Are — is the Nebraska Furniture Mart going to try any less hard?
So, the existing assets, you can argue, have been lovingly put together, so as not to require continuing intelligence at headquarters. (Laughter)
And what — there would be a disadvantage in that I think it would be unreasonable to expect that a successor would be as good at making new investments as Warren has been in the past. Well, that’s just too damn bad. (Laughter and applause)
WARREN BUFFETT: The sympathetic ear over here. (Laughter)