2010: Why does't Berkshire make Dairy Queen sell Coke instead of Pepsi?

BECKY QUICK: This question comes from Ben Soh (PH) who lives in the metro Vancouver area in British Columbia, Canada. This is for either Mr. Buffett or Mr. Munger.

He wants to know about synergies at Berkshire, specifically, “Does it make sense that the Dairy Queen stores here sell PepsiCo products and would not expect — accept — American Express, only Mastercard or Visa? (Laughter)

WARREN BUFFETT: There are — around the world, there are pretty close to 6,000 Dairy Queen outlets of one sort or another. And some are called Grill and Chill now, different things, but roughly 6,000, and company-operated are 70 of those.

So almost 99 percent are franchised, and at Dairy Queen we do not control what the franchisees do. Most of the franchisees — last time I checked sometime back — but most of the franchisees serve Coke, the enlightened ones — (laughter) — but it is entirely their business.

They can — they can — they can serve Coca-Cola products or Pepsi. It seems some of the other franchise operations seem to have more control over that than Dairy Queen.

But if you think about it, Dairy Queen goes back before McDonald’s, before Wendy’s, before Burger King, before Kentucky Fried, all of those. It goes way back into the ’30s, and a lot of the agreements with franchisees were territorial operators were done on the back of a napkin, or something of the sort.

So to some extent we have less control over what franchisees do, particular in certain — a few parts of the country — than other people.

But we’ll — keep asking for Coke, and maybe you can cause them to see the light. The synergies, any synergies, any synergies at Berkshire come about at the operational level pretty much.

We do not tell our companies to do business with each other. We hope they do do business with each other, and, you know, and we hope that each side of a subsidiary A offers good reasons for subsidiary B to do business with them.

But the whole idea at Berkshire is that our managers are responsible for their businesses, and if they’re going to be responsible for their businesses it means we shouldn’t tell them what to do, except in very limited ways.

Charlie?

CHARLIE MUNGER: Well, you’ve accurately described the way it is. What’s interesting about it is we really like it that way. (Laughter)

WARREN BUFFETT: It’s a lot less work. (Laughs)

CHARLIE MUNGER: Yes.

WARREN BUFFETT: And I think, actually, that there’s some merit. Sometimes people work better together if it’s their decision to work together than if you tell them to work together.

CHARLIE MUNGER: It goes beyond that. Warren and I would like it that way if we were in the subsidiaries. There’s no doubt about that.

WARREN BUFFETT: Yeah, we’d probably leave if it wasn’t that way. (Laughs)