2011: What are examples of companies that do something really well?

CAROL LOOMIS: In a book about Charlie, “Damn Right!” by Janet Lowe, Charlie talks about his view on teaching finance.

He says that he would use the histories of a hundred or so companies that did something right or wrong as a basis for teaching the course.

Could each of you — and since this concerned Charlie, could each of you — we’ll start with Charlie — give us an example or two from either category, right moves or wrong moves?

WARREN BUFFETT: I predict Charlie is going to talk about Costco. Go ahead, Charlie. (Laughs)

CHARLIE MUNGER: Well, Costco, of course, is a — (laughter) — a business that became the best in the world in its category, and it did it with an extreme meritocracy and an extreme ethical duty, self-imposed, to take all its cost advantages as fast as it could accumulate them and pass them onto the customers. And, of course, that created ferocious customer loyalty.

And it’s been a wonderful business to watch, and, of course, strange things happen when you do that and do that long enough.

Costco has one store in Korea that will do over 400 million in sales this year. These are figures that can’t exist in retailing, but, of course, they do.

And so that’s an example of somebody having the right managerial system, the right personnel selection, the right ethics, the right diligence and et cetera, et cetera, et cetera. That is quite rare.

And if you — if once or twice in a lifetime you’re associated with such a business, you’re a very lucky person.

And the more normal business is a business like, say, General Motors, which became the most successful business of its kind in the world and wiped out its common shareholders, what, last year?

That is a very interesting story, and if I were teaching in a business school, I would have Value Line-type figures that took people through the entire history of General Motors. And I would try and relate the changes in the graph and in the data to what happened in the business.

And to some extent, they faced a really difficult problem: heavily unionized business, combined with great success, and very tough competitors who came up from Asia and elsewhere, and to some extent from Europe. And that is a real problem, which, of course — to prevent wealth from killing you, your success turning into a disadvantage, is a big problem in business.

And so there are all these wonderful lessons in those graphs. And I don’t know why people don’t do it. The graphs don’t even exist that I would use to teach.

I can’t imagine anybody being dumb enough not to have the kind of graphs I yearn for. (Laughter)

But so far as I know there’s no business school in the country that’s yearning for these graphs.

Partly the reason they don’t want it is if you taught a history of business this way you’d be trampling on the territories of all the little professors in subdisciplines. You’d be stealing some of their best cases.

And in bureaucracies, even academic bureaucracies, people protect their own turf. And, of course, a lot of that happened at General Motors. (Applause)

Yeah.

It’s a — I really think the world — that’s the way it should be taught. Harvard Business School once taught it much that way, and they stopped.

I’d like to make a case study as to why they stopped. (Laughter)

I think I can — I think I can successfully guess. It’s that, of course, the history of business trampled on the territory of barons of other disciplines like the baron of marketing, the baron of finance, the baron of whatever.

And IBM is an interesting case. I mean, there’s just one after another that are utterly fascinating, and I don’t think they’re properly taught at all because nobody wants to do the full sweep.

WARREN BUFFETT: Charlie and I were on a plane recently that was hijacked.

CHARLIE MUNGER: With what?

WARREN BUFFETT: It was hijacked. I’m telling about our experience on that hijacked plane when the hijackers picked us out as the two dirty capitalists that they really had to execute.

But they were a little abashed about it. They didn’t really have anything against us, so they said that each of us would be given one request before they shot us, and they turned to Charlie and they said, “What would you like as your request?”

Charlie said, “I would like to give once more my speech on the virtues of Costco, with illustrations.” (Laughter)

And the hijacker said, “Well, that sounds pretty reasonable to me.”

And he turned to me and said, “And what would you like, Mr. Buffett?”

And I said, “Shoot me first.” (Laughter)

CHARLIE MUNGER: Anyway.