2015: How did Buffett build Berkshire's culture?

AUDIENCE MEMBER: My name is Stuart Kaye, and I’m from Stamford, Connecticut.

And I wanted to follow up on the questions that have been asked about culture and stewardship at Berkshire Hathaway, because I’m currently in year five of helping build a firm called Matarin Capital Management, and we discuss values and culture quite a bit.

And so I’d like some tips from you about what characteristics you thought about 45 years ago when you were building the culture and values at Berkshire Hathaway.

WARREN BUFFETT: Yeah, well I think culture has to come from the top, it has to be consistent, it has to be part of written communications, it has to be — you know, has to be lived, and it has to be rewarded when followed, and punished when not.

And then it takes a very, very long time to really become solid.

And obviously, it’s easier — much easier — to do it if you inherit a culture you like, and it’s easier in smaller firms, I think.

I can think of a lot of companies — very big companies — in this country, and I don’t think if Charlie and I were around them for ten years we’d be able to accomplish much of anything.

So it — you know, it is a grain of sand type of thing. And people — just like your child, you know, sees what you do rather than what you say, it’s the same thing in a business, that people see how those above them behave and they move in that direction.

They don’t all move that way. We’ve got 340,000 people now working for Berkshire, and I will guarantee you that there’s, you know, some number —a dozen, maybe 50, maybe 100 —that are doing something today that they shouldn’t be doing.

And we — what you have to do is when you find out about it, you have to do something about it.

I didn’t like, for example, making 30-year mortgages at Clayton five years ago. And I said, “We’re not going to make 30-year mortgages, you know, unless they’re government guaranteed.”

And when we bought Kirby, there was some sales practices we didn’t like, and we particularly didn’t like them with older people. So we put in a golden age policy where, if you’re over 65 and you bought a Kirby and for any reason you didn’t like it, any time up to a year, you could send it and get all of your money back. And I encouraged people to write me if they had a problem on anything like that.

So it takes a lot of time, and you’ll — you know, at GEICO we’re going to — you know, we’re going to settle millions and millions and millions of claims. And I will guarantee you that when two people are in an auto accident, they don’t agree 100 percent of the time on whose fault it was, so they may go away and be unhappy for a time.

But we work all the time at trying to behave with other people as if our positions were reversed. That’s what Charlie’s always advised in all our activities, and we’ve tried to follow it. And we’re certainly far from perfect at it, but if you keep working at it, it does get results.

Charlie?

CHARLIE MUNGER: Yeah. I think the one thing that we did that’s worked best of all is we were always dissatisfied with what we already knew and we always wanted to know more. And Berkshire, if Warren and I had stayed frozen in time, particularly Warren, it would have been a —

WARREN BUFFETT: I’d like to do it, understand.

CHARLIE MUNGER: It would have been a terrible place. It’s what we kept learning that made it work, and I don’t think that will ever stop.