Berkshire Hathaway expert talks success of Warren Buffett
GOFFSTOWN — For decades, billionaire businessman Warren Buffett has bucked the trends of many of his peers — not just for his simple lifestyle and commitment to philanthropy, but for running a business that sticks with the companies it buys and treating its shareholders as he wants to be treated.
Lawrence Cunningham says Warren Buffett’s commitment to values has been the key to Berkshire Hathaway’s continued success. CASSIDY SWANSON
According to Lawrence Cunningham, an expert on Berkshire Hathaway Inc. and author of “Berkshire Beyond Buffet: The Enduring Value of Values,” Buffett’s unorthodox methods have been the secret to his company’s success, and will help Berkshire Hathaway continue on after Buffett is gone.
“The consensus seems to be that the company will go the way of the man — when Warren leaves the scene, Berkshire will meet its demise,” Cunningham told an audience gathered Friday morning at the New Hampshire Institute of Politics. “(But) Warren Buffett’s goal at Berkshire Hathaway has been to create an enduring, long-lasting corporation.”
Originally established as a textile mill in Cumberland, R.I., in 1839, Berkshire Hathaway has grown into a multinational conglomerate holding company based out of Omaha, Neb., with more than 60 subsidiary companies such as Dairy Queen, Fruit of the Loom, GEICO, the H.J. Heinz Co., and Mars Inc. The company has more than $42 billion in cash and cash equivalents.
As chairman, chief executive officer and the largest shareholder of Berkshire Hathaway, Buffett has seen to it that the company’s diverse brands are “united by a core set of common values,” Cunningham said.
“The source of these cultural values is ultimately at the top,” he said. “Warren Buffett has formed a company endowed with these values because these are values that he believes in. And he sets the tone at the top so that these values are part of the fabric of the subsidiaries.”
These core values include thrift, autonomy, reputation and permanence, Cunningham said.
Additionally, under Buffett’s leadership, Berkshire Hathaway uses the “advisory” model for its board of directors, which was common in corporate America until the 1980s, Cunningham said.
“This is a board of directors whose job is to be very interested in the corporation,” he said, adding that board members are paid $1,000 annually. “In Berkshire’s case, these people tend to include friends and family of Warren’s. They are there because they believe in Berkshire Hathaway, they understand his values, they appreciate what Warren has done, (and) they support him. They aren’t trying to oversee him or second-guess him, but (to) facilitate the mission, the strategy that he has put in place.”
Berkshire Hathaway’s shareholders are also valued by the company, Cunningham said, with thousands attending the annual shareholders meeting each year.
“Boards and managers very often treat stockholders as input into a production function,” he said. “Buffett has defined Berkshire very differently. He said, ‘Despite our corporate form, our attitude is partnership. We don’t consider you as inputs into a production function; we consider you as partners.’”
Berkshire Hathaway’s success can also be attributed to its commitment to its subsidiaries, Cunningham said. The company has not sold a subsidiary in 40 years.
“That’s in total contrast to corporate America,” he said. This hasn’t always been easy for Berkshire Hathaway, Cunningham said, with struggling brands like the Pampered Chef, and others, like New England-based Dexter Shoes, which eventually fizzled out. But Buffett’s insistence on the value of permanence still applies.
“They make a promise, when buying a company, never to sell it, and (the company) has never breached that promise,” Cunningham said. “That sense of permanence has an enormous economic value.”
Cunningham said that Buffett’s practices at Berkshire Hathaway go beyond morals — it’s good for the bottom line, he said.
“After all, if you treat your customers as you’d like them to treat you, when it comes time to collect, they’re going to want to pay,” he said.