Lessons Learned at the 2008 Berkshire Hathaway Shareholders Meeting - AKA Woodstock for Capitalists

This past weekend I had the privilege of once again attending the Berkshire Hathaway annual shareholders meeting in the wonderful city of Omaha, Nebraska. As I've blogged about before, this is not your typical shareholders meeting where CEOs get in and out as quickly as possible with limited shareholder interaction. Berkshire Hathaway's annual shareholders meeting is more like a conference and exhibition (the exhibit hall showcases products from companies that Berkshire owns).

In my opinion this is one of the best business conferences you can attend. You will learn more about management, finance, marketing and growing a business in five hours than you are likely to learn at most any other conference - and some business schools. You will also learn more about investing than you can possibly learn anywhere else. Don't believe me? Consider this: over 30,000 people from all over the world attended this year's Berkshire Hathaway annual shareholders meeting in Omaha.

During the meeting, Warren Buffet, the CEO of Berkshire Hathaway (and the wealthiest person in America) and his partner Charlie Munger answer shareholder questions from about 9am to 3pm. Anyone can ask a question about pretty much any topic. It's truly remarkable. Buffet and Munger are two of the smartest people living on this planet so when they share their wisdom, you listen - and you walk away a smarter and quite possibly a better person.

Questions were asked on every topic you can imagine including the presidential election, religion, the US energy policy and the Olympics. The Omaha World-Herald provides a great overview of the meeting in these two articles:

- Berkshire Hathaway: 31,000 show up at Qwest Center for annual meeting
- Notes and highlights from meeting

You can also read the detailed Q&A here

But what I'd like to do is highlight some of the Q&A that related to business and human resources. Enjoy.

- Hiring and Assessing Candidates for Senior Executive Positions: Buffet said he would have no idea how to rank a group of MBAs. But when selecting executives he looks for a great track record and great human qualities (ability and integrity). But he also wants people with the ability to contemplate problems that have not cropped up before. I thought this was very interesting and I would love to know how he assesses this. Maybe an assessment firm can offer an opinion.

By the way, in a previous meeting, Buffet has said in evaluating people, you look for three qualities: (1) Integrity, (2) Intelligence (3) Energy. He then says that if you don’t have the first, the other two will kill you.

- Employment Contracts to Retain Key Talent: Buffet says they don't work. The best way to retain people is to create an environment that allows managers to enjoy their work and succeed.

- Succession Planning: At age 77, Buffet is dealing with his own succession planning at the moment (he said the plan for his succession is in place). He requires the 40+ CEOs of his operating companies to submit the name of their successor once every two years.

- Making Quarterly Numbers: Buffet said "we never want to trade reputation for money. We have no incentives to cause people to do anything or push people to play games". If you only focus on the numbers, he said you invite poor decision making and risk having management making decisions that trade a company's reputation for an extra buck. At Berkshire, managers are under no such pressure. They are encouraged to manage for the long term. After a bond-trading scandal in the early 90's, Warren Buffett, a major shareholder, was summoned to save the firm. He promptly gave Salomon traders some advice about integrity: "If I hear of an employee losing the company money, I'll be understanding. However, if I hear of any employee losing Salomon one shred of reputation, I'll be ruthless!"

- Due Diligence When Acquiring Companies: Munger said that Berkshire has lower due diligence expenses than anyone in America. He said he knows of a place that pays over 200mil to its accountants every year for due diligence research. Buffet said if you think auditors know more about an acquisition then they should run the business and you should take up auditing. With regard to due diligence on his recent investment of 6 billion in Mars-Wrigley Buffet said:

"I’m not going to look at labor or leases. Value of Wrigley does not depend on value of lease or environmental problem. There is a whole lot of trivia that doesn’t mean anything. I never made an acquisition that would have been avoided due to conventional due diligence."

With regard to Wrigley deal Buffet said there were no lawyers involved and no directors involved: "I got a call, it made sense, and I said yes. No material adverse change clause. Our $6.5bil will be available regardless, even if Ben Bernanke runs off to South America with Paris Hilton."

- Executive Compensation: Buffet said the average person cannot do much about it. He said small shareholder can write persuasive notes but they won’t respond to you. It would take large institutional shareholders to withhold votes and pressure a CEO about it. Responding to the idea about raising taxes to deter this behavior, Munger said "In England, they got taxes up to 90%, so no possibility of earning large income. That was counterproductive. You can get politics of envy that ruins economics. I think people taking compensation have a moral duty not to take it. Moral duty to be underpaid. If generals and archibishops can do it, why can’t leaders of large enterprise take less than the last dollar?"

You can read more on Buffet's views on executive compensation by reading a post I wrote last year titled Compensation Consultants Need Not Apply at Berkshire Hathaway.

Posted by Mark Willaman

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