Illinois Marmon Group, Pampered Chef
Indiana CTB, Forest River, Medical Protective
Iowa Berkshire Hathaway Energy
Kansas Kansas Bankers Surety
Minnesota Dairy Queen
Missouri Helzberg Diamonds, MiTek, XTRA
Ohio Fechheimer, Lubrizol, NetJets, Scott Fetzer
WEST
California Business Wire, See’s, Wesco
Colorado Johns Manville
Utah RC Willey
Washington Bridge, Brooks
SOUTH
Florida Richline
Georgia Larson-Juhl, Shaw
Kentucky Fruit of the Loom
Tennessee Clayton
Texas Acme, BNSF, Justin, McLane, Star, TTI
EAST
Connecticut Gen Re, H.H. Brown
D.C./Virginia BoatUS, GEICO
Massachusetts Jordan’s
New Jersey Benjamin Moore
New York Buffalo News, FlightSafety, Garan
Israel/Holland ISCAR/IMC
By 2005, the Wertheimer family needed to address the challenges of generational transfer. Eitan Wertheimer wrote Buffett a short letter, introducing the company and its industry.15 Buffett invited Wertheimer to Omaha and within a few hours believed a deal was possible. Berkshire soon bought 80 percent of ISCAR/IMC, with the Wertheimer family retaining the rest. In 2013, the Wertheimer family exercised their right to sell the remaining 20 percent to Berkshire, bringing Berkshire’s total price to $5 billion.
Berkshire’s concentration of acquisitions in the United States results principally from historical fortuity, as the company gelled ahead of globalization. It does not imply limits in the Berkshire model’s effectiveness on a global stage. On the contrary, the ISCAR/IMC business model—itself a network of firms—may suggest the feasibility of expanding Berkshire globally.
Berkshire’s scores of subsidiaries—including Fechheimer, Scott Fetzer, Dexter, H.H. Brown, and ISCAR/IMC, as well as See’s, Wesco, and the Buffalo News—vary in nearly every way, from products sold to profit margins earned, and their particular road to Berkshire. Yet, as our encounter with these subsidiaries has demonstrated, there is a common thread running throughout. But given Berkshire’s scale and the complexity of its corporate family, it will take a little more digging into the subsidiaries to synthesize Berkshire culture and to find out how they promote Berkshire’s durability.
3
Culture
On corporate culture, Buffett is fond of quoting Winston Churchill: “You shape your houses and then they shape you.”1 Companies self-select for membership in the Berkshire family. Business owners do not sell to Berkshire (and Berkshire does not buy businesses) unless they concur with the norms and standards of the culture.
Corporate culture is complex at any organization but especially at a conglomerate of Berkshire’s scale and diversity. Corporate culture is defined by a set of shared beliefs, practices, and outlooks that determine a corporation’s expectations and influence the behavior of its personnel toward colleagues, customers, and owners alike.2 The tone is set at the top and percolates throughout the organization through daily decisions, challenges, and crises. The values of a company are at the core of its culture, as they establish the standards to achieve its goals.3
At Berkshire, these values first began to take shape from the acquisition criteria Buffett established to identify potential subsidiaries. In 1986, Berkshire ran an advertisement in the Wall Street Journal indicating its interest in acquisitions and its criteria for making them. These same criteria have been published every year since in Berkshire’s annual reports and have never changed, except in terms of minimum desired size, which rose from $5 million in annual earnings back then to $75 million today: proven profitability, good unleveraged returns on equity, management in place, basic businesses, and a fair price.
Another formal expression of Berkshire’s tone that helped shape its values is a set of owner-related business principles that define how Berkshire and its subsidiaries relate to its shareholders and other constituents. Like the acquisition criteria, these principles are published in every annual report. It is an impressive list of fifteen principles that Berkshire’s chief executive lives by. Examples include conceiving of the organization as a partnership despite using the corporate form, minimizing the use of borrowed money, assessing whether to reinvest earnings or pay dividends based on whether a dollar reinvested will increase shareholder value by at least as much, and holding subsidiaries forever. Most importantly, these principles reflect that Buffett has always been a shareholder first and manager second. His managerial convictions elevate shareholder interests. Buffett admires managers who run their businesses as if they owned them.4 This mind-set instilled values of budget consciousness and investment savvy into Berkshire from the outset.
Berkshire’s owner-related business principles, especially conceiving of Berkshire as a partnership, focus on shareholders. The company treats its shareholders not merely as temporary holders of its equity, but as business partners in an endless venture. Such a value is one of the most prevalent at Berkshire, as its subsidiaries—including many family businesses—are seeking a permanent home for their company, and Berkshire prides itself on holding its subsidiaries permanently. They are owners for whom Berkshire’s managers, including Buffett and those of the subsidiaries, are stewards. The principles also stress that Berkshire’s chief executive and controlling shareholders will treat fellow shareholders loyally as partners, rather than as mere sources of capital.