Berkshire’s approach succeeds in attracting a shareholder group with unusual characteristics for corporate America: Berkshire boasts one-fifth the share turnover of other large firms, unusually high annual meeting attendance (drawing 35,000 in recent years), ownership dominated by individuals and families (not the financial institutions or mutual funds that own most stock of other large public companies), and a high degree of portfolio concentration among shareholders.5 As a group, Berkshire shareholders accept the concept of Berkshire as a partnership in which they own not just a liquid stock but a permanent stake.6
Berkshire, though publicly traded and listed on the New York Stock Exchange since 1988, retains partnership characteristics carried over from Buffett’s early days running a private investment firm. The Berkshire board, for instance, has always been comprised of friends and family: Buffett’s late wife Susan for many years and their son Howard since 1993; Buffett’s best friend, Charlie Munger, since 1978; fellow Omaha businessman, Walter Scott Jr., since 1988; and, since 1997, Ronald L. Olson, named law partner in Munger, Tolles & Olson, which Berkshire uses extensively for acquisitions and other legal work.
Expansions of the board in 2003–2004 added long-time business associates Donald R. Keough, a veteran executive at Coca-Cola, in which Berkshire holds a substantial equity position, and Thomas S. Murphy, long-time chief executive of Capital Cities/ABC, another Berkshire investee. Others include old friends David S. (“Sandy”) Gottesman, a New York investor and Buffett’s friend since 1962, and William (“Bill”) H. Gates III, founder of Microsoft Corporation and Buffett’s friend since 1991.
Berkshire’s directors act like owners: purchasing chunks of Berkshire stock, receiving nominal pay without stock options, and serving without the directors’ liability insurance that other boards take for granted. While Buffett has owned the lion’s share of Berkshire—as much as 40 percent—other directors, their families, and clients of institutions they run collectively own well more than 10 percent.7 Otherwise, the board’s most important contribution to Berkshire culture has been to affirm and reinforce the values that Buffett has continually injected into it.
Unlike many conglomerates, Berkshire headquarters employs no operating managers, only a small staff of officers focused on financial reporting. From 1981 to 1993, Michael Goldberg oversaw a group of Berkshire businesses and moved senior managers among them.8 For example, he asked Brad Kintsler to run a series of insurance companies before assigning him the presidency of Fechheimer (and Buffett later asked Kintsler to run See’s after Chuck Huggins retired).9 From 1999 to 2011, David L. Sokol, brass-knuckled chief executive of MidAmerican Energy (now Berkshire Hathaway Energy), was a roving troubleshooter for sister subsidiaries and, since then, Tracy Britt Cool, a junior manager, has assisted subsidiaries in need. But beyond such limited resources, and the occasional replacement of chief executives, the subsidiaries are on their own for managerial talent. Their boards, if they have them, are small (often just three members) and meet rarely (perhaps once per year).
Berkshire’s culture is the sum of the cultures it brings to the acquisition and ownership process and the operating cultures of all its subsidiaries. The stories of these subsidiaries, as told by founders themselves or other authorities, reflect the beliefs, practices, and outlooks that define their corporate cultures. The cultural histories include legends about the people who began a company, lore about the challenges faced, and the trials of transitions.10
Corporate culture matters because it translates into business performance. For example, a company whose management and shareholders embrace a long-term outlook can better weather financial volatility. Companies with reputations for thrift and conservatism are less likely to default and therefore enjoy higher credit ratings and lower borrowing costs, and the stock prices of such companies tend to be less volatile, attracting investors.11 A business known for integrity—treating suppliers, employees, and customers as the business would like to be treated if the positions were reversed—will usually win more interest and cooperation among such groups than rivals who are chiselers. Such a reputation for excellence—in merchandising, manufacturing, services, or other business activities—can manifest in better terms of trade at the outset of relationships and more flexibility to cope with periodic adversity.12
One study of hundreds of large companies showed that companies that project strong positive corporate cultures enjoy outsized economic performance.13 Others have explored how such cultures win respect within the business community.14 Professor Raj Sisodia and Whole Foods cofounder John Mackey argue that long-term economic value is better achieved by companies that simultaneously pursue economic profits and intangible values.15 Robert Mondavi, who earned a fortune while developing Napa Valley into an institution of winemaking, says that behind his success was a quest for an intangible notion of excellence.16 Yet it is not always easy to measure or even identify the particular advantage or the process through which intangibles take on economic value. Part II will endeavor to illuminate such intangibles through numerous examples from the stories of Berkshire and its subsidiaries.