Berkshire Beyond Buffett(77)

The Graham–Buffett relationship served as a model for how managers and shareholders can help one another. Graham credited Buffett with teaching her the fundamentals of business and finance;12 he appreciated her judgment, convictions, and owner orientation. Buffett counseled the Grahams on matters of corporate affairs, managerial strategy, and acquisitions, including buying radio and television media around the country. Buffett suggested moving the company’s pension fund from a large bank to small firms, a step that reduced costs and increased gains. He also advised using excess cash to buy back stock (leading, ultimately, to an increase in Berkshire’s stake to nearly 25 percent).

Don Graham succeeded his mother, sustaining the core newspaper business for many years while diversifying into television broadcasting, cable, the Kaplan education service, Slate online magazine, and Trove personalized news service. In 2013, the Graham family sold the flagship newspaper for $250 million to Jeff Bezos, founder of online retailer Amazon.com, amid challenging times for print media. After the sale, Berkshire’s interest in the resulting company, Graham Holdings, had a market value of about $1 billion. In 2014, Berkshire traded this stock for a television station, formally ending a four-decade relationship on the friendliest of terms. The station’s call letters? WPLG, for Philip L. Graham.




Berkshire bought Gillette preferred stock in 1988 for a combination of cash and the value of its reputation for opposing hostile takeovers. When the Procter & Gamble Company (P&G) acquired Gillette in 2005, Berkshire’s Gillette shares were exchanged for shares in P&G. They remain an impressive investment in Berkshire’s portfolio: acquired at a cost of $336 million, they are worth $4.5 billion and represent 2 percent of P&G’s ownership. But Berkshire has sold many P&G shares over the years, reducing its old Gillette stake by half.

Gillette was founded in 1901 by King C. Gillette, a traveling salesman whose frustration with the dangers and dulling edges of his straight razor blades inspired him to make a razor that required less skill to use safely. Teaming up with scientist William Nickerson, he raised capital to launch a company and patent an invention. Originally called American Safety Razor Co., renamed Gillette Safety Razor Co. in 1903, these men and their successors built the business into a global brand. The company diversified from the 1960s through the 1980s, adding Cricket lighters, Right Guard and Soft-and-Dri deodorants, Paper Mate pens, as well as Braun and Oral-B.

Gillette’s excess cash attracted takeover bids during the 1980s, including one from Ronald O. Pereleman, which the board beat back. Defending against such battles led the company to sell convertible preferred to Berkshire, putting a sizable block in a known opponent of hostile bids supportive of Gillette’s management. Buffett joined the Gillette board. Gillette continued to concentrate on razors while also diversifying, highlighted by the acquisition of Duracell International Inc., the battery maker. By 2004, the year before merging into P&G, Gillette’s sales surpassed $9 billion.

P&G, with 2013 sales of $84 billion, is one of the oldest companies in the United States, dating to the 1837 candle-and-soap partnership of William Procter and James Gamble.13 Pioneers in branding, their moon-and-stars logo launched in 1850, and their product history is of ancient vintage: Ivory Soap dates to 1879. The business (which became a corporation in 1890) staked its culture on branding with the creation in 1931 of a formal brand management system. Some say that the field of marketing was born at P&G.14 Internal growth led to the development of Tide detergent in 1946 and Crest toothpaste in 1955, whereas acquisitions brought Charmin toilet paper in 1957 and Folgers coffee in 1963.

Larger acquisitions followed, including the Richardson-Vicks Company in 1985 (owner of the Vicks, NyQuil, and Oil of Olay brands), Noxell Corporation in 1989 (Noxema products and Cover Girl cosmetics), and Revlon’s Max Factor cosmetic and fragrance lines in 1991. The vast scale of the businesses led to periodic restructurings, including one begun in 1998 that reorganized the company along product rather than geographic lines. Growth through brand management, product development, and acquisitions continued.

P&G’s culture is sticky—based on core brands and the steady establishment and entrenchment of new ones—and it is stronger than any given chief executive. For example, while P&G prides itself on having had twelve CEOs in twelve decades since incorporation, one of those terms, that of Durk Jager, lasted only seventeen months, during 1999 and half of 2000. P&G’s earnings fell during early 2000, and its stock price dove. Having risen during 1999 from $88 to $109, P&G’s stock price sank in 2000 from $114 in January to $53 in March, before recovering by year end and rising steadily from there.15 Analysts attributed Jager’s short and troubled tenure to overlooking how “reinventing corporate culture is not a neat, straight-line process.”16