Berkshire Beyond Buffett(92)

In typical acquisitions, accountants test a company’s internal controls and financial statement figures, and lawyers probe contracts, compliance, and litigation. Such examinations are usually done at corporate headquarters, along with meetings during which principals get acquainted with each other and tour facilities. The process can take weeks or months. Berkshire—proudly—does none of this.17 Buffett sizes people up in short order, often in less than a minute.18 Deals are reached without delay, sometimes in an initial phone call;19 often in meetings of less than two hours;20 invariably “quickly”21 or “promptly;”22 and in any event “soon”23 or “before long”24 after getting started; a week might be typical.25

Formal contracts follow swiftly, within a week, ten days, or a month.26 Deals—including big ones involving billions of dollars—can close within a month of contact.27 Even for public company acquisitions, a Berkshire transaction moves faster than average. A few examples: the MidAmerican Energy deal was concluded in two short meetings; Shaw Industries was broached in June and signed in August; Benjamin Moore began in July and closed in December.

People commonly haggle over price. Tactics include sellers naming an asking price they don’t expect to get and buyers making a lowball bid. Some people enjoy the give and take, and many believe it is the most economical way to produce value in exchange. Buffett considers such exercises a waste of time. He wants a single price at which each side can say yes—or walk away. His bid is his bid; when he gives you a bid, you have what most people classify as the “best price,” “final offer,” or “highest bid.” Buffett names a price at which Berkshire will buy and sticks with it. In several cases, the seller came back to Buffett and asked for a higher price. In all such cases, he said no.28

Berkshire’s subsidiaries have an extensive acquisition practice, and the experienced executives who succeed Buffett will bring their own style and skills to this part of the job. But departures in style or procedure will not undermine Berkshire culture. Some, like executives at Marmon, clearly follow much of Buffett’s practice, especially in terms of acting opportunistically and letting sellers make the first move; others, like those at Lubrizol and MiTek, define a strategic objective and scout for targets. Successors may benefit from an approach that is closer to Buffett’s than to that of rivals in the acquisitions market. But, whatever they do, the greater challenge may be resisting any temptation to try to emulate Buffett.




In the early 2000s, before Fruit of the Loom acquired it, Russell Corporation signed major licensing agreements to produce sportswear adorned with popular logos. It made contracts with scores of U.S. universities and signed a large deal with the National Basketball Association. The trouble was, the goods affixed with licensed Russell logos were made in factories in China and Honduras that engaged in objectionable conduct. In China, the company’s products were manufactured in sweatshops that violated principles of international human rights; in Honduras, company officials boarded up the plant and ousted the workforce in retaliation for attempts to union  ize.

Such misbehavior drew the attention of activists across the United States, including a group of college students who demanded that universities terminate the licensing agreements. In 2009, a former employee of the Honduras facility took the floor at the Berkshire annual meeting to report on the conditions and demand a response. Russell’s operating activities contrasted with Berkshire’s tenets of integrity and repute; promptly upon learning of the problems, Fruit of the Loom corrected them.

This case highlights the challenges Buffett’s successor will face in overseeing the sprawling array of operations. It illustrates the downside of corporate decentralization. When it comes to potential subsidiary violations of company policy or law, information must reach Berkshire headquarters immediately. But the existing framework is informal. It is based heavily on the mandate of subsidiary managers: report bad news early. In the distinctive context of Berkshire culture, steeped in integrity, such an approach may be satisfactory. In the spirit of autonomy, it is essential.

But many give Berkshire a pass on certain matters because of Buffett’s presence. His eventual absence will remove this benefit of the doubt. Successors will need to assure both continuity and reliability. Surprises could result in government authorities imposing more radical, less desirable changes if Berkshire has to contain a controversy, rather than be in front of it. The Russell episode is both an exception to Berkshire’s norm and a reason to consider formal oversight of its subsidiaries.