Buffett has instilled in Berkshire a different culture but one likely to last longer. The Berkshire way is to make acquisition decisions only once, when deciding whether to buy or not. It seeks businesses of proven profitability, with excellent management, and good returns on unleveraged equity. Once an acquisition is made, however, the idea of closing or selling a business is anathema. Berkshire’s owner’s manual explains:
Regardless of price, we have no interest at all in selling any good businesses that Berkshire owns. We are also very reluctant to sell sub-par businesses as long as we expect them to generate at least some cash and as long as we feel good about their managers and labor relations. We hope not to repeat the capital-allocation mistakes that led us into such sub-par businesses. And we react with great caution to suggestions that our poor businesses can be restored to satisfactory profitability by major capital expenditures. Nevertheless, gin rummy managerial behavior (discard your least promising business at each turn) is not our style. We would rather have our overall results penalized a bit than engage in that kind of behavior.44
At Berkshire, problems will arise from the acquisition model, hands-off management, and a sprawling decentralized structure that eludes tight control and consolidated non-financial reporting. It will help Berkshire’s durability to remember these challenges, living with them when warranted, amending them when prudent. People outside Berkshire who are attracted to its model should likewise adapt it to their needs rather than blindly imitate it, as the final chapter will explore.
16
B.E.R.K.S.H.I.R.E.
Annually from 2000 through 2009, among the largest donors listed in the Chronicle of Philanthropy was Lorry I. Lokey.1 Lokey founded Business Wire, which Berkshire acquired in 2005 for $600 million. A native of Portland, Oregon, and a graduate of Stanford University, Lokey’s donations target universities, including Portland State, Stanford, and the University of Oregon. Lokey’s total giving as of the time of Berkshire’s acquisition was $160 million; since then, the total has surpassed $400 million.2
After service in the Army in World War II, Lokey was as an editor of the Pacific Stars & Stripes. He majored in journalism at Stanford and edited the school paper. He went on to work for United Press, now United Press International, and various papers and public relations firms.
In 1961, Lokey began Business Wire as a sole proprietor in a nine-by-twelve foot leased office in San Francisco with seven clients.3 The business concentrated on distributing press releases for corporations to news organizations. Lokey boosted the number of clients to twenty-two within four months. In those days, the primary task of the staff was typing information received from customers over the telephone. Within a few years, Lokey added bureaus in Boston and Seattle.
In 1979, Lokey ran a classified ad in a San Francisco paper. He interviewed and hired Cathy Baron Tamraz, a twenty-five-year-old English major. She took dictation over the phone and then edited press releases submitted by clients and formatted them for distribution. In 1980, Lokey opened a New York City office. Tamraz, a native Long Islander who once spent a summer as a taxi driver there, spearheaded the effort.
Over the next thirty years, Lokey, Tamraz, and a staff of several hundred grew Business Wire to thirty global offices generating worldwide revenue exceeding $100 million. In the Internet era, Business Wire quickly adapted to exploit all available technologies; amid globalization, it was equally agile in spreading its franchise worldwide, starting in Europe and following across Asia. Today it has more than 25,000 clients for which it disseminates news releases in 150 countries.
In November 2005, Tamraz wrote Buffett a letter explaining why she believed Business Wire and Berkshire would be a good mutual fit. The following passage stood out:
We run a tight ship and keep unnecessary spending under wraps. No secretaries or management layers here. Yet we’ll invest big dollars to gain a technological advantage and move the business forward.4
In December 2005, Lokey named Tamraz as president and chief executive. In January 2006, Berkshire agreed to buy Business Wire. As Buffett put it when describing the acquisition:
Lokey’s story, like those of many entrepreneurs who have selected Berkshire as a home for their life’s work, is an example of what can happen when a good idea, a talented individual, and hard work converge.5
Many stories of successful, thrifty, earnest, reputable, self-starters fill the pages of this book. What lessons can others take away from Berkshire and its subsidiaries?
Berkshire’s distinctive features are tailor-made for its special circumstances. Berkshire boasts an atypical shareholder body that relishes the company’s distinctiveness. One universal trait of the Berkshire managers and subsidiary personnel portrayed in this book is their belief that corporate culture matters. From Berkshire’s example, one can adapt specific values profitably. Berkshire offers lessons to be learned in a number of areas.