Warren
Buffett: Fresh Air from Omaha, Nebraska
I was speaking recently with my good friend Phil, who reminded me of something that
every business leader, salesperson or investor should do - read Warren Buffett’s
Letter to Shareholders contained in the Berkshire Hathaway Annual Report. This is
something that I had historically done every year during my previous life at PaineWebber
(now UBS Financial Services), but in recent years I had unwittingly discontinued
the practice.
Mr. Buffett’s year-end missive is a case study in honest and clear business
communication. I’ll let Mr. Buffett’s words speak for themselves:
Honesty and Accountability
And now it’s confession time: I’m sure I could have saved you $100 million
or so, pre-tax, if I had acted more promptly to shut down Gen Re Securities. [We] knew
at the time of the merger that its derivatives business was unattractive... I, however,
dithered. As a consequence, our shareholders are paying a far higher price than was
necessary.
What a breath of fresh air. No finger pointing...other than at his own chest.
Humility
In buying businesses, I’ve made some terrible mistakes, both of commission
and omission. Overall, however, our acquisitions have led to decent gains in per
share earnings.
Mr. Buffett describes his success in an honest, humble way. The "decent gains" he
refers to are an average annual increase of 22 percent in book value since 1965,
as compared to 10.4 percent for the S&P 500. Decent, indeed.
Expectation Management
Overall, we are certain Berkshire’s performance in the future will fall
far short of what it has been in the past. Nonetheless, [we] remain hopeful that
we can deliver results that are modestly above average. That’s what we’re
being paid for.
In a world where 30-something investment managers pound their chests over last week’s
performance, this is refreshing. Even though the 2000-’02 market weeded out
some of the youth and inexperience on Wall Street, there is still a disturbing amount
of misleading advertising. Have you ever seen a commercial for a mutual fund company
on CNBC that contains a message anything like this?
Leadership by Example
True independence - meaning the willingness to challenge a forceful CEO when
something is wrong or foolish - is an enormously valuable trait in a director...
All eleven directors purchased their holdings in the market, just as you did; we’ve
never passed out options... [we] believe in honest-to-God ownership. After all,
who ever washes a rental car?
Here he hits a hot button in the current investment environment. Everyone running
this company, Mr. and Ms. Investor, is in there with you, side-by-side, and we are
all motivated by the same things you are. And he also makes it clear that the directors
are empowered to challenge him if they disagree with certain decisions. I don’t
recall ever reading anything like this in an Enron annual report. There are plenty
of other examples of honest communication and message clarity in Mr. Buffett’s
Letter to Shareholders... far too many to list here. In a business world dominated
by spin and marketing, this is indeed a breath of fresh air. And it clearly demonstrates
the power and importance of effective communication. Enough said...
(Thanks for the reminder, Phil.)
 Beacon Issue -
May 2004
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