In his brilliant Introduction to the Second Edition of The Essays of Warren Buffett: Lessons for Corporate America, Lawrence Cunningham observes, "The CEOs of Berkshire's various operating companies enjoy a unique position in corporate America. They are given a simple set of commands: to run their business as if (1) they are its sole owner, (2) it is the only asset they hold, and (3) they can never sell or merge it for a hundred years." With regard to investment thinking, "one must guard against what Buffett calls the `institutional imperative.' It is a pervasive force in which institutional dynamics produce resistance to change, absorption of available corporate funds, and reflexive approval of suboptimal CEO strategies by subordinates. Contrary to what is often taught in business and law schools, this powerful force often interferes with rational business decision-making. The ultimate result of the institutional imperative is a follow-the-pack mentality producing industry imitators, rather than industry leaders -- what Buffett calls a lemming-like approach to business."
Consider these observations as you now share Cunningham's thoughts about Buffett's successor, suggesting that the most important trait as chief executive officer "is a knowledgeable commitment to Berkshire culture, including permanence, autonomy, and acquisitiveness. Therefore, the best candidates are insiders, those now managing Berkshire subsidiaries, as Berkshire's succession plan contemplates. Among these candidates, especially promising are individuals with strengths like lengthy service history at Berkshire; proficiency leading its largest, most sprawling operations; and experience running subsidiaries bearing most of the specific traits that constitute Berkshire culture. Experience leading a large public company would also be a plus." Now you understand why I included the brief excerpt from The Essays of Warren Buffett. A succession plan has been in place, updated in 2006. Its purpose is to secure the company's permanence. "By installing exceptional managers in a variety of roles historically handled by a single person, succession is calculated to succeed."
These are among the dozens of passages of greatest interest and value to me, also listed to suggest the scope of Cunningham's coverage:
o Warren Buffett: Acquisition approach and practice (10-11 and 213-214)
o Charlie Munger: Organizational leadership and structure for diversity (Pages 12-15, 19-20, and 111-112)
o BH culture (37-38 & 197-198)
o Ben Bridge (82-84)
o Organizational autonomy and business principles (84-8, 111-118 and 185-190)
o BH leadership succession (92-94, 194-201, 208-210, and 232)
o BH acquisitions (125-136 & 170-171)
o Sustainable business model and value creation (137-149)
o Phil Graham and Graham Holdings (179-180)
o BH durability (218-220)
Although for obvious reasons, Warren Buffett and Berkshire Hathaway are widely viewed as synonymous, Cunningham points out that BH is structurally complete and highly decentralized. "The parent owns at least fifty significant direct operating subsidiaries; these direct subsidiaries in turn own an aggregate of at least 225 subsidiaries, divisions, or branches. The later group in turn owns a total of at least another two hundred business units. These, in yet another turn, own sixty-five units, and another twelve are owned by that lot. In total, the Berkshire family includes at least 425 operating subsidiaries, along with seventy-five divisions, twenty-five branches, and twenty-five units."
Cunningham acknowledges, indeed admires Buffett's defining characteristics: his "folksy demeanor, Midwest sensibilities, negotiating techniques, and writing style are inimitable...As a new guard leads the evolution of Berkshire beyond Buffett, they will set its course and the company will never be the same. Yet the core values that define it have proven to offer unique sustaining value. It is hard to imagine Berkshire without Buffett. But it seems wiser to believe in Berkshire beyond Buffett, an institution that transcends the man and will be his legacy."
It took a Great Man to envision, assemble, assimilate, and meanwhile lead the members of this "family" and now, thanks to him, there will be a number of great men and women to ensure that the family remains healthy and prosperous.
As for Lawrence Cunningham, another brilliant achievement among several. Bravo!
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