Friday, December 9, 2011

The Warren Buffett you don't know


I would like to share this interesting and compelling article about Warren Buffett. The article was the cover story of BusinessWeek's Magazine (July 5th 1999). Hope you enjoy the article and keep visiting "Buffett is my Idol"
Regards,

Santiago Hernández

The Warren Buffett You Don't Know
Ace stockpicker, of course--and now, an empire-builder

Warren Buffett is returning to the U.S. from Europe in a private jet. As his plane nears its destination, the flight attendant gives out landing cards and a warning to all eight passengers aboard. ''The customs inspector here is utterly humorless,'' she says, ''so no wisecracks or he will tear the plane apart from fore to aft.'' Buffett, who quips as reflexively as he breathes, takes his card without comment.

In the terminal, a surly looking man with a crewcut and a pistol on his hip sits behind a small table. Buffett hands over his passport and landing card to the inspector, who does not seem to realize that the professorial-looking 68-year-old standing before him is America's second-richest man. Or perhaps he just gets a kick out of trying to take the high and mighty down a peg. ''You left some things blank,'' the inspector says peevishly. ''Do you have $10,000?''

The question could have launched a dozen snappy retorts, but Buffett restrains himself. ''I have what I left with,'' he says carefully. The inspector furrows his brow--was that some kind of joke?--but does not press the issue. He asks Buffett if he has any anything to declare. ''I was given two books,'' Buffett says. ''Well, you have to put it down, then,'' snaps the agent, who fills in the blank himself.

Buffett shows not a flicker of annoyance at being treated like a misbehaving child. He stands mute and impassive before the inspector, who, after a few more curt remarks, can think of nothing else to do but let ''the Oracle of Omaha'' be on his way.

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Has there ever been a less pompous billionaire than Warren Edward Buffett? Hollywood might cast him in the role of an amiable teacher at a Midwestern college or a sweet-tempered, wisecracking inventor who eventually wins a Nobel prize and gets the girl besides. To hear Buffett sing his beautifully artless rendition of Ain't She Sweet to his own ukulele accompaniment is to wonder not only how such a man came to measure his net worth in billions but also whether he might not be a time-traveler from a more innocent age.

If Buffett had a business card, it would identify him as chairman and chief executive of Berkshire Hathaway Inc. (BRK.A) But he is far better known--indeed, world-famous--as the greatest stock market investor of modern times. The figures, though often cited, still astound: Had you put $10,000 into Berkshire when Buffett bought control of it in 1965, you'd have $51 million now, vs. just $497,431 if the money were invested in the Standard & Poor's 500-stock index.

The numbers don't lie, but the story they tell is out of date. Buffett has not added a major position to Berkshire's bulging stock portfolio since amassing 4.3% of McDonald's Corp. (MCD) in 1995. In the meantime, he has transformed what long has been a sideline at Berkshire--the acquisition of entire companies--into the main event. Over the past three years, Berkshire has spent $27.3 billion to buy seven companies in industries as disparate as aviation, fast food, and home furnishings. The $22 billion purchase of reinsurer General Re Corp., which closed late last year, was Buffett's largest ever.

The effect has been dramatic: In short order, Berkshire has been transformed from a closed-end fund in corporate drag to a bona fide operating company. At the start of 1996, the company's famous stock portfolio accounted for fully 76% of Berkshire's $29.9 billion in assets. But by the end of 1999's first quarter, the figure had plummeted to 32% as assets quadrupled, to $124 billion. Today, Buffett's company employs 47,566 workers, double the number in 1995.

And he isn't done yet. ''I'd love to make a $10 billion to $15 billion acquisition, and we could go bigger than that if I really like the company,'' says Buffett, who holds $15 billion in cash and is sitting on top of an additional $30 billion in unrealized gains in Berkshire's stock portfolios.

It's all there in black and white in Berkshire Hathaway's famously literate annual reports, but somehow the company's transformation has gone not just unheralded but unnoticed. Berkshire is ''possibly the most talked about and the least understood company in the world,'' contends Alice Schroeder, a PaineWebber Inc. insurance analyst who in January published one of the few comprehensive studies of the company ever undertaken by a brokerage house.

MISUNDERSTOOD. The common view is that Berkshire shares fetch a premium because of Buffett's reputation as a latter-day Midas. The ''Buffett premium'' undoubtedly is real in the sense that if the man died today, the stock would plunge tomorrow. In Schroeder's view, though, Berkshire's stock is already trading at a sizable discount to its true value, which she estimates at $91,000 to $97,000 per A share. The A shares lately have been trading at about $70,000. The basic problem, Schroeder says, is that the world continues to misperceive Berkshire as little more than the sum of the stocks it holds in its $37 billion portfolio. In other words, the market tends to overreact to news about the seven stocks that form the core of Berkshire's holdings (table). Over the past 12 months, Berkshire has fallen by about 17%, from a high of $84,000 in June, 1998. In Schroeder's view, the main cause of this decline is the plunging value of Buffett's colossal stakes in Coca-Cola Co. (KO) and Gillette Co (G).

The radical recent shift in Berkshire's corporate profile does not reflect a radical change in Buffett's thinking. In most ways, he remains true to the conservative precepts of value investing. In essence, Buffett continues to prefer today's sure thing to the next big thing, no matter how spectacular its potential. Forget Internet stocks: Buffett still will not invest in even such well-seasoned high-tech companies as Microsoft Corp. (MSFT) or Hewlett-Packard Co. (HWP) because he doesn't believe that anyone can predict how much they will earn over the next decade or two. ''I can't do it myself,'' he says. ''And if I don't know, I don't invest.''

Even in his stock-picking heyday, Buffett preferred owning businesses to passive minority investment. Until recently, though, Berkshire's acquisitions have been few and far between because Buffett insisted on buying top-quality businesses at discount prices. What has changed is that he is now willing to pay a premium for one-of-a-kind businesses.

Why this is so is not completely clear. The Buffett psyche is notoriously labyrinthine. ''I could easily spend a lot of time trying to analyze Warren if I didn't consciously try not to,'' says Olza M. Nicely, CEO of auto insurer GEICO Corp., one of Berkshire's largest subsidiaries. ''There are certain mysteries you just have to accept.''

In Buffett's view, he is putting the finishing touches on his masterpiece. ''Berkshire is my painting, so it should look the way I want it to when it's done,'' he says.

In an era in which most CEOs at least mouth the platitudes of good corporate governance and shareholder rights, Buffett, in his good-natured way, is a throwback to a time when a mogul was a mogul and did as he damn well pleased. ''Berkshire is the company I wanted to create. It's not the company Alfred P. Sloan wanted to create. It fits me,'' he says. ''I run it with our investors and managers in mind, but it is designed to fit me.'' To be blunt, Buffett stands revealed as a driven, even monomaniacal corporate empire-builder.

For all his offhand charm, Buffett is pretty much all business all the time. Aside from an addiction to luxury air travel, he is a man of simple tastes and frugal habits. He neither spends his money nor gives much of it away. Philanthropy, the renascent vogue of America's superrich, interests him peripherally at most. Buffett intends to take his fortune to the grave--and to keep adding to it until the day he dies. ''The problem I've got with doing anything else except what I'm doing is that there is nothing remotely as fun as running Berkshire,'' he says. ''I'm selfish that way.''

So far, Berkshire's legendarily devoted shareholders would not have it any other way. In May, some 15,000 of them flocked to Omaha to sit at the feet of the master during Berkshire's three-day festival of an annual meeting, which Buffett calls ''Woodstock for Capitalists.'' Of course, Buffett and his wife, Susan T. Buffett, are the largest Berkshire shareholders by far: Their 38.4% stake is worth about $40 billion.

The highest circle of management power at Berkshire has always been tight, but it has shrunk in recent years--to Buffett alone. Charles T. Munger, Buffett's longtime vice-chairman and business alter ego, continues to enliven the annual meeting by playing the part of drolly laconic sidekick to Buffett's ebullient master of ceremonies. Behind the scenes, though, his influence has waned. ''Charlie and I don't talk a lot anymore,'' acknowledges Buffett, who says he did not even bother to consult his vice-chairman before making the epochal Gen Re acquisition.

By all accounts, including their own, Munger and Buffett have not fallen out. But while Buffett is wholly devoted to building Berkshire, Munger, 75, now spends his time chairing a not-for-profit hospital and serving as a trustee of a private high school. ''Charlie is broader in his interests than I am,'' Buffett says. ''He doesn't have the same intensity for Berkshire that I have. It's not his baby.'' Munger concurs: ''Warren's whole ego is poured into Berkshire.''

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In mid-April, Buffett led a small entourage on a whirlwind European tour to promote one of Berkshire's latest acquisitions, Executive Jet Aviation. I went along for the ride (on one of EJA's Gulfstream IV-SP jets) and got an unusual chance to observe the notoriously press-shy Buffett at close range against a kaleidoscopic backdrop of private airports, luxury hotels, and banquet halls stretching from London to Frankfurt to Paris.

Buffett survived a demanding regimen of midmorning coffees, two-hour luncheons, 90-minute press conferences, and four-course banquets. ''I never get tired,'' he told reporters in London, ''except for my voice.'' Actually, Buffett was ashen with fatigue midway through the third day but soldiered gamely on, answering even the lamest questions with the same expansiveness and wit the fifth time he heard them as he did the first.

Only once did Buffett show annoyance. During a press conference at the Frankfurt airport, Richard Santulli, EJA's normally understated chief executive, let his admiration of Buffett overflow. ''People say that he's the most astute investor of the 20th century,'' he said. ''I say ever.''

Buffett, who was sitting at Santulli's side, gave a little snort. ''Why not?'' he said sourly. ''I'm sitting right here.''

Like any mogul, Buffett has his special needs. On this trip, he indulged two of them, listed here in reverse order of importance: red meat (at lunch and dinner) and Coca-Cola (all the time).

Whenever I lost track of Buffett, Coke often appeared to guide me--a carbonated version of the proverbial trail of crumbs. In London, our party went from airport to hotel in separate cars. When I arrived at the Berkeley Hotel, I did not have to wonder for long whether Buffett had preceded me. A bellhop approached with a shopping bag. ''Is this yours?'' he asked. Inside were two six-packs of Cherry Coke. Two days later, I was in the crowded lobby of the Schlosshotel Kronberg near Frankfurt, following a white-gloved waiter bearing aloft a single bottle of Coca-Cola on a silver tray.

Buffett bought Executive Jet in mid-1998 for $725 million. Although this is a pittance compared with what Berkshire paid for General Re, the EJA deal was no less a milestone in its way. EJA, which pioneered the fractional ownership of business jets, is the first true emerging-growth company that Buffett has ever owned. What's more, the very idea of investing in business aviation would have been considered downright sacrilegious throughout most of Berkshire's history.

For years, Buffett mocked corporate ownership of jets as a wasteful executive perk. But in 1986, he bought a small used plane for Berkshire, then traded up to a more expensive model a few years later. He named the jet ''The Indefensible'' and made sport of its purchase in his 1989 report to shareholders: ''Whether Berkshire will get its money's worth from the plane is an open question, but I will work at achieving some business triumph that I can (no matter how dubiously) attribute to it.''

The truth is, Buffett had fallen in love with his plane but could not yet admit it. In 1995, he was introduced to Santulli by the head of one of Berkshire's operating companies and bought a one-quarter share of a Hawker for personal use. His wife, who has become a frequent flier, called the new plane ''The Richly Deserved.'' (Not to be outdone, Buffett renamed Berkshire's jet ''The Indispensable.'') Santulli offered to sell his company to Buffett when Goldman, Sachs & Co. (GS), a founding minority investor, began pressuring him to float a public stock offering.

Executive Jet in no way resembles the sort of business on which Buffett cut his teeth as an apprentice to the late Benjamin Graham, co-author of the value-investing bible, The Intelligent Investor. Graham's method emphasized creating a ''margin of safety'' by investing only in stocks trading at two-thirds of net working capital. He called them ''cigar butts''--companies the stock market had discarded but that still held a puff or two of value to extract.

Buffett was Graham's most accomplished disciple. But as the pupil established himself, he began to feel constrained by the mentor's method. For Graham, a business was an abstraction wholly defined by a set of numbers on a page; he had no interest in its products, its management, its personality. But Buffett's boundless curiosity and enthusiasm were not satisfied by the ghoulish exercise of profiting from the last dying gasps of derelict companies. Buffett's yearnings and dissatisfactions did not begin to coalesce into an investment philosophy of his own until he met the blunt-spoken Munger in 1959. The two, closely matched in intellect and outlook, quickly became the closest of partners. Munger urged his friend to leave the cigar butts in the gutter and think of value in more expansive terms. Says Buffett: ''Charlie kept pushing me back to the idea that what we really needed to own was the wonderful business.''

Even so, it took Buffett a long time to tailor Graham's straitjacket conservatism to the more generous dimensions of his own personality. His $11 million purchase of Berkshire Hathaway in 1965 was a costly case in point. Initially, Buffett saw the floundering old-line company as a classic Graham play. But then the textile manufacturer rallied unexpectedly, and Buffett sank more money into it on the belief that this cigar butt had a future after all. It did indeed, but not in textiles.

Buffett did not come fully into his own until he and Munger collaborated on the $25 million acquisition of See's Candies in 1972. The San Francisco maker of boxed chocolates was the first business of any sort for which Buffett paid more than book value--three times book, in fact.

What, in Buffett's view, makes a business wonderful? It starts with ''a sustainable competitive advantage.'' Underline sustainable. Buffett will not invest in a business unless he feels reasonably certain how much it will earn over the next 20 to 25 years. But for all of Buffett's cerebration, he does not feel truly comfortable unless a business ties into his own everyday experience. His favorite companies tend to traffic in elementally appealing brand-name products that Buffett not only uses himself but also invests with almost totemic meaning: a bottle of Coca-Cola, a Gillette razor blade, a box of See's candy, and, yes, even a Gulfstream jet.

Buffett has always been especially partial to companies that can sustain a competitive edge without tying up much capital. Consider Scott Fetzer, which makes a variety of industrial and consumer products, including Kirby vacuum cleaners and Quikut knives. Since 1986, when Berkshire paid $315 million for Scott Fetzer, its earnings have risen by only 5.5% a year on average. Yet Buffett repeatedly has praised it as a model of capital efficiency. In 1998, Scott Fetzer netted $96.5 million after taxes on its $112 million in equity, a return on equity of 86%. This is all the more breathtaking considering that Buffett has been milking it for 13 years, extracting more than $1 billion all told.

Ever since Berkshire's 1967 acquisition of National Indemnity Co., insurance has held double appeal for Buffett. Not only does he like the economics of the business--or parts of it, anyway--but a well-run underwriter also generates a steady flow of low-cost investment dollars, or ''float,'' as a matter of course. The 1996 acquisition of GEICO, now the sixth-largest U.S. auto insurer, doubled Berkshire's float at one stroke, and the Gen Re buy nearly tripled it, to $21 billion.

In Buffett's view, the quality of a company's management is integral to its value as a business. And when acquiring companies, Buffett is as concerned with the motives of the selling CEOs as he is with their abilities. ''What I must understand is why someone will continue to get out of bed in the morning once they have all the money they could want,'' Buffett says. ''Do they love the business, or do they love the money?''

No less an authority than John F. Welch, CEO of General Electric Co., considers Buffett a superb judge of managerial talent. Buffett and Welch have gotten to know each other over the years as golf partners and as rivals in auto insurance and other businesses. ''Take 20 people you know quite well but Warren has just met casually,'' Welch says. ''If you ask Warren his opinion about them, he'll have each one nailed. He's a masterful evaluator of people, and that's the biggest job there is in running a company.''

In 34 years, Berkshire has never lost an operating chief except to death. In fact, the great majority of its subsidiaries are still run by the same executive who brought them to Berkshire in the first place. The operating head of longest tenure is Charles N. Huggins, who has been president of See's Candies since Buffett acquired it. Huggins is 74 years old now, but he's not Berkshire's oldest manager. That would be 85-year-old Harold Alfond, who founded Dexter Shoe Co. in 1956 and sold to Buffett in 1993 for Berkshire shares now worth $1.5 billion.

Berkshire's operating ranks contain a second octogenarian billionaire: 82-year-old Albert L. Ueltschi, chairman and CEO of FlightSafety International Inc., a pilot-training concern Berkshire bought for $1.5 billion in 1996. An ex-pilot, Ueltschi founded the company in a LaGuardia Airport hangar in 1951. ''I'm like Warren,'' says Ueltschi, who has no plans to retire. ''I like what I do so much that I don't consider it work.''

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Somewhere between Frankfurt and Paris, Buffett gets up and walks back to the airplane's pantry to fetch a box of Swiss Sprungli chocolates an admirer had given him in Germany. Buffett makes his way slowly up the aisle of the plane in his shirtsleeves, offering the candy to each passenger aboard.

A half-empty box of See's chocolates rests on the table where I'm sitting. Buffett pops a piece in his mouth. I ask him whether he thinks he could identify See's in a blind taste test against other brands. ''Of course,'' he says. ''I can also tell Coke from Pepsi. The thing is, most Americans prefer Pepsi to Coke because it is 4% sweeter, but Coke still outsells Pepsi by a huge margin.''

As Buffett continues in this vein, he starts staring at the box of Sprungli he carries. He shifts it to one hand as if he were about to choose a piece, then seems to change his mind. ''It's a showy sort of candy, isn't it?'' he says and then falls silent. He gazes raptly at the Sprungli for a full 45 seconds as the conversation continues around him. Then he abruptly sets the box down and returns to his seat without a word.

Later, I recount this to Chuck Huggins, See's president, who chuckles knowingly. ''Yeah, that's Warren. Brand-loyal.''

The office next to Buffett's is occupied by Michael Goldberg. A former McKinsey & Co. consultant, Goldberg was hired in 1981 to bring order to Berkshire's far-flung insurance interests and essentially functioned as chief operating officer for the next 11 years. The single-minded intensity Goldberg brought to the job created friction in the ranks--and gave him a bad case of burnout. In 1993, Buffett reassigned Goldberg to ''special projects'' and eliminated his old position.

The line managers who once reported to Goldberg, now 53, have reported directly to Buffett ever since--as do the chiefs of all 22 of Berkshire's operating companies. Buffett essentially lets the chiefs of the companies that Berkshire acquires run their businesses as before, except that he requires them to transfer their excess cash to Omaha and clear capital-spending plans with him. Buffett, who thinks of his role as Berkshire's ''capital allocator,'' collects the enormous cash flow that the subs produce--$13.4 billion last year--and uses the money to buy more businesses, either in whole or in part, through the stock market.

Buffett tends not to initiate contact with his operating executives: He waits for the phone to ring. ''Let me know about any bad news as soon as possible,'' he tells his subordinates, ''but otherwise, you are free to call me as often or as seldom as you like.'' Buffett's managerial passivity should not be mistaken for indifference. Some operating chiefs say he nearly memorizes the monthly reports they send to Omaha.

During holiday seasons, Buffett requests daily sales reports from See's and Borsheim's, Berkshire's huge upscale jeweler in Omaha, because the ebb and flow of retailing hold an enduring fascination for him. Year-round, he speaks to two execs almost every day: Richard Santulli and Ajit Jain, who runs Berkshire's reinsurance business in Stamford, Conn.

Berkshire's homegrown insurance group offers a variety of property-and-casualty coverage in certain U.S. markets. But its chief business is a high-risk, high-reward specialty that Jain developed over the past decade in reinsuring ''super-catastrophes''--earthquakes, hurricanes, floods, and such. Buffett found the economics of ''super-cat'' seductive: Berkshire has made at least $865 million pretax in underwriting profits since 1991. But it was the complexities of analyzing super-cat risk that hooked him. Says Jain, 47: ''Warren and I might have had a 30-second conversation or a 30-minute one, but he has been involved in every piece of business I have done.''

As for Santulli's business, Buffett is intrigued not just by the novel challenges posed by EJA's rapid growth but also the logistical complexities of the fractional-shares business. ''He likes the mental challenge of it,'' says Santulli, a former mathematics professor. ''He calls it 3-D chess.'' Even so, Buffett is careful not to impinge on Santulli's operating authority. EJA's chief once asked Buffett for advice in making a decision and was rebuffed. ''Don't bother with that,'' Buffett told him. ''Just decide.''

Buffett's laissez-faire management style has been tested most severely in recent years by Berkshire's misadventures in shoes. From 1991 to 1993, Buffett laid out $650 million to buy three old-line makers of midprice shoes: H.H. Brown, Lowell, and Dexter. In essence, he was betting that his companies would benefit as the appeal of imports waned and U.S. consumers returned to home brands. Buffett hasn't made many fundamental strategic errors, but this was a doozy: Imports now account for 95% of domestic shoe purchases, vs. 70% in the early 1990s. Since 1994, operating profits of Berkshire's shoe group have plummeted 57% on an 18% decline in revenues.

Dexter has fared much worse than Brown, which absorbed Lowell and has buoyed itself by shifting much of its production offshore. Although Dexter now does some manufacturing in Puerto Rico, it has placed overriding emphasis on maintaining full employment at its four factories in its home state of Maine. By all accounts, Buffett has played no part in this divergence in basic strategy--and performance--between H.H. Brown and Dexter except to countenance it by his silence. ''It's amazing how little he bothers you,'' says Francis Rooney, chairman and CEO of H.H. Brown. ''He never even comments.''

The deference Buffett shows Berkshire's subsidiaries is all the more remarkable because it does not come naturally to him. ''With almost every one of the companies Berkshire owns, I think I would do something different if I was running them--in some cases, substantially different,'' Buffett says. The reason he doesn't impose his views, he adds, ''is simply that I am not inclined to make myself unhappy. I sort of accept things as they come.''

It's not that simple. Buffett knows the sort of self-motivated, hands-on exec he covets wouldn't tolerate being pushed around by Omaha. And Buffett's respectful treatment of his managers has instilled in them an ambition to ''make Warren proud,'' as one puts it. ''Somehow, Warren has been able to keep a diverse cast of characters working harder for him than they did for themselves,'' Goldberg says. ''I see it every day--and I still don't know how he does it. But I do know that all of us feel this incredible responsibility to him.''

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We arrive late to Paris, touching down in a freakish, near-gale-force windstorm that both thrills and alarms our pilot. In four cars, we race as fast as rush-hour Paris traffic allows from Le Bourget to Dassault Aviation Group's magnificent 19th century chateau--familiarly known as Le Rond Point--on the Champs Elysees. EJA is the largest commercial customer of Dassault Aviation, Europe's leading manufacturer of business jets. Serge Dassault, the company's chairman, is hosting tonight's gala reception and dinner in Buffett's honor. By the time we arrive, the reception is in full swing. But Buffett takes a few steps into the foyer and hustles up a flight of stairs. It will be a good 35 minutes until he descends and joins the party.

Downstairs, the guest of honor's whereabouts is Topic A among Dassault's distinguished guests. It might puzzle them to learn that Buffett is on a transatlantic call to one of his employees. The matter he is discussing with Ajit Jain this evening is not urgent. But it is Buffett's custom to speak with Jain every evening. If that means keeping 200 of France's richest people waiting, then c'est la vie.

In mid-May, Buffett moderated a panel on Internet commerce at Microsoft's annual CEO summit in Seattle. As Buffett tells it, the assignment reflected William H. Gates III's sense of humor. But the Microsoft chairman and CEO, a friend of Buffett's since 1991, says it was no joke: ''Every principle that Warren holds about business and business value will still apply in this new world we're going into.'' Gates, who owns Berkshire stock in his personal account, adds that he has learned more about business from Buffett than from anyone else. ''People really underestimate what he has created in Berkshire,'' he says.

Unlike most megacorporations, Berkshire was not erected on the foundation of a single great business. Buffett began with a dying textile maker and parlayed its dwindling cash flow into ownership of a massive portfolio of enduringly profitable operating businesses. By the end of 1998, Berkshire had amassed shareholder equity worth $57 billion. This is a staggering sum, putting Berkshire well ahead of General Electric, Microsoft, and every other U.S. corporation and ranking it second in the world to Royal Dutch/Shell Group. Buffett could retire tomorrow and be confident of his place in business history not only as stock investor extraordinaire but as a corporate builder of the first rank.

LIMITS OF SCALE. Instead, of course, he is still in there pitching, to borrow one of the baseball metaphors that so delight him. From 1965 through 1998, Berkshire's book value per share rose 24.7% a year on average--trouncing the 12.9% average annual gain in the S&P 500. For some time now, Buffett has warned that the company's sheer bulk will prevent it from matching its breathtaking historical average in the future. His avowed goal is to increase its worth at an average of 15% a year. It's a modest aspiration only by comparison, for it implies adding $58 billion of shareholder equity over the next five years.

Except for the shoe group, Berkshire appears to be in fine fettle. Executive Jet is by no means its only hope for growth. GEICO, Berkshire's largest subsidiary in terms of revenue, has been wresting market share from rivals at an impressive rate and yet still has only 3.5% of the vast U.S. auto-insurance market. Like EJA, Gen Re is planning to expand in Europe and around the world. At the same time, Borsheim's, Scott Fetzer, See's Candies, and other Berkshire companies are experimenting with E-commerce. ''The No. 1 topic Warren and I talk about now is whether retail selling is going to move over to the Internet,'' says Ralph E. Schey, Scott Fetzer's chairman and chief executive.

The pursuit of accelerated growth carries added risk. In 1998, Berkshire had a banner year, posting a 48% increase in net earnings, to $2.8 billion, on revenues of $13.8 billion. But net income dropped 25%, to $541 million in the first quarter, largely because of earnings declines at GEICO and Gen Re. While both insurers were hurt by intensifying price competition, a German subsidiary of Gen Re's also took an embarrassing $275 million pretax loss on a workers' compensation pool. The down quarter did not seem to faze Buffett, who is famous for taking the long view.

If Berkshire were in fact a painting, it would look like a Jackson Pollock: an idiosyncratic product of inspired improvisation. In building his company virtually from scratch over the past quarter-century, Buffett conjured no overarching strategic vision, followed no master plan other than to buy good businesses at the right price. Even when he erred--a rare occurrence--he enfolded his purchases in an embrace intended to be permanent. ''We buy everything, even a stock, with the idea that we will hold it forever,'' he says.

It is hugely important to Buffett that his corporate handiwork outlast him. In fact, it is his hope that Berkshire--his masterpiece in progress--survive him in exactly the form it exists upon his death, like a painting framed and hung on a museum wall. But might there not come a time when his successor might be smart to sell some of Berkshire's weaker units? ''I don't think so,'' Buffett says. ''I hope whoever follows me would behave pretty much as I would if I were to live forever. I feel I owe it. I owe it to the people who sold me their businesses. They didn't have to sell to me. If I die tonight, I want them to get what they were expecting.''

MYSTERY HEIRS. Buffett says he already has picked a successor--two of them, actually: one to manage the stock portfolio, the other to oversee the operating companies. Their identities have not been disclosed to shareholders or, for that matter, to the heirs apparent themselves, because Buffett reserves the right to change his mind. He says he might eventually settle on a single successor.

Munger, who has most of his own billion-dollar net worth in Berkshire stock, professes optimism about the company's post-Buffett prospects. ''The corporate culture of Berkshire is more durable than that of the average corporation. That will go on,'' Munger says. ''The one place a death will hurt us is we're not likely to get as good an allocator of capital as Warren in the next CEO, whoever that is. But it will still be one hell of a business.''

In a company as decentralized as Berkshire Hathaway, the operating businesses need not suffer an immediate loss of momentum from Buffett's passing. On the other hand, it is not clear that a holding company with a grand total of 12 employees can be said to have a corporate culture. Without question, Berkshire's operating chiefs are united in their admiration of Buffett and his principles. But most of them barely know one another, and none is remotely Buffett's equal in terms of breadth of knowledge or personal authority. With its challengingly eccentric mix of businesses and its loose, informal structure, Berkshire Hathaway fits Buffett to a T but might well prove unwieldy for lesser mortals--especially ones constrained by loyalty to Buffett's preservationist credo.

The outlook for Buffett's personal fortune is no less problematic. His wife is his sole heir, but she is 67 years old and might not outlive him. The Buffetts have three children--Susan, 46; Howard, 44; and Peter, 41. Howard and Susan are directors of Berkshire, but none of the Buffett progeny is involved in the management of the company.

FAMILY PLAN. Buffett has said that it is his wish that 99% of the money he has made eventually go to the Buffett Foundation, to be distributed to worthy causes under the direction of Allen Greenberg, 42, the ex-husband of his daughter Susan A. Buffett. Greenberg works out of a one-person office in the same building that houses Berkshire. The foundation was set up in the mid-1960s but operates with a scanty endowment. Currently, it disburses $11 million to $12 million a year, with the bulk of the funds going to groups that provide family-planning services, including abortions. When the foundation comes into its full endowment, it is likely to rank as the world's largest philanthropy.

Buffett is often criticized--privately, to be sure--as a tightwad. But he insists that he is holding tight to his Berkshire stock not out of greed but out of a desire to ensure that control of the company passes to his heirs. ''I think I could control it with as little as 1% of the stock,'' Buffett says. ''With 35%, my wife could carry on, but not with 1%. I'd view it as a tragedy if someone whose achievement was issuing the most junk bonds or having the silliest stock price took over the company and all that we've built evaporated.''

It would indeed be a tragedy in the classical sense if the specialness of Buffett's great gifts contains the seeds of his empire's eventual undoing. For just as no one other than Buffett could have created Berkshire Hathaway, it may well come to pass that no one other than Buffett can make it work.

BY ANTHONY BIANCO

Monday, November 14, 2011

Buffett invierte US$10bn en IBM

Nueva York, 14 nov (EFE).- Berkshire Hathaway, la compañía de Warren Buffett, anunció hoy que este año ha comprado el 5,5 % de las acciones de la tecnológica IBM en una operación valorada en 10.700 millones de dólares.

El multimillonario inversor y el tercer hombre más rico del mundo reveló el porcentaje de su inversión en IBM durante una entrevista en la cadena de televisión financiera CNBC y precisó que la mayor parte de las compras las realizó en el segundo y tercer trimestre de este año.

Buffett precisó que su compañía posee ahora el 5,5 % de las acciones de IBM y que de momento no piensa adquirir nuevos títulos.

"No estaría hablando de ello si lo estuviera haciendo", dijo Buffett a esa cadena de televisión, donde también precisó que solo compraría más títulos de la tecnológica si su precio fuera bajo y su compañía, Berkshire, tuviera suficiente dinero para ello.

El reconocido inversor estadounidense indicó que la compra de títulos de IBM comenzó en marzo pasado y que lo hizo habiéndose puesto como meta la adquisición de 10.000 millones de dólares en títulos.

Asimismo, indicó a CNBC que no había hablado al respecto de sus adquisiciones con el presidente y consejero delegado de IBM, Sam Palmisano, al tiempo que señaló que el ejecutivo de la tecnológica esta haciendo "un trabajo increíble" al frente de la firma, de la que dijo que tiene por delante un futuro excelente.

Tras la apertura de la bolsa neoyorquina, las acciones de IBM progresaban el 0,99 %, hasta 189,18 dólares cada una, mientras que en lo que va de año se han revalorizado el 28,85 % y el 31,66 % en los últimos doce meses.

Los títulos de Berkshire Hathaway, por su parte, perdían el 0,87 % hasta 114.344 dólares cada uno, mientras que en lo que va de año han perdido el 5,07 % y el 4,99 % en los últimos doce meses.

Thursday, November 3, 2011

La diferencia entre crisis de ética y crisis de confianza

Por ROBERT HURLEY
Wall Street Journal Americas

Fraudes y crisis financieras infames han destruido la fe de la gente en las compañías en los últimos años, lo que ha llevado a muchas de ellas a intentar reparar el daño con un énfasis en la ética.

No obstante, no se trata de una crisis de ética sino de confianza.

No sólo porque sus clientes o empleados piensen que usted es ético (moral, honesto y justo), confiarán en usted o deberían hacerlo. La confianza se gana cuando uno cumple todos los días lo prometido, como gerente, empleado y empresa. Involucra un constante trabajo en equipo, comunicación y colaboración.


Ross MacDonald
.Los estudios muestran que las empresas que generan más confianza tienen menos rotación de personal, y mayores ingresos, rentabilidad y rendimientos para accionistas. Tiene sentido. ¿Qué empleado, cliente o inversionista elegiría hacer negocios con un socio en el que confía poco cuando tiene disponible una opción altamente confiable?

A continuación, cinco principios que los líderes pueden adoptar para demostrar que son confiables y plasmarlos en sus compañías.

1. Muestre que tiene los mismos intereses. Antes de confiar en alguien, solemos preguntarnos: ¿qué tan probable es que esta persona trabaje a mi favor? Cuando los intereses están bien alineados, la confianza se da más fácil. Cuestionamos la competencia de nuestro cirujano, no sus motivos. Esto es así porque nos damos cuenta de que él también se beneficia si sobrevivimos la operación. Los líderes que generan confianza intentan alcanzar sus metas al servir los intereses de todos los que tienen algo en juego, no al favorecer a algunos mientras se perjudica o manipula a otros.

2. Demuestre interés por los demás. La gente confía en quienes se interesan por el bienestar de otros y desconfía de aquellos que parecen preocupados sólo por sí mismos. Para ganar confianza, los líderes deben demostrarles a los demás que harán lo que sea bueno para ellos incluso si eso les genera un riesgo. Un presidente ejecutivo eligió decirle a un subdirector de marketing que iba a ser despedido justo cuando la empresa debía desarrollar su plan de publicidad. El presidente ejecutivo sabía que podía ser contraproducente para la planificación de la firma, pero le avisó al ejecutivo de inmediato en lugar de esperar hasta que el plan estuviera terminado.

3. Cumpla sus promesas. Sólo seremos confiables si honramos nuestros compromisos. Las buenas intenciones, la benevolencia e incluso la conducta ética no garantizan confianza si la persona es incompetente. Si los líderes quieren ganar confianza, deben probar que pueden cumplir sus compromisos.

Este a veces es el defecto de líderes visionarios que no pueden ejecutar sus ideas. Los líderes que inspiran mucha confianza se aseguran de que hay una probabilidad y capacidad razonables de cumplir antes de hacer promesas.

4. Sea coherente y honesto. Los líderes altamente confiables suelen comportarse con coherencia e integridad. Este tipo de gerentes siempre tratan de cumplir su palabra y si fallan, se disculpan y se aseguran de que no se convierta en un hábito. Cuando Warren Buffett fue avergonzado por las revelaciones de que su mano derecha, David Sokol, tenía un conflicto de interés desconocido (una inversión personal de US$10 millones en acciones) en un importante negocio de la empresa, no se escondió detrás de abogados o dijo "sin comentarios". Admitió el error y tomó medidas para asegurarse de que no volviera a suceder. La mayoría de la gente sabe que sólo se puede aspirar a la perfección. La confianza proviene de siempre esforzarse por cumplir la palabra de uno.

5. Comuníquese con frecuencia, con claridad y de forma abierta. Debido a que la confianza implica mayormente relaciones, la comunicación es crítica. También es el vehículo a través del cual se concretan los otros cuatro elementos de la confianza. La capacidad de alinear intereses, demostrar benevolencia, comunicar con precisión las capacidades propias y poner en práctica lo que predica requieren destrezas efectivas de comunicación.

—Hurley es profesor de la Universidad de Fordham y autor de un libro sobre la confianza en las empresas.

Tuesday, November 1, 2011

Grecia pone en jaque a la UE


La UE recordó hoy a Grecia sus compromisos con la eurozona ante el referéndum que pretende celebrar sobre el segundo rescate y que ha puesto a los gobiernos europeos en alerta máxima por el riesgo de que su gran plan anticrisis se quede finalmente en papel mojado y el país heleno abocado a la quiebra.

Grecia, el epicentro de la crisis de deuda soberana en Europa, es el eje del acuerdo global anticrisis que aprobaron en la madrugada del jueves los jefes de Estado y de Gobierno de la eurozona, y pese a haber sido saludado como la salvación del país por el propio primer ministro griego, Yorgos Papandréu, éste ha puesto pocos días después en riesgo todo el plan europeo y provocado más nerviosismo en los mercados financieros del Viejo continente.

El plan anticrisis europeo está interconectado con el segundo rescate griego, que asciende a 100.000 millones de euros y a 130.000 millones si se tiene en cuenta que la eurozona aportará 30.000 millones en garantías a los acreedores privados para que acepten condonar a Grecia el 50 % de la deuda (100.000 millones).

Sin rescate griego, todo el acuerdo está en peligro, pues prepara a la banca ante un impago de Grecia y el impacto de la deuda soberana de países con problemas con una recapitalización de 106.447 millones de euros -incluidos 30.000 millones para las entidades griegas- y eleva la capacidad del Fondo Europeo de Estabilidad Financiera (FEEF) a un billón de euros para servir de cortafuegos y prevenir el contagio a economías más grandes, como Italia y España.

Ante el temor de que este escenario se haga realidad, los principales parqués europeos aumentaban a media sesión los descensos de la apertura y sufrían caídas de hasta del 5 %.

El malestar y la irritación por el anuncio sorpresa de Grecia por parte de los socios de la eurozona ha sido expresado hoy por el primer ministro luxemburgués y presidente del Eurogrupo, Jean Claude Juncker, quien ha asegurado que Papandréu tomó la decisión "sin haber consultado" previamente a sus homólogos europeos.

El anuncio ha provocado frenéticas gestiones en las principales capitales de la eurozona.

No es para menos, porque la agencia de calificación de riesgos Fitch advirtió hoy de que un resultado negativo en el referéndum aumentaría el riesgo de una quiebra forzada y desordenada y de una salida de Grecia del euro, al tiempo que tendría implicaciones financieras severas para la estabilidad financiera y la viabilidad de toda la eurozona.

Tampoco Juncker pudo descartar una suspensión de pagos: "no puedo excluir que ése sería el caso" si ganara el "no", en las urnas, dijo a una emisora de radio luxemburguesa.

Un tono más diplomático emplearon los presidentes de la Comisión Europea, José Manuel Durao Barroso, y del Consejo Europeo, Herman Van Rompuy, quienes, tras conversar por teléfono con Papandréu y otros líderes de la eurozona, recordaron sin embargo a Atenas sus compromisos y las obligaciones que conlleva compartir una moneda.

"Tomamos nota de la intención de las autoridades griegas de celebrar un referéndum. Estamos convencidos de que este acuerdo es lo mejor para Grecia. Confiamos plenamente en que Grecia honrará los compromisos que ha asumido con la eurozona y con la comunidad internacional", afirmaron.

En el Elíseo, Sarkozy convocó una reunión interministerial y una conversación telefónica con la canciller alemana, Angela Merkel, tras la cual ambos reafirmaron su determinación de garantizar que el rescate griego y todo el plan anticrisis será aplicado, porque su puesta en marcha "es más necesaria que nunca" y permitirá a Grecia recobrar un crecimiento sostenible.

Frente a la convicción de la eurozona de haber logrado una buena solución para Grecia, el 60 % de los griegos están en contra del plan, según un reciente sondeo.

La situación no solo incomoda a la eurozona, sino es sobre todo incómodo para Papandréu, quien tendrá que viajar a Cannes en vísperas del G20 y aguantar los más que probables reproches de Sarkozy, Merkel y de otros líderes por el anuncio del referéndum.

Thursday, October 13, 2011

Buffett revela el detalle de sus ingresos e impuestos.


WASHINGTON — El multimillonario Warren Buffett, quien inspiró las recientes propuestas del presidente Barack Obama para aumentar la tributación de los estadounidense más ricos, reveló el detalle de sus ingresos e impuestos para probar que paga menos que el contribuyente medio.

En una carta dirigida el miércoles a un congresista, el tercer hombre más rico del mundo afirma haber ganado 62,8 millones de dólares el año pasado, convertidos en un total imponible de 39,8 millones.

Buffett admite haber pagado 6,9 millones de dólares en impuestos, una tasa del 17,3%, netamente menos, según él, que el porcentaje que tributan muchos estadounidenses, incluida su propia secretaria.

En su misiva al representante Tim Huelskamp, quien criticó su posición sobre los impuestos, señala que la mayoría de los senadores y representantes paga más del 30% de sus ingresos en impuestos. "Como lo hacen todos los empleados de mi oficina, salvo yo", añadió Buffet.

Buffett, quien ha acumulado una fortuna que supera los 50.000 millones de dólares gracias a inversiones de su fondo Berkshire Hathaway, respondía a una exhortación de Huelskamp a probar la veracidad de sus afirmaciones sobre la tributación porcentualmente menor que pagan los ricos, haciendo pública su hoja de impuestos.

"Lo que podría ser útil sería que un gran número de los 'ultra-ricos' hicieran públicos sus impuestos", escribe Buffett, citando entre otros a Rupert Murdoch, propietario de The Wall Street Journal, quien la semana pasada criticó sus llamamientos a una mayor imposición a los ricos. "Numerosos 'ultra-ricos' tienen tasas (impositivas) todavía más bajas que yo con el Gobierno federal", afirma Buffett.

Copyright © 2011 AFP. Todos los derechos reservados

Wednesday, October 5, 2011

Buffett: "Una nueva recesión en EUA es muy improbable"

Nueva York, 30 sep (EFE).- Warren Buffet, el presidente de la firma de inversión Berkshire Hathaway y tercer hombre más rico del mundo según la revista Forbes, aseguró hoy que es "muy, muy improbable" que la economía de Estados Unidos vaya a entrar de nuevo en una recesión.

Buffett declaró durante una entrevista con la cadena de información financiera CNBC: "estamos saliendo de una recesión, es lo que llevamos haciendo desde 2009 y una gran mayoría de nuestras empresas van a ganar este año más dinero que el año anterior y el precedente".

El multimillonario y filántropo de 81 años reconoció que le "preocupa" la crisis de deuda soberana de la zona euro, pero no cree que "infecte" a las empresas estadounidenses.

Buffett habló también sobre su propuesta de elevar los impuestos a los multimillonarios como él y que ha recibido el apoyo el presidente de EE.UU., Barack Obama, para quien el llamado "Oráculo de Omaha" ha organizado esta noche en Nueva York una gala para recaudar fondos de cara a su campaña para la reelección en 2012.

El inversor aclaró que su iniciativa, que hizo pública a mediados del mes pasado a través de un artículo de opinión en el diario The New York Times, se refiere únicamente "a los ingresos muy altos que tienen un gravamen muy bajo, no sólo los ingresos altos" y "probablemente sólo se afectaría a unas 50.000 personas de una población de 310 millones"

El presidente de Berkshire Hathaway afirmó asimismo que su grupo seguirá invirtiendo adquisiciones de acciones y empresas pese a que el lunes anunció un plan de recompra de títulos con una prima de hasta el 10 %.

"Cuanto más baratas estén (las acciones), más agresivos seremos con las adquisiciones", indicó Buffett.

Buffett realizó esas declaraciones después de dar el campanazo que da comienzo a la sesión en la Bolsa de Nueva York, con el que celebró el 50 aniversario del distribuidor de comunicados de prensa Business Wire, una empresa que pertenece al conglomerado de Berkshire Hathaway.

© EFE 2011. Está expresamente prohibida la redistribución y la redifusión de todo o parte de los contenidos de los servicios de Efe, sin previo y expreso consentimiento de la Agencia EFE S.A.

Friday, September 30, 2011

Class Warfare? by Yale's Bruce Ackerman and Anne Alstot


Published by The HuffPost 09/27/2011

President Obama's "millionaire tax" has generated two sound-bite replies. Not only is he engaging in "class warfare," but he is indulging in sheer political posturing -- there simply isn't a lot of money to be raised by targeting the super-rich. Both charges are mistaken.

Taxation aimed at the rich doesn't create class division -- it responds to the rise of a winner-take-all economy. Conservatives are right to point out that the super-rich pay a big share of federal taxes. According to the Congressional Budget Office, the top 1% paid 28.3% of all federal taxes in 2006, up from 15% in 1979. But the CBO also found that the elite's share of the nation's income more than doubled, growing from 9% to 19% in that same period. Their surge in taxes tracked their increasing command over the nation's resources.

The problem is getting worse, not better. During the boom between 1993 and 2008, the top one percent took more than half of the total increase in national income, as economists Thomas Piketty and Emmanuel Saez have established in path-breaking work. They also show that that the top one-tenth of one percent is doing even better. The elite's share of the national wealth has quadrupled over the past forty years -- growing from 1.28% in 1979 to 5% in 2008.

The rise of the winner-take-all economy has lots of causes -- ranging from the increasing export of high-wage jobs to the remarkable success of top executives in winning mega-million-dollar pay packages. These deep-seated problems require long-term responses. But in the meantime, it's right for the tax code to require the super-rich to share their winnings with the rest of us.

Up to now, President Obama hasn't made out this moral case to the American people. He's chosen a more technocratic message. His tax plan, he has insisted , "is not class warfare. It's math." The issue, the Administration insists, is the deficit, and it is merely asking the rich to contribute their fair share.

But deficit worries aren't enough to counter the charge of class warfare. After all, there are lots of ways to reduce the deficit without focusing on the super-rich. At the bottom of the Republicans' complaint is a moral claim: that citizens should coalesce on the basis of competing views of the public good, not on the size of their bank accounts. The only way to beat this claim is with a competing, and deeper, moral account: it's a mistake to suppose that taxing the super-rich is tainting our otherwise clean society with the stain of class division. To the contrary, a millionaire tax is an appropriate response to the rise of the winner-take-all economy and its extreme concentration of ecomonic power at the top. At the end of the day, the super-rich benefit greatly from the on-going exercise in social cooperation that is American society; it's only fair for the tax system to focus on their great wealth, especially when so many Americans are overwhelmed by economic forces beyond their control.

Which leads us to the second complaint -- that Obama's "class war" won't solve our fiscal problems. Critics charge that there simply isn't much revenue to be gained from millionaire taxes, and so the focus on the super-rich merely diverts attention from the need for more drastic measures.

It's true, of course, that a millionaire's tax is no panacea. But it can and should play an important part of a sensible solution to our long-term problems. To make serious progress, though, President Obama must raise his sights. He has thus far embraced the "Buffett Rule," requiring millionaires to pay an income tax rate no lower than their secretaries. But this focus on high incomes disguises a second, and more fundamental, feature of the winner-take-all economy. Our national wealth is even more concentrated than our national income. According to data compiled by the Federal Reserve, the top 1% owned a 35% of the wealth, as opposed to 21% of the income, in 2006-2007. Imposing a special tax on high wealth can generate very substantial sums. Suppose, for example, that we levied a two percent annual wealth tax on households owning at least $7.2 million -- a sum that puts them in the top one-half of one percent of American households. On very conservative assumptions, this tax would yield at least 70 billion dollars a year -- even after adjusting the most recent Fed data to 2009 to take into account the large losses suffered after the 2008 crisis. This means that, over the coming decade, a wealth tax on the super-rich would yield at least half the $1.5 trillion dollar deficit-reduction target set for the Congressional super-committee.

Wealth taxation is a part of many systems in Europe, and Spain recently embraced it in responding to its budgetary crisis. While it's perfectly appropriate for critics to oppose such a tax on the merits, it's wrong to suggest that a focus on the super-rich can't raise very substantial revenues. Not only is the "class warfare" charge misconceived; so is the notion that it is a cynical effort to disguise the seriousness of our budgetary problems.

More and more citizens believe -- and rightly so -- that we aren't all in this together, and that there isn't a level playing field. After all, the wealthy transmit their privileges to their children, creating, de facto, an American aristocracy. Intergenerational income mobility is lower in the United States than in many European countries. College graduation is highly correlated with family wealth, and it is elite college graduates who earn most and have suffered least from unemployment in the current recession. The rich get richer, and so do their children, while the great majority struggles.

It is the winner-take-all economy, not taxation, that is the moral problem threatening our democracy. Taxes on the rich don't create class division -- they attack it.

Bruce Ackerman and Anne Alstott are law professors at Yale and co-authors of THE STAKEHOLDER SOCIETY.

Monday, September 12, 2011

Buffett Hires Hedge Fund Manager Ted Weschler


Warren Buffett’s Berkshire Hathaway Inc. (BRK/A) hired Ted Weschler to help oversee investments and may add another fund manager as the firm prepares a new generation of leaders.

Weschler, 50, has told limited partners at his Charlottesville, Virginia-based Peninsula Capital Advisors LLC that he will be shutting the fund and will join Berkshire early next year, Buffett’s company said today in a statement.

Berkshire plans to divide Buffett’s responsibilities as chief investment officer among as many as three money managers. Buffett, 81, last year announced the hiring of hedge-fund manager Todd Combs.

“After Mr. Buffett no longer serves as CEO, Todd and Ted - possibly aided by one additional manager - will have responsibility for the entire equity and debt portfolio of Berkshire, subject to overall direction by the then-CEO and board of directors,” the Omaha, Nebraska-based company said in the statement. “With Todd and Ted on board, Berkshire is well- positioned for successor investment management at the time Mr. Buffett is no longer CEO.”

Buffett, who also serves as chairman, will continue to manage most of Berkshire’s funds until his retirement, according to the statement. Berkshire’s stock portfolio was valued at more than $67 billion as of June 30, including the largest stakes in Coca-Cola Co., American Express Co. and Wells Fargo & Co.

‘Under the Radar’
Peninsula had about $2 billion in the stock of nine companies as of June 30, the firm said in a regulatory filing. The holdings included investments in satellite television provider DirecTV (DTV), specialty chemical-maker W.R. Grace & Co., and dialysis facility owner DaVita Inc. (DVA), the filing showed.

“One of the things that Buffett is looking for is some really good talent that’s probably under the radar screen,” said David Rolfe, chief investment officer of Berkshire investor Wedgewood Partners Inc.

Peninsula returned 1,236 percent from early 2000 through the first quarter of this year, Fortune reported today in an article by Carol Loomis, a friend of Buffett. Peninsula is a long-short fund, meaning it can bet on rising and falling stocks.

Weschler previously worked for six years at Columbia, Maryland-based W.R. Grace and also helped start a private-equity fund, Quad-C Management Inc., according to Loomis. An office manager at Peninsula declined to comment on Weschler’s appointment and Peninsula’s performance.

‘Dining With Buffett’
Weschler was identified by Loomis as the anonymous bidder who won meals with Buffett through two of the annual auctions he holds to raise funds for the Glide Foundation to aid the homeless. The two bids cost Weschler a combined total or more than $5 million, she reported.

Rolfe said the next investment manger hired by Buffett may specialize in bonds. Berkshire’s fixed maturity portfolio was valued at more than $35 billion, including non-U.S. government bonds and corporate debt.

Berkshire said in February that there are four potential candidates to replace Buffett as CEO, without naming them. The CEO will supervise more than 70 subsidiaries, while the investment heads will run portfolios that include premiums from insurance operations. Ajit Jain, Berkshire’s reinsurance chief, was praised by Buffett in March as a manager with the ability for the CEO job.

Buffett has said his son, Howard Buffett, a Berkshire director, would be an effective non-executive chairman. Berkshire Vice Chairman Charlie Munger is 87.

Compensation
Combs, 40, who specializes in stocks, will receive contingent payments based on his performance relative to the Standard & Poor’s 500 Index, Buffett said in February in his annual letter to shareholders. Investment managers may have 20 percent of performance compensation based on the group’s achievements, Buffett wrote.

“We want a compensation system that pays off big for individual success but that also fosters cooperation, not competition,” Buffett said in the letter.

Berkshire said the search for investment managers intensified after the departure last year of Lou Simpson, 74, who oversaw investments at the Geico subsidiary.

Buffett said in his letter that his strategy is to attract talent that can generate profits for decades rather than draw a “big name” that will impress commentators.

“I wonder how many of them would have known of Lou in 1979, Ajit in 1985, or, for that matter, Charlie in 1959,” Buffett wrote.

To contact the reporter on this story: Andrew Frye in New York at afrye@bloomberg.net

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net

Ted Weschler se suma al equipo de Berkshire


Nueva York, 12 sep (EFE).- Berkshire Hathaway, la firma que preside el multimillonario Warren Buffett, anunció hoy que nombró al hasta ahora gerente del fondo Peninsula Capital Advisors, Ted Weschler, para dirigir parte de su cartera de inversiones junto a Todd Combs, que entró en la compañía en 2010.

"Estos dos directivos tendrán cada uno la responsabilidad de uno de los segmentos del capital de Berkshire. Warren Buffett, el presidente de Berkshire, continuará, sin embargo, dirigiendo la mayor parte de los fondos hasta su jubilación", explicó hoy en un comunicado la firma del tercer hombre más rico del mundo según la revista Forbes, quien acaba de cumplir 81 años.

Con esos dos directivos a los mandos de Berkshire Hathaway, la compañía está "bien posicionada para la sucesión del equipo directivo de la cartera de inversiones cuando el señor Buffett ya no trabaje como consejero delegado de la compañía".

La revista Forbes detallaba hoy en su página web que Weschler tuvo la oportunidad de conocer a Warren Buffett porque pagó más de cinco millones de dólares para cenar en dos ocasiones con el llamado "Oráculo de Omaha", quien convoca cada año una puja por poder cenar con él y cuyos beneficios se destinan a la organización benéfica Glide.

El hasta ahora directivo del fondo de alto riesgo Peninsula Capital Advisors se incorporará a Berkshire a principios de 2012, con lo que se convierte en el segundo de tres nuevos fichajes que el conglomerado empresarial quiere incorporar a su equipo.

"Después de que Buffett deje de trabajar como consejero delegado de la compañía, Todd (Combs) y Ted (Weschler), probablemente apoyados por un tercer directivo -todavía no determinado-, tendrán la responsabilidad de toda la cartera de valores y deuda de Berkshire", bajo la supervisión del presidente de la firma.

Minutos después del inicio de la sesión en la Bolsa de Nueva York (NYSE), las acciones de clase A de Berkshire Hathaway cedían el 0,27 %, al tiempo que desde que comenzó el año han acumulado un descenso del 15,32 %.

Thursday, August 25, 2011

The secret to having happy employees


by Jay Goltz, Thursday, March 11, 2010
The New York Times

About 10 years ago I was having my annual holiday party, and my niece had come with her newly minted M.B.A. boyfriend. As he looked around the room, he noted that my employees seemed happy. I told him that I thought they were.

Then, figuring I would take his new degree for a test drive, I asked him how he thought I did that. "I'm sure you treat them well," he replied.
"That's half of it," I said. "Do you know what the other half is?"
He didn't have the answer, and neither have the many other people that I have told this story. So what is the answer? I fired the unhappy people. People usually laugh at this point. I wish I were kidding.

I'm not. I have learned the long, hard and frustrating way that as a manager you cannot make everyone happy. You can try, you can listen, you can solve some problems, you can try some more. Good management requires training, counseling and patience, but there comes a point when you are robbing the business of precious time and energy.

Don't get me wrong. This doesn't happen a lot. There's no joy in the act of firing someone. And it's not always the employee's fault — there are many bad bosses out there. Bad management can make a good employee dysfunctional. On the other hand, good management will not always make a dysfunctional employee good. And sometimes people who would be great employees somewhere else just don't fit your company, whether it is the type of business or the company culture.

In the worst cases, the problem of a bad fit can have a bigger impact than just one employee's performance. Being in charge does not necessarily mean you are in control, and being in control does not necessarily mean being in charge. Have you ever seen a company or department paralyzed by someone who is unhappy and wants to take hostages? It is remarkable how much damage one person can do. If you haven't seen it, I suggest you watch "The Caine Mutiny." Basically, one guy takes apart the ship. He was unhappy. It only takes one.

This is only my opinion. I don't have a Ph.D., an M.B.A., or even an economics degree. What I do have is a happy company. And that makes me happy. Now I know some people argue that business is about making money, and not everyone has to be happy. That is also an opinion. Everyone has a right to his or her opinion. When you own a company, you also have the right to surround yourself with the people you choose.
I have spent the last year and a half focusing on cutting costs, figuring out how the market has changed, and worrying about the economy. Things seem to be getting better, or perhaps I am just getting used to it.

Either way, I had a good day today. Not because I got a big order, great financial reports or even an employee stopping by to tell me what an awesome boss I am. (That generally doesn't happen. You have to tell yourself. It's a boss thing.) I had a great day because I spent most of it walking around the company and appreciating the fact that even after a year and a half of soft sales and cutbacks and furloughs, I have wonderful people working for me. They care. They are committed. They understand the whole customer–staff–company triangle, where all of the legs support each other.
If you read books on great companies, they usually leave out a dirty little secret. It doesn't make for good public relations — like talking about how you "empower people" or how your "greatest assets" are your people. Both of these well–worn clichés are true. What is also true is that it's hard to build a great company with the wrong people.

When you have the right people, business is much easier. I know because I have tried it both ways.

Jay Goltz owns five small businesses in Chicago.

Monday, August 22, 2011

Irracionalidad financiera


Lo increíble de nuestros sistemas económicos es que un grupo de personas, cada vez más reducido y poderoso, tiene la capacidad de controlar los destinos de millones. Se trata de un sistema oligárquico, imperfecto, inoperante y condenado al fracaso. La naturaleza del mercado se ha desvirtuado por completo, las utilidades han desplazado a las personas, el valor tiene sustento en la especulación y no en el trabajo. ¿Quién pagará el precio de deshumanizar el mercado?

En algún momento, en alguna coyuntura económica, algún grupo de inversionistas decidió que el trabajo y el valor del trabajo no eran suficientes para capitalizar los mercados, que las inversiones tendrían que hacerse en función de ciertos riesgos y variables cada vez más complicadas, que los mercados debían regirse por la especulación. En ese punto los hombres no fueron más hombres, sino máquinas de consumo, las empresas no fueron entes sociales, sino entes deshumanizados. El trabajo dejó de ser el pilar fundamental de la actividad económica. El futuro y la percepción que de él tuvieran unos cuantos, se convirtió en lo importante.

Y esa dinámica nos ha traído hasta donde nos encontramos hoy. Con un modelo económico inoperante, e irracional. Con derivados e instrumentos financieros que permiten a las empresas ganar más dinero especulando que vendiendo sus productos o servicios, y con gobiernos que apuestan al gasto público desmedido como motor de crecimiento. Un mercado que desmotiva la producción tradicional, la generación natural de riqueza, y que motiva a los empresarios e inversionistas a convertirse en parte de esa dinámica destructiva.

El mundo paga hoy las consecuencias de ignorar su propia naturaleza. Las minorías que controlaron el mercado, la avaricia que permeó el ambiente y la búsqueda desmedida de utilidades han pasado una factura histórica. Hoy más que nunca la teoría prueba su razón y acierto: el trabajo no podrá deshumanizarse, el valor no puede determinarse en función de lo que ese trabajo representará sino de lo que realmente representa, y la rentabilidad es y siempre será el valor que los individuos perciben como recibido.

Apostar por las empresas y por la actividad económica bajo las “nuevas reglas” que el mercado -y no su naturaleza- dicten, es apostar también a la especulación y a la percepción de unos cuantos. Crear instrumentos que proyecten rentabilidad bajo ciertas premisas futuras, jugar a la “fiebre del oro” cada vez que hay algo nuevo y prometedor, son la sentencia humana que habrá de condenarnos al fracaso permanente.

El éxito de los individuos – dentro y fuera del sector financiero- no radica en el valor de su fortuna, sino en la constante prueba de que quién sigue la naturaleza del mercado, asume el efecto humano inherente a él, y promueve la creación de valor sustentada en el trabajo, vencerá hoy, mañana y siempre. En lo hondo, racional y coherente de esta apuesta, debemos reconocer nuestra equivocación, y también, nuestra alternativa para un mejor futuro lejos de la irracionalidad financiera.

Monday, July 11, 2011

La crisis griega ¿qué sucede en Atenas?


por Santiago Hernández G.

En los últimos días, la noticia de una crisis económica en Grecia ha permeado todos los medios de comunicación en el mundo. La desconfianza entre los inversionistas, sumada al debilitamiento de la zona Euro y los riesgos de contagio en España, Portugal e Italia; parecen profundizar y remarcar el difícil momento por el que están pasando Atenas y la Unión Europea.

Desde 2009, cuando el Partido Socialista de Grecia (PASOK) liderado por Yorgos Papandreu, gano las elecciones presidenciales, el nuevo gobierno revisó a la alza algunos indicadores económicos clave: el déficit público acumulado (diferencia negativa entre los ingresos de un país y sus egresos) pasó de 4.3% a 12.7% y la deuda pública griega representaba el 113.4% del PIB (en México la deuda pública representa el 30% del PIB). En enero de 2010, un Informe de la Comisión Económica Europea detalló –como era esperado- que los gobiernos anteriores a Papandreu habían manipulado flagrantemente las cifras fiscales y económicas presentadas a entidades financieras, inversionistas y a los organismos reguladores europeos.



Una década antes, el gobierno griego –impulsado por la fortaleza del Euro y el acceso a mejores condiciones de financiamiento- había iniciado un programa económico caracterizado por los excesos, el sobreendeudamiento y la confianza desmedida. Tan sólo en un periodo de 5 años se aumentaron en un 16% los salarios de todos los servidores públicos, al mismo tiempo que se invirtieron recursos públicos en proyectos y rubros tan diversos como las Olimpiadas de 2004 (cuyo costo fue superior a los 1,400 millones de Euros), subsidios a la energía eléctrica (500 millones de euros anuales), el pago de derechos a sindicatos, el aumento de pensiones y los subsidios a medicinas. La teoría en aquel entonces, estaba fundamentada en que el creciente gasto público impulsaría todos los sectores de la economía y, eventualmente, el gobierno griego podría hacer frente a sus obligaciones de deuda. Esto no sucedió.



En 2010, dos de las principales calificadoras crediticias en el mundo -Standard & Poor’s y Fitch Ratings- disminuyeron la calificación de la deuda griega por considerar que las nuevas condiciones económicas, reportadas por el gobierno de Papandreu, comprometían gravemente la capacidad de pago del gobierno. La noticia, como era de esperarse, fue diseminada rápidamente en los mercados internacionales y los acreedores de Grecia –principalmente bancos alemanes y franceses- apuraron su respuesta endureciendo sus condiciones, exigiendo pagos adelantados y limitando la capacidad del nuevo gobierno para hacerse de nuevos financiamientos.



Para entonces, el Ministro Papandreu enfrentaba el peor escenario posible: déficit creciente en las finanzas públicas, desplome superior al 10% en la bolsa griega y nulo acceso a recursos financieros que le permitieran hacer frente a las necesidades inmediatas de su gobierno. Ante tales condiciones, el gobierno griego solicitó el apoyo del Banco Central Europeo (BCE) y puso en marcha un plan de austeridad que planteaba reducir salarios a los trabajadores del Estado, aumentar el IVA del 19% al 23% y reducir el déficit público de 12% a 9%. Las autoridades del BCE acordaron someter a Grecia a un escrutinio histórico, para más tarde aprobar el plan presentado por Papandreu.



No obstante, la crisis de Atenas se agudizaría con las protestas y paros generales ante el descontento de los trabajadores del Estado y pensionados que –tras el plan aprobado por el BCE- verían reducidos sus ingresos y, en algunos casos, perderían sus empleos. Pronto, en todo el territorio helénico brotarían protestas violentas que terminarían por agudizar los síntomas de una crisis que ya se antojaba incontrolable. Por primera vez, en 11 años, un miembro de la Comunidad Europea requeriría una intervención mayor para salvar su economía.


Durante 2010 y tras 8 paros generales, la evolución de la economía griega aceleró su tendencia negativa: el déficit público aumentó a 15% y el desempleo –empujado por los recortes presupuestales y el adelgazamiento de las nóminas públicas- llegó a niveles históricos del 12%. Para entonces, las calificadoras crediticias habían reducido a nivel de “bono basura” las emisiones de deuda griegas y los inversionistas aceleraban la caída de las bolsas europeas. Los tres primeros tramos de ayuda económica del BCE y el FMI a Grecia, que sumaban poco más de 35 billones de euros, habían resultado insuficientes. Grecia tendría que solicitar apoyos adicionales.

En febrero de 2011, tras numerosas negociaciones y la realización de un panel de expertos en Bruselas, la Comisión Económica Europea, el BCE y el FMI –liderados por Alemania y Francia- aprobaron destinar 110 mil millones de euros adicionales a Grecia, siempre y cuando Atenas se comprometiera a privatizar empresas públicas por un valor de 50 mil millones de euros y ampliar –mediante el cobre de nuevos impuestos- la recaudación fiscal griega. Las medidas de apoyo habían llegado tarde, para entonces los capitales griegos habían abandonado el país y los bancos suizos habían recibido casi 280 mil millones de euros en depósitos desde Grecia (equivalente al 120% del PIB). Bajo tales condiciones, el FMI estimó que el costo total del rescate griego podría alcanzar los 250 mil millones de euros.



A junio de 2011, los 8 principales bancos helénicos han visto reducidas sus calificaciones crediticias y sufren una grave crisis de liquidez. El gobierno de Atenas se ha desplomado con los crecientes paros generales y las renuncias de varios Ministros. Las autoridades europeas y los gobiernos de Alemania y Francia han empujado por dar una solución inmediata, pues indudablemente están en juego la fortaleza del euro, la credibilidad de la Unión Europea y la estabilidad económica comunitaria. Sin una solución de fondo al problema griego, los inversionistas seguirán llevando su capital a monedas y mercados más estables, los especuladores seguirán apostando contra el euro, mientras que el contagio económico podría terminar por agudizar los síntomas de España, Irlanda, Italia y Portugal.



El caso de Grecia es un ejemplo claro de que los modelos económicos que privilegian el gasto público y la excesiva participación del estado en todas las actividades productivas, están agotados. El aviso es claro: el crecimiento excesivo de la deuda pública, no solo en Grecia sino también en otros países, compromete el desarrollo económico de largo plazo y supone un riesgo sistémico para los mercados globales. Ahora el reto –para Europa y el resto del mundo- será redefinir el plan económico actual que, al mismo tiempo que plantea reducir el tamaño de la economía griega, espera que Atenas genere recursos suficientes para pagar por la ayuda recibida. Se antoja difícil…y lo es.

Thursday, June 30, 2011

Carrera profesional: lo que nadie te dijo al graduarte.


Si tu, como yo, formas parte de ese afortunado 3% de la población mexicana que cuenta con un título universitario, seguramente entenderás el por qué de escribir este artículo y quizás quieras compartir con nosotros tu experiencia.

Cada año, miles de jóvenes inician en México sus estudios universitarios. La promesa de un mejor empleo, la oportunidad de desarrollar nuevas habilidades y destrezas, el hambre de aprender, y muchas otras aspiraciones, impulsan decididamente nuestra convicción por estudiar y convertirnos en profesionistas.

¡Y vaya que la motivación es necesaria! La vida de los estudiantes universitarios, en México y en el resto del mundo, no es nada fácil. Las muchas responsabilidades académicas, familiares y sociales saturan nuestra agenda. Sin importar condición social, los jóvenes estudiantes se ven obligados a dividir su tiempo entre las clases, los amigos, los proyectos e incluso la práctica de algún deporte, las actividades extracurriculares y hasta el trabajo. En esos años donde la energía y el entusiasmo parecen sobrarnos, afloran también muchas dudas sobre nuestro futuro, sobre nuestras convicciones, deseos y sueños.

Lo más difícil de todo esto es que en el proceso de estudiar nos vemos “forzados” a definir los roles y los alcances que deseamos tener como individuos en sociedad. ¿Ser abogado como mi padre? ¿administrador? ¿doctor? ¿mercadólogo? ¿ingeniero? ¿economista? y ¿qué quiero hacer con mi vida? Al final, con la poca experiencia de nuestros “veintitantos” años de edad, tomamos una de las decisiones más importantes: elegir nuestra profesión.

Quizás estés satisfecho con lo que estudiaste, quizás no. Nadie dijo que no podrías equivocarte y tampoco eres infalible. Pero, hay muchas otras cosas –además de la elección de carrera- que muchos de los universitarios recién graduados ignoran y que todas, ó al menos la gran mayoría de las escuelas, fallan en comunicar con tiempo a sus alumnos. Por ejemplo, las universidades fallan en preparar a sus alumnos para afrontar la ansiedad y el estrés de los primeros años de vida laboral. Los maestros ignoran en sus temarios la imperante necesidad de desarrollar habilidades políticas e incluso sociales en sus alumnos a fin de que éstos estén preparados para afrontar los retos y la carga emocional que todo trabajo conlleva.

Y es que, al graduarnos nos sentimos preparados para afrontar el mundo –y hasta cierto punto lo estamos- pero pasamos por alto los retos y el desgaste con el que la competencia laboral nos esperan. No se trata de sentirnos desesperanzados, la realidad es que los graduados de universidades están bien preparados para el afrontar sus retos, pero esto no quiere decir que no podamos estar mejor preparados.

Nadie te dijo al terminar la universidad que en el mundo de hoy no basta con tener un título universitario y buenas credenciales académicas. La competencia es tan feroz, que es importante que cuentes con al menos un poco de experiencia profesional. Las estadísticas varían de un lugar a otro, pero menos del 10% de los jóvenes recién graduados que aplican a un trabajo, cuentan con algo de experiencia laboral. Tristemente, las empresas se inclinan a contratar a quienes cuentan con experiencia pues esto les da una mayor referencia sobre el candidato y reduce, significativamente, cualquier curva de aprendizaje. ¡Qué importante es trabajar mientras se estudia!

Por otro lado, nadie te dijo que la etapa de mayor estrés en la vida de cualquier ser humano es entre los 25 y los 30 años. Estudios de Universidades en EUA (Duke, UCLA y Berkeley) han comprobado que durante éste periodo de nuestras vidas, los seres humanos nos sometemos a importantes cambios profesionales, personales y familiares que nos generan gran estrés y ansiedad. Que diferente sería esto si las universidades y los propios estudiantes, estuviéramos conscientes de esto y trabajáramos -desde nuestros primeros años universitarios- en desarrollar habilidades y destrezas que nos fortalecieran mentalmente.

De cualquier forma, no te sientas solo ¡es normal sentirte estresado y ansioso en tus primeros trabajos! Con el tiempo tendrás las cosas más claras. Trabaja duro y sé constante.

Si pudiera darte algún consejo, quisiera compartirte lo siguiente:

1. Trabaja mientras estudias. Busca un trabajo de medio tiempo o algún internship de verano. No pierdas la valiosa oportunidad de ganar experiencia profesional mientras estudias, puede hacer toda la diferencia cuando busques tu primer empleo de tiempo completo.
2. No tengas miedo y no te impacientes. La transición de ser estudiante a ser profesionista de tiempo completo es siempre compleja, lo importante es que tengas paciencia, trabajes duro y comiences a establecerte metas a corto, mediano y largo plazo. La oportunidad que estás esperando llegará y tienes que estar preparado para tomarla.
3. Nunca dejes de aprender. Una de las habilidades más importantes para desarrollar una carrera profesional exitosa, es tu capacidad para aprender. Para muchos, salir de la universidad puede significar el final del aprendizaje ¡todo lo contrario! Mantente siempre actualizado, regresa a la escuela para estudiar un postgrado y nunca pierdas actualidad de tu profesión.

Nadie nos enseña a manejar nuestra carrera profesional, pero podemos y debemos buscar ayuda de quienes ya han pasado por nuestra situación. Nadie nos dijo que nuestra incorporación al mundo laboral sería tan compleja, pero nunca es demasiado tarde para tomar las riendas de nuestra carrera y de nuestra vida.

¿Cuál fue tu experiencia como graduado?

Thursday, June 9, 2011

Cena con Warren Buffett



La puja por cenar y pasar unas horas en Nueva York con el tercer hombre más rico del mundo según Forbes, el multimillonario inversor Warren Buffett, alcanzó hoy los dos millones de dólares en la página de subastas por internet eBay tan solo un día después de haber comenzado.


La subasta, que comenzó el domingo por la tarde y terminará este viernes, es organizada cada año por el presidente y consejero delegado de Berkshire Hathaway para recaudar fondos en favor de la organización benéfica Glide, con sede en San Francisco (California), y que destina el dinero logrado en favor de alimentación y ayuda a personas indigentes.


El año pasado esta puja terminó con un precio de martillo de 2,6 millones de dólares, y si normalmente en los primeros días de la subasta las ofertas rondan los 200.000 dólares, este año esa cifra se ha elevado en menos de 48 horas -y con tan solo 6 ofertas por el momento- hasta 2.000.111 dólares.


La desorbitada cifra demuestra la euforia que despierta entre muchos la posibilidad de pasar unas horas junto al tercer hombre más rico del mundo, que según Forbes tiene una fortuna de unos 50.000 millones de dólares, y que es además conocido como el "Oráculo de Omaha" por sus certeras previsiones y su habilidad para detectar las más rentables inversiones.


El mayor postor de esta puja tendrá la oportunidad de cenar en un exclusivo restaurante de carnes de Manhattan junto a Buffett, previsiblemente la semana que viene, en la que podrán charlar de cualquier tema con la excepción de las inversiones que tiene en mente realizar el presidente de Berkshire Hathaway.


El millonario inversor de 80 años comenzó a organizar esta cena en 2000, cuando su mujer le presentó al reverendo Cecil Williams, fundador de Glide, y con ella reafirma su labor filantrópica, que le ha llevado a afirmar que más del 99 % de su patrimonio irá a parar a causas filantrópicas a lo largo de su vida o cuando muera.


© EFE 2011. Está expresamente prohibida la redistribución y la redifusión de todo o parte de los contenidos de los servicios de Efe, sin previo y expreso consentimiento de la Agencia EFE S.A.

Friday, April 29, 2011

Berkshire Hathaway Annual Shareholder Meeting Info




If your one of those lucky investors that will take part in Berkshire's 2011 annual meeting, this information might come handy for you:




On the other hand, if you are one of those unlucky investors/fans/disciples/curious that will not participate in what many investors have denominated to be "The Woodstock of Capitalism", but you still want to know what is going on during Berkshire's weekend, these links might come handy for you:







Let the Berkshire Annual Meeting begin!

Wednesday, April 27, 2011

Berkshire Hathaway: "Sokol violated standards"

Wall Street Journal

by Erik Holm



The audit committee of the board of Berkshire Hathaway Inc. said its investigation of stock purchases by David Sokol showed the former executive violated company policies and concluded he misled senior management about the investments.


Mr. Sokol, who bought shares of a chemicals company shortly before recommending that Berkshire acquire the company outright, may face legal action from the Berkshire board, according to a report prepared by the audit committee and released by Berkshire Wednesday.


The report examines in detail the disclosure Sokol made to Berkshire Chairman Warren Buffett about his investment in the company, Lubrizol Corp. Mr. Buffett had said in a statement announcing Mr. Sokol's resignation in March that Mr. Sokol had disclosed that he owned shares in the company, but Mr. Buffett didn't ask for details about the date and time of his purchase.


Mr. Buffett said in March that Mr. Sokol, 54 years old, bought $10 million in shares of Lubrizol about a week before he suggested it to Mr. Buffett. Prior to his purchases, Mr. Sokol met investment bankers representing Lubrizol and asked them to communicate Berkshire's possible interest in a takeover to the company's management. Berkshire's $9 billion deal to acquire Lubrizol in March boosted the value of Mr. Sokol's stake by $3 million.


Mr. Sokol's "purchases of Lubrizol shares while serving as a representative of Berkshire Hathaway in connection with a possible business combination with Lubrizol violated company policies, including Berkshire Hathaway's Code of Business Conduct and Ethics and its Insider Trading Policies and Procedures," the audit committee wrote in its report.


"His misleadingly incomplete disclosures to Berkshire Hathaway senior management concerning those purchases violated the duty of candor he owed the Company," the committee added.
Mr. Sokol's remarks "did not satisfy the duty of full disclosure inherent in the Berkshire Hathaway policies and mandated by state law," the report concluded.


"His remark to Mr. Buffett in January, revealing only that he owned some Lubrizol stock, did not tell Mr. Buffett what he needed to know. … [I]ts effect was to mislead: it implied that Mr. Sokol owned the stock before he began considering Lubrizol as an acquisition candidate, when the truth was the reverse."


Mr. Sokol had long been considered a leading candidate to replace Mr. Buffett as Berkshire's next chief executive.


Mr. Sokol has said the disclosure of the purchases and his resignation were unrelated, that he wasn't a decision maker on the Lubrizol purchase and that he did nothing wrong.
He couldn't immediately be reached on Wednesday.

Wednesday, March 30, 2011

David Sokol resigns to Berkshire Hathaway


Wall Street Journal

By Serena NG and Erik Holm


David Sokol, widely seen as the leading contender to succeed billionaire Warren Buffett at the helm of Berkshire Hathaway Inc., resigned unexpectedly amid surprising revelations about his personal stock trading.

In an unusual and personal announcement, Mr. Buffett said the resignation followed revelations that Mr. Sokol had purchased shares of a company that Berkshire recently bought, Lubrizol Corp., at the initial suggestion of Mr. Sokol.


Mr. Buffett said Mr. Sokol, 54 years old, had bought roughly $10 million in shares of the chemicals maker in January, before Berkshire reached a $9 billion deal to acquire the company. Berkshire's purchase price of $135 per share meant that Mr. Sokol's stake rose $3 million in value.

Mr. Buffett said he and Mr. Sokol didn't feel the Lubrizol purchases were "in any way unlawful." The Securities and Exchange Commission declined to comment.

The Berkshire chairman and chief executive said the purchases weren't a factor in Mr. Sokol's decision to leave. He said Mr. Sokol, in a March 28 resignation letter, cited his desire to spend more time on his family's investments.


The revelations throw into question Mr. Buffett's carefully crafted succession plan, one of America's most widely watched boardroom dramas. Berkshire has said it has identified four executives at the company who could replace him. Mr. Sokol has long been considered high on that short list.

The incident is also a potential black eye for Mr. Buffett, 80, who emphasizes character and integrity in his manager choices and who himself is known for his ethics. Shares of the conglomerate, one of the nation's biggest companies, declined in after-hours trading. The development comes amid questions about trading by senior members of corporate America.


This month, regulators alleged that Rajat Gupta, one of the nation's most widely respected corporate directors, shared inside information with hedge-fund king Raj Rajaratnam, an allegation both men deny.

Mr. Buffett said he had been aware Mr. Sokol owned stock in Lubrizol, but only found out about the timing and size of the trades on March 19—a few days after Berkshire agreed to buy Lubrizol at a 28% premium to its share price before the deal. In an interview Wednesday evening, Mr. Sokol said his resignation "had absolutely nothing to do" with Lubrizol, and said the company elected to disclose his trades before they appeared in a proxy statement in the coming weeks.

"This was 100% my decision," Mr. Sokol said. He said he had contemplated leaving Berkshire for the past three years and had told Mr. Buffett that he wanted to hand over management of the companies he ran "when the timing was right."


Mr. Sokol was chairman of Berkshire utility subsidiary MidAmerican Energy Holding Co. and chief executive of its fractional jet business NetJets Inc. He had identified Lubrizol as a potential acquisition for Berkshire late last year and took the early lead on the deal, which Mr. Buffett eventually closed, according to a recent company filing on the deal.

In his initial conversation with Mr. Buffett about the company, Mr. Sokol mentioned he owned stock in Lubrizol, Mr. Buffett said Wednesday. "It was a passing remark and I did not ask him about the date of his purchase or the extent of his holdings," he wrote.

Mr. Sokol brought the idea for buying Lubrizol to Mr. Buffett in mid-January. Just days earlier, on Jan. 5, 6 and 7, he bought 96,060 shares in the company. This followed trades of 2,300 Lubrizol shares Mr. Sokol had bought and sold in December, according to Mr. Buffett's announcement. Mr. Buffett said he learned of the extent of the stock purchases shortly before beginning a trip to Asia on March 19.

On Lubrizol, Mr. Sokol said he "had no inside information and no knowledge if Warren would be interested or not in the company" at the time he bought the shares and when he brought the company to Mr. Buffett's attention.


"There's nothing in there that's embarrassing," Mr. Sokol said, though he acknowledged "it would look bad 60 days later" if his stake in Lubrizol was disclosed in public filings and Berkshire hadn't said anything about it. "We wanted it all out." He said the analysis he did on Lubrizol was "done off public information."


Mr. Buffett, he said, didn't ask him about the stake he held and found out about its details only when Mr. Sokol submitted the information to Berkshire's general counsel, who was helping to prepare regulatory filings for the deal.

"I have been a CEO for 27 years in two companies, and my interest is in growing companies," he said, adding his goal is to build an entity of his own that's similar to Berkshire.


Securities lawyers debated whether Mr. Sokol's dealings could fall into a gray legal area. In broad terms, insider trading laws prohibit individuals from trading on shares based on material non-public information in violation of some duty of trust.

One key question, lawyers say, is whether Mr. Sokol knew that he would pitch a Lubrizol deal to Mr. Buffett, or even that he might do so, at the time he bought Lubrizol shares. If Mr. Sokol did know at that time, that could suggest he had material information at the time he bought the shares, because Mr. Sokol is a trusted Buffett lieutenant, lawyers said.

However, it could be harder to show that Mr. Sokol violated any duty to Berkshire Hathaway, because he told Mr. Buffett that he owned Lubrizol shares, the lawyers said. Scrutiny could more likely focus on whether Mr. Buffett made a mistake by not learning more about Mr. Sokol's Lubrizol stake when weighing a decision to pursue a deal.