I read a fascinating critique of Berkshire Hathaway by Francine McKenna. Francine suggests that Berkshire is so decentralized that Warren Buffett and the other 20 people working in his headquarters can’t possibly plan and control the operations of 260,000 employees. Even considering its legendary returns on investment, Berkshire has made some monumental blunders: GE, General Re and (as Francine reminded me by Twitter last night) Salomon Brothers.
First of all, I deeply respect Warren Buffett. I have taught his “fundamental analysis” approach in my own financial statement analysis course for almost ten years. I’ve read Roger Lowenstein’s biography of Buffett, The Making of An American Capitalist, and it is sitting on my shelf right now.
Consider this: At first impression, Buffett’s ubiquitous Letter to Shareholders seems folksy.
“At Berkshire, managers can focus on running their businesses: They are not subjected to meetings at headquarters nor financing worries nor Wall Street harassment. They simply get a letter from me every two years and call me when they wish. And their wishes do differ: There are managers to whom I have not talked in the last year, while there is one with whom I talk almost daily. Our trust is in people rather than process. A “hire well, manage little” code suits both them and me.”
On reflection, it looks downright scary. Who is minding the store? Shouldn’t managers have some “financing worries?” Shouldn’t they receive communication from Headquarters more often than once every two years? How could Buffett go a year without speaking to any of his managers?
What do you think?