Working for Warren

You don’t have quarterly reports or annual budgets?
He doesn’t want a budget from me. Oh, I send him quarterly reports and he reads them, but he doesn’t ask a lot of questions because I think he’s got a lot of confidence in the way we think about the business and the way we’re executing it. We’ve earned his support, but that’s my responsibility. Prior to our being owned by Berkshire Hathaway, we had a private equity owner.

One of the things I learned is that if you have opportunities and you know where you’re going and you’re executing it, you don’t get sold; you attract an investor. If you’re a company with issues, and you’re not really on it, you get sold and the agenda’s going to change. So as a CEO, I [feel] my job is to create a vision for this company, a plan to execute against it, and I own that. I have to get approval and support for it. If I don’t have approval and support, I don’t get to play that plan.

Do any of Buffett’s lieutenants get involved with what you’re doing?
Absolutely. But they only have 24 people at corporate, right? The internal audit folks do, and obviously we’ve got policies and the like, so the internal-audit side is engaged. Both Todd Combs and Ted Weschler, two of Warren’s investment guys, are runners. They’re not involved with Brooks, but they love to hear our story, and we’ve got them testing some of our shoes. Then, we’ve hosted other folks [who] have come through Seattle, such as Tracy Britt, his financial analyst/assistant, who’s very involved with a lot of the companies. There’s no structure at Berkshire to kind of manage, police and birddog companies. They don’t do that. They expect the CEOs and the leadership teams to do that. It’s really unique. Doesn’t he ask his CEOs to name their successors? Yeah, you have to send him a hit-by-the-bus letter every December. You have to lay out the succession plan if you’re not there tomorrow and send it to him personally. Where will you take the business? Will it be a Berkshire business indefinitely, or are there other plans?

In Warren’s owner’s manual, which he published along with his annual letter years ago, (but is now published separately as “The Berkshire Hathaway Shareholder’s Owner’s Manual”), there’s an item in there that basically says this may affect our returns, but you all need to know that we will never sell a business.

They don’t sell businesses, ever. It’s Berkshire Hathaway’s business model to acquire, in many cases, family businesses, which have to sell because of estate planning issues. But they want to continue to run the business, and drive the culture because they enjoy it. That’s why Berkshire is the acquirer of choice for many sellers. It’s unique in that regard. Warren creates trust because he doesn’t look over people’s shoulders. What things are likely to raise red flags in Buffett’s mind?

Completely shifting your strategy in a direction that he doesn’t have confidence in. If we went down-market to pump sales and to try to grow into places that, ultimately, weren’t all that smart for the brand or long-term profitability, I would expect he wouldn’t be happy.

Really? No minimum thresholds like operating margin, EBITDA or market share, etc.?
What impresses me about him is his breadth of knowledge. He’s got everything from insurance and ice cream to building products, running shoes and railroads—all over the world. He has incredible bandwidth to look at good businesses in a wide degree of categories. I’ve never seen him say, “Hey, these guys are doing this; you oughta try that.” In fact, there’s a story I heard where he sees all the furniture retail companies meeting together and jokes, “What are you guys doing? You better not be working on synergies. I bought three good businesses, and I don’t want to have just one.”

He once said that he’s painting a painting; and if the shareholders looked over his shoulder and told him he needs a little more blue or red, he wouldn’t like that. He wants to paint his painting. He thinks CEOs want to do that too. I think he believes that you [have] got to let people run their own show because, if you don’t, they won’t stay at Berkshire. And he believes he’s got better talent because he gives full autonomy.