October 06, 2014
Book Review: Berkshire Beyond Buffet
Posted by Usha Rodrigues

GW Law professor Larry Cunningham has a new book coming out, Berkshire Beyond Buffett: The Enduring Value of Values.  Two caveats before I begin my review.  First, I received a review copy for free.  Second, we own shares of Berkshire Hathaway. Don't get excited, people, I'm not rolling in Class A. My husband likes to dabble in stock picking with a little "fun money, and" right out of college, one of the first stocks he bought was Berkshire Class B.

When talk over the dinnertable turns to investments, we've often speculated as to how much our shares will drop in value with the  death of Warren Buffett--who is now 84.  Cunningham's thesis is that it should not drop much at all, because there is much more to Berkshire Hathaway than the Oracle of Omaha.  So I was definitely interested to start this book.

A word about organization: The challenge of organizing a coherent story around a conglomerate is large, composed of  50 subsidiaries. Larry says that the teacher in him organized the traits at issue as a mnemonic spelling out "Berkshire":

  • Budget-conscious 
  • Earnest
  • Reputation
  • Kinship
  • Self-starters
  • Hands Off
  • Investor Savvy
  • Rudimentary
  • Eternal

This framing seemed a little forced to me at times.  But I understand its motivation: trying to make sense of commonalities among the the many diverse businesses that comprise Berkshire Hathaway. 

My takeaway was this: as I tell my students, successful entrepreneurs face two choices for exit: sale and IPO.  If you sell, you lose your autonomy.  If you go public, Wall Street expects certain returns and will punish you for failing to deliver. 

What if you have a family business and are pretty happy with the way things are, but are worried about looming tax problems when the founder dies?  Berkshire Hathaway offers the right kind of firm a third path, one that allows the founders to cash out and yet keep the business running as a BH subsidiary just as it had been independently.  Nothing is free, of course, and companies regularly accept a BH bid which is less than competing bids, because they know that they will be able to run the company as they choose.  But these select firms use the freedom, shelter from the market, and capital that Berkshire provides to flourish.

I was particularly interested to see the book's account of David L. Sokol's departure from the firm.  Sokol, a senior Berkshire exec, bought $10 million in shares in the Lubrizol Corporation and then recommended the company as an acquisition target to Buffett.  Cunningham, while obviously a Buffett fan, did not sugarcoat his account of Berkshire's initial missteps in handling what burgeoned into a scandal.  Although the SEC failed to prosecute Sokol (which he claimed as vindication), the larger point Cunningham underscores is that Berkshire Hathaway's reputation is its chief asset. 

I'll have more to say about that in another post.  For now, I'll conclude by saying that this was a timely and accessible book, chock-full of insights and enjoyable to read.

 

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