As I blogged a few days ago, I've been reading Larry Cunningham's Berkshire Beyond Buffett: The Enduring Value of Values.  The thesis is that Berkshire Hathaway's value will endure beyond its founder, Warren Buffett, because of the larger values of the organization.  After making his case he argues (like a good lawyer) that a precedent and analogous case already exists: the Pritzger's Marmon Group.

You know you're a corporate law geek if the mere mention of the Marmon Group made you sit up and take notice.  The Marmon Group plays a role in 2 classic corporate law stories.   Larry mentions one: every student of corporate law should remember the Marmon Group as the bidder in the infamous corporate law case Smith v. Van Gorkom.  If you don't remember the 1985 Delaware Supreme Court case, you didn't have me as a Corporations professor.  Spoiler alert: the directors are found to have breached their fiduciary duty and are thus personally liable for potentially millions of dollars in damages.

What many casebooks omit--but not Klein, Ramseyer, Bainbridge, which I am happily using this term--is that the case settled for $23 million.  $10 million came from D&O insurance, and "almost $11 million came from the Pritzkers." The Pritzkers had no legal duty to pay for the directors' settlement--but they did it because they felt it was the right thing to do.

The Marmon Group's second corporate law claim to fame is as a player in Barbarians at the Gate, thhe father of corporate tick-tocks.  The Marmon Group backed one of the bidders, the First Boston Group.  There's this great scene where in a second round of the auction they need to raise more money.  First Boston makes a 45-minute presentation to a British sugar company, S& W Berisford, on a Saturday night.  First Boston hoped that Berisford could make a decision by Tuesday.  20 minutes later, the company committed $125 million. 

One of First Boston's advisors asks "Do these people have any idea what they're doing?... I mean, they're going to commit $125 million.  Why should they do it."

Handelsman stared at Finn as if it was the silliest question he'd ever heard.  "Jay [Pritzker] asked them to."

The common theme from these two stories? Sophisticated businesspeople regularly act for motivations other than money.  Again and again in Berkshire Beyond Buffett, either Berkshire itself or one of its subsidiaries demonstrates that money is not ultimately what drives them. Most notably, many of Berkshire's current subsidiaries turned down higher offers from other acquirers because they valued the reputation for hands-off management that Berkshire promises.

Here's a concrete example I used with my Corporations class when discussing conflicting interest transactions.  One of Berkshire's subsidiaries was operated by a devout Mormon whose stores were closed on Sundays.  He wanted to expand out of the state, but Buffett was skeptical.  He thought the model could work in highly religious Utah, but not beyond.  Here is Cunningham quoting Buffett:

Bill then insisted on a truly extraordinary proposition: He would personally buy the land and build the store--for about $9 million as it turned out--and would sell it to us at his cost if it proved to be successful.  On the other hand, if sales fell short of his expectations, we could exit the business without paying Bill a cent.

The store was "an instant success", and Berkshire wrote the Bill a $9 million check.  Bill refused to take a penny of interest.  It's a good example of insider transactions that benefit the firm.  It also suggests Larry might actually be right about Bershire's staying power.  I can't help thinking there is a lot of value in offering businessmen like this the combination of liquidity and autonomy Berkshire provides, insulating them from the  demands of Wall Street.

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