Buffett shares his secrets with MBA pupils

Listen to this article

00:00
00:00
Warren Buffett

Pity the person who has to share a stage with Warren Buffett. Last week, that role was performed by Eitan Wertheimer, one of Israel’s leading managers. He had accompanied the world’s richest man to IMD, the Swiss business school, to address MBA students.

They were there to talk about a deal struck two years ago, in which Berkshire Hathaway, the listed investment vehicle run by Mr Buffett, paid $4bn for an 80 per cent stake in Iscar, a maker of metalworking tools founded by Mr Wertheimer’s father.

However, the session inevitably turned into a dissection of the wisecracking Mr Buffett’s singular career. Here are some of the highlights:

On doing deals: Mr Buffett says he shuns conventional due diligence on acquisition targets, although he admits that Berkshire Hathaway investigates potential environmental issues. He could normally tell if a deal would occur within minutes of talks. “The deal should be so obvious to you. If you have to carry [the calculation] out to five decimal places like the value of Pi, it can’t be a good deal.”

Before deciding to buy a family-owned company, Mr Buffett said he needed to be sure the owners were still passionate about it. When Mr Wertheimer wrote to him as a potential buyer, “Eitan’s passion came off the page”.

On family businesses: Well-run family companies are like great paintings, Mr Buffett said. If they have to be sold, they should be sold to buyers that, like the Metropolitan Museum of Art, know how to display them with proper reverence (ie, Berkshire Hathaway). These masterpieces should not be sold to grubby short-term buyers that would only “make the [subject of the painting’s] boobs a little bigger” and then flip them to other low-rent owners.

In less racy fashion, Mr Wertheimer – who still chairs Iscar – articulated one of the great challenges facing family-owned businesses. He explained that the decision to sell was taken partly to avoid obliging younger family members to work there, with all the potential for conflict that could have entailed.

On motivating employees: “I like people who are self-motivating,” Mr Buffett declared, adding that the only directive senior managers received from him was a short biannual memo. The first page pointed out that, while Berkshire Hathaway had lots of spare capital, reputation could not be replaced in the same way, so nothing should be done to jeopardise the latter. The second page asked the employee to nominate a successor should something happen to them.

On his importance to Berkshire Hathaway: Berkshire Hathaway targets businesses whose market position is secure against new entrants: they need a “moat” around them. One student twisted this into the sharpest question of the session, asking if the 77-year-old Mr Buffett was so central to his business that he was, in effect, Berkshire’s moat.

“I may be to some extent the logo of Berkshire Hathaway but I am not the moat,” he countered. He was confident his company had a culture that enabled it to thrive without him. “The organisation would reject like foreign tissue anything that interfered with it.”

www.ft.com/managementblog

Copyright The Financial Times Limited 2017. All rights reserved. You may share using our article tools. Please don't copy articles from FT.com and redistribute by email or post to the web.