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Once Warren Buffett and Charlie Munger have decided that the key person(s) in one of their companies is competent and of high integrity they let him/her just get on with running their organisation. At The Berkshire Meeting a couple of weeks ago they were asked whether they were still involved in pricing decisions at See’s Candy and Buffalo News:
Buffett responded that at one time he and Charlie took part in pricing decisions at See’s Candy (there was untapped pricing poser when they bought), and at Buffalo News. But it has been a very long time since they had done this, “I can’t tell you what the per pound price is for See’s Candy, which is because people, and you’re invited to join this group, send me free candy from time to time. I can’t tell you the prices at The Buffalo News.”
However there is one area where Buffett does still get involved: reinsurance pricing. He and the brilliant head of Berkshire Hathaway’s reinsurance operations (born out of National Indemnity), Ajit Jain, talk frequently.
“if there’s some very big risk, if somebody wants a $5 billion cover on a chemical plant or something – we have a certain amount of fun with him deciding on the price in his head. And I decide in my head, and then we compare notes. It’s the kind of risk that you really can’t look up in a book and see, actuarially, what it’s fairly – the parameters – are fairly likely to be. I enjoy thinking through the pricing of that, and I particularly enjoy comparing it with Ajit. These are just oddball situations, but we do that sort of thing, and we’ve done it for three decades. And it’s part of the fun of my job. The candy prices, if you got to complain about those, you have to go to Charlie.”
Charlie catches the essence of the Buffett approach to managing his giant organisation: “We have a very peculiar place where Warren’s contact with the various people elsewhere in the organization largely depends on what they want, not what he wants.”
Warren chips in: “The CEO of one of our most successful subsidiaries, I may have talked to – unless I saw him here and just said hello – I probably talked to him three times in the last ten years. And he does remarkably well. He might have done even better if I hadn’t talked to him those three times. (Laughter) And on the other hand, Ajit and I talk very, very frequently. And he’s got the kind of business I do know – I know more about the insurance business than I know about a good many of the other businesses.”
Notice his wisdom in carefully drawing his circle of competence even when it comes to the running of businesses he has owned for over thirty years.
What Buffett and Munger do insist on throughout the organisation is a common culture built on a commitment to honesty, integrity, a focus on the long-term, and an emphasis on customer care.
Buffett said, “I think the culture is very, very strong. And I think it gets reinforced — frankly, I think it gets reinforced by the shareholders we have. I mean, we have a different body of shareholders and we look at those shareholders, I think, in a somewhat different way than a good many other companies do.
I mean, I think there are a fair num
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