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On buying into Capital Cities Buffett wanted to reassure the senior executives, Tom Murphy and Dan Burke, that he would not cut and run. He said that handing voting control and the decision on when to sell the shares to them was intended to motivate his managers to give of their best for the long-term benefit of shareholders.
With Buffett’s self-imposed restrictions in place, “the first-class managers with whom we have aligned ourselves can focus their efforts entirely upon running the businesses and maximizing long-term values for owners. Certainly this is much better than having those managers distracted by “revolving-door capitalists” hoping to put the company “in play…Today, corporate instability is an inevitable consequence of widely-diffused ownership of voting stock. At any time a major holder can surface, usually mouthing reassuring rhetoric but frequently harboring uncivil intentions. By circumscribing our blocks of stock as we often do, we intend to promote stability where it otherwise might be lacking. That kind of certainty, combined with a good manager and a good business, provides excellent soil for a rich financial harvest. That’s the economic case for our arrangements…… The human side is just as important. We don’t want managers we like and admire – and who have welcomed a major financial commitment by us – to ever lose any sleep wondering whether surprises might occur because of our large ownership.” (1985 Letter)
Buffett went further after the merger and declared that Capital Cities was one of only three permanent holdings for Berkshire’s insurance subsidiaries. “Even if these securities were to appear significantly overpriced, we would not anticipate selling them, just as we would not sell See’s or Buffalo Evening News if someone were to offer us a price far above what we believe those businesses are worth.” (1986 Letter)
In his 1987 letter he added “A determination to have and to hold, which Charlie and I share, obviously involves a mixture of personal and financial considerations. To some, our stand may seem highly
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