The Warren Buffett Shareholder: Stories From Inside Berkshire Hathaway

Steve Pomeranz: Lawrence Cunningham is the Henry St. George Tucker III Research Professor of Law at George Washington University. He’s also well-known to Berkshire shareholders and other followers of Warren Buffett, having written books that include The Essays of Warren Buffett, which Buffett calls the gold standard in books of that genre, and Berkshire Beyond Buffett, both of which Buffett has designated for sale inside the Berkshire Annual Meeting, which is quite a big thing. His new book is titled The Warren Buffett Shareholder: Stories from Inside the Berkshire Hathaway Annual Meeting, which is actually the spark that started our five-part series of which this is one.

It’s a collection of essays by 43 people who have written about Warren and Berkshire, managed companies owned by Berkshire, professional money managers who follow him closely, and much more. Lawrence Cunningham, welcome to the show.

Lawrence Cunningham: Thanks, Steve, great to be with you.

Steve Pomeranz: So what is this book about? What is its purpose?

Lawrence Cunningham: Shareholders of Berkshire are very important but have been neglected. [LAUGH] I mean, they’ve been taken care of economically, obviously, by very well-managed business with great returns. But among the hundreds and hundreds of books written about Berkshire and Warren, none have focused on the shareholder. And so, we’ve set out to shift the spotlight a little bit onto the shareholders.

Steve Pomeranz: So how did you do that?

Lawrence Cunningham: Well, I reached out to this wonderful group of 43 people whom I’ve known for many years, going to the meeting year after year after year, and staying in touch during the year. But the focal point for the Berkshire shareholders, really, that gathering the first weekend of spring in Omaha, where Warren and Charlie are famous for answering questions about business and finance all day long.

And what’s grown up around that meeting have been a subculture, really, of seminars, book signings, events, gatherings, dinners, and what-not with thousands, obviously, of people. And I knew this group would have some interesting perspectives on what that all means. Why do people go there year after year in many cases?

Some of these people have been going for decades. What’s the attraction? What do they get out of it? And more important, what do they give? What’s the ethos like? And so, we thought by—it would be very difficult for one person, I think, to try to provide a good window into what it’s all about—but I thought with several dozens, I think we get a pretty good glimpse into the essence of what we call the Buffett Shareholder.

Steve Pomeranz: Yeah, it’s a good answer. So we’ve already interviewed some of the writers, Chuck Akre, also Tom Manenti who ran Mitek and later on Bogel, we’ll interview him as well.

So with Chuck Akre, he invests kind of based on Buffett’s style; Tom Manenti managed the company and had to interface with Buffett whenever he wanted to acquire another company and other things. Is there another chapter or another writer in that book that stands out to you?

Lawrence Cunningham: Every one of them has a distinct voice, and one of the neatest things that we experienced—my wife co-edited this with me—and after we had invited everybody to contribute, we had a rough sense of what they would say and what the order would be. And the neatest thing about this project was that every time we received a new piece, we felt like we learned something new, and there was a new vignette, a great insight, a flash of genius.

And so, it would be really hard to say that any given one is stronger or more interesting or more exciting. They all have their own special place. We were able to organize it pretty much as we envisioned along, sort of, identity lines. So we’ve got a chapter called “Writers” where we really focus on people who have written bestsellers or for prominent newspapers, and that’s a really interesting chapter that sets the stage.

We have Jason Zweig from the Wall Street Journal and Steve Jordon from the Omaha World-Herald, who I think is also in your series.

Steve Pomeranz: Yeah.

Lawrence Cunningham: And they really do a wonderful job of setting the stage. And then we have a chapter called “Partners”, which is mostly people who have been investors for a very long time or who tell stories about investors and the special place that Buffett has always reserved for his shareholders.

He calls them partners, not just shareholders in a typical corporation. But really, people whose money is invested alongside of his. And I think different people will have a different ranking of what their favorites are. For people who really want to look at the managers, like Tom Manenti, we’ve got a whole chapter from their point of view.

I guess another really neat one is one called “Pioneers”, which are people who’ve added something really special to the meeting, a book signing, a party, a dinner. And it’s just kind of neat to see, like it all starts with Warren in a way, he’s always creating new activities that draw people into the meetings, whether it’s a party to a jewelry store or a barbecue dinner or a newspaper toss.

And so these other people have come up with their own niche activity, a book signing at Dairy Queen and things like that. So, it’s a really fun collection. I think a reader looking at the table of contents…well, you can read it in order. We designed it so it could be a narrative, but if someone wanted to skip around, they could do that too, and sort of decide, gee, I’d really like to read a little bit more about…”we have a chapter called “Legends”—that’s where we have Chuck—where people [LAUGH] who’ve been investors for more than 30 years and they’ve got a slightly different view, I think, than people who have been going only for 10 or 15 years.

Steve Pomeranz: My guest is Lawrence Cunningham. He’s the author of or the editor of The Warren Buffett Shareholder: Stories from Inside the Berkshire Hathaway Annual Meeting. Let’s talk about Buffet a little bit and the business. Buffet is 87. His co-chairman Charlie Munger is 94, and people say they don’t know who the successors are.

But I think there are two individuals that seem to be rising to the top. They’ve just been named, given higher positions and people are now seriously starting to talk about them. Do you know anything about that? Who are they? What do they do, and what attributes do you think they have in order to take the reins at the right time?

Lawrence Cunningham: Yeah, it’s a great point. I know both of these guys you’re talking about, Greg Abel and Ajit Jain. They’ve both been at Berkshire for decades; they’ve both been in charge of very important, sizable parts of the business. To quote Warren, “They have Berkshire in their blood.” What he means by that is, besides devoting their career very successfully to building up these businesses, these guys know the Berkshire playbook.

They know the culture, and so they are men of total integrity, candor, forthrightness. They are very skilled at their businesses. Greg Abel has been running the energy business since 1999. And that is a huge capital producer and requires great capital allocation skills. And he has invested probably 80 billion or 60 billion of Berkshire money, mostly in acquisitions.

So he’s done a lot of what Warren has done. He’s done it very well and he’s got a very decentralized organization. Each of those acquisitions is run autonomously. He’s got a very lean staff at headquarters. He only has 27 people at the Des Moines, Iowa headquarters of the energy company.

Well, it employs 23,000. So he’s a perfect successor to Warren. And Ajit Jain, he runs the insurance company.

Steve Pomeranz: Well, he’s kind of a rock star in the insurance industry, isn’t he?

Lawrence Cunningham: He’s one of the brightest guys, yeah. He understands risk and can calculate quickly and price it effectively. He’s made probably hundreds of bill…I think Warren actually tried to add up the value he has contributed. It’s something around 100 billion to Berkshire over the years. So he’s got a great mind. And he also runs a pretty lean operation. He hasn’t dealt with as many people or as many different businesses as Greg has, but he certainly dealt with as much money.

So that team, I picture it a little bit like what you referenced with both Warren and Charlie, who’ve been kind of overseeing this place for 30-plus years. I can see Greg and Ajit doing a similar kind of thing, they’re not just like those guys, but they’ll bring their own personalities and character and so on. I could see them together being a very effective team in a very similar way, for a very long time.

Steve Pomeranz: Neither of those guys are really the main players at Berkshire and the managers who manage the individual businesses really don’t need the money anymore. This is one of the characteristics of Warren Buffett. It actually gets past the point where it’s about the money. And it’s really more about what you’re doing, how well you’re doing it, and your drive for success. And I think that’s reflected in these two individuals because Ajit Jain doesn’t need any money, for sure. Neither does Todd Coombs, one of the money managers or Ted Weschler.

They’re all well taken care of. Yet they do it and they only do it for one basic reason. What is it about the way Warren Buffett invested that, with the shareholder in mind, his partners in mind, that created so much wealth? Because there’s a lot of business owners out there, lot of conglomerates now, and yet this one is different and it’s unique.
What is it in particular, and how does it benefit the shareholders?

Lawrence Cunningham: I think it’s precisely that point that Warren came into this as an investor. And then from that investment viewpoint, he built up a business, but he’s always run it like an investor. There are very few companies, if we look across the landscape, look down the list of your favorite companies or the top 25 Fortune 100 or something like that, you’re going to find very few companies that were built by investors.

Most of them are built by manufacturers, entrepreneurs, innovators, nowadays tech guys. Mark Zuckerberg or Larry Paige or those guys, these guys didn’t start their lives as investors. They’re business guys of various kinds. Warren started as an investor, and the company that resulted has a very investor point of view.

And that’s another reason why we wanted to write this book, that the Berkshire share or the Buffett shareholder, they get that. They’re drawn to Warren because they see, this is a company for investors. This guy who started it is an investor. So what does that mean? He’s very long-term, doesn’t care about dividends, has not paid one since 1967, is very tax conscious.

Warren is a taxpaying individual, but most capital in the United States is controlled by non-taxable investors, like funds and so on. They don’t care that much about taxes. Most money is managed by people whose performance is measured pre-tax. Warren and Berkshire are measured after tax, it’s a free-tax operation.

Steve Pomeranz: Yes, even Charlie Monger has brought up the difference between trying to compete or compare, which Buffet likes to do, compare the growth of his company by the S&P 500. Well, Berkshire’s results are after tax and the S&P 500 results are, no taxes are taken into consideration at all.

Lawrence, I’m sorry, we are out of time, but thank you so much for joining us today. Lawrence’s new book is entitled The Warren Buffett Shareholder: Stories from Inside the Berkshire Hathaway Annual Meeting. And don’t forget, if you have a question what we’ve just discussed, ask us. Go to stevepomeranz.com.

Ask us anything you’d like at stevepomeranz.com. And while you’re there, sign up for our weekly update where we’ll send you the weekly commentaries and interviews straight to your inbox. Hey, Lawrence, thanks for spending the time. I’d like to have you back on some time.

Lawrence Cunningham: Pleasure, I look forward to it, Steve.

Thank you.

Steve Pomeranz: Thank you.