Book Review: Berkshire Beyond Buffett

By:  Philip Weiss | CFA, CPA – Chief Investment Analyst

What comes to mind when you hear the name Warren Buffett? If you are like most, you probably think of his great track record as an investor; a record that nearly all of us would like to duplicate. In fact, the number of articles and books written about Buffett the investor and what might be the secret behind his success are far too numerous to count.

In the book Berkshire Beyond Buffett: The Enduring Value of Values, Lawrence Cunningham takes a different tack.  Cunningham’s book examines Berkshire Hathaway, the industrial conglomerate that Buffett has built. He takes a look at the company’s culture and opines on whether or not the company can survive and even thrive once Buffett is gone.

The book represents a solid mix of stories about the history of Berkshire’s subsidiaries and corporate culture, with insights also sprinkled throughout.  Cunningham endeavors to show the distinct similarities that have drawn entrepreneurial businesses under the Berkshire umbrella over the last five decades, and which in turn attracted Buffett to these companies. As a result of his work, Cunningham finds many similarities in timeless qualities such as thrift, integrity, autonomy and multigenerational entrepreneurship (several Berkshire companies are headed by the fourth generation of the founding family, and one—Ben Bridge Jewelers—by a fifth).

Among the more intriguing acquisitions discussed in the book is that of See’s Candies in 1972 (Chapter 1). See’s was acquired for only $25 million. At the time, See’s had $4 million in pre-tax earnings.  Under Berkshire, See’s has generated $1.9 billion in pre-tax earnings while only requiring a $40 million investment in the business. Buffett was very lucky that his business partner Charlie Munger was able to persuade him of the business’s value and that the See family accepted his very low offer for the business. Today, See’s  a pre-tax basis. Years later Buffett acknowledged that the bid was very low. He attributed this to his then ignorance of the value of franchises.

The businesses owned by Berkshire are quite disparate, including insurance (GEICO), railroads (Burlington Northern Santa Fe Railway), flooring (Shaw Industries), food (Dairy Queen), brick manufacturing (Acme Brick), modular homes (Clayton Homes) and clothing (Fruit of the Loom). However, they are somewhat united in that they are largely basic businesses that are relatively predictable and ever-lasting.

The advantage to a company that becomes part of Berkshire is that Buffett leaves its culture alone, and so long as the company is producing profits well, he continues to leave it alone. This represents one of the primary advantages of selling to Berkshire: the seller knows that the people and culture of the company will not change.  In return, Buffett pays less than top dollar, but deals also get done faster than almost anywhere else.

The book’s main point is that Buffett has created a company that operates without his detailed oversight. As a result, when Buffett dies, Berkshire should be able to continue on without him and do well. The author attributes this to the ethical values that Buffett has selected when acquiring companies. While his word choices are not perfect, Cunningham manages to use the BERKSHIRE name to create an acronym for the company’s values.

Buffett is unique and Berkshire is unlike any other company. The company cannot be replicated and Buffett is irreplaceable. However, the businesses have been infused with a set of transcendent values that all can see. These values should allow the company to continue largely in its present form once Buffett is gone.