Competition to the end

Behind Berkshire Hathaway's 50th anniversary

The shareholders meeting of Berkshire Hathaway over the weekend marked the 50th anniversary of Warren Buffett's company. The event has long been called "Woodstock for Capitalists" and it lived up to the billing yet again. Thousands of shareholders showed up. Mr Buffett's letter to shareholders released months ago had offered helpful advice for those coming for just a night or two on how to avoid Omaha hotels' requirement of a minimum three-nights' stay. (Book on Airbnb was Mr Buffett's suggestion.) Bill Gates, who partnered Mr Buffett at table tennis at the event, was in attendance. So were the chief executives of IBM and American Express. It is hard to imagine the annual general meeting of any other American or Indian corporate behemoth being so much fun. Among Mr Buffett's lessons for business is not to be egotistical. This is underlined by his decision to bequeath his wealth to the Bill and Melinda Gates Foundation because he is convinced they have better ideas for how to put it to work. In China and India, when Mr Gates and Mr Buffett did a roadshow to try and persuade tycoons to give away their wealth in similar proportions as they have, they had few converts.

What kind of shareholder is Mr Buffett? Consider just one parameter. Mr Buffett has said he is loath to micromanage the companies he owns significant shares in - but he was aware that some of them had more people than needed, and he didn't endorse over-staffing. His vice-chairman, Charlie Munger, went further by saying that if businesses did not look for efficiency, they would end up like the industrial behemoths of the former Soviet Union. "They pretend to pay us and we pretend to work" is an approach that doesn't work for economies at large, averred Mr Munger - who might just as well have been talking about many public sector units in India.

Mr Buffett and Mr Munger have never, in fact, invested in India even though Berkshire Hathaway has profited hugely from investments in the Chinese car maker BYD and oil giant PetroChina. Why Berkshire didn't is hard to guess at, but perhaps the rigorous approach to investing espoused by the two famous value investors meant that India's richly priced, well-managed companies never quite passed muster. It hasn't hurt returns. Since the company was founded its market value has increased by an annual average of 21.6 per cent versus 9.9 per cent for the S&P 500 index, but in recent years its performance has started to underperform the market's.

Mr Buffett, though in his 80s, gave no suggestion that he plans to step down soon. Nor did he give any indication of who his successor might be. Future business historians may well conclude this was a blot on his record; the shares are expected to drop sharply in the event of his death. That might be inevitable as the so-called "Warren premium" dissolves when Mr Buffett does die, regardless of how good the company's succession planning is. But with investors left to parse over Mr Buffett's letter to shareholders to interpret the references to Greg Abel and Ajit Jain, two of his senior lieutenants in Berkshire, it is reasonable to conclude that Mr Buffett thinks a competition to the very end is necessary.