By Ruth Steinhardt
“Berkshire Hathaway is an accident.”
It’s a strange opening line for a book about one of the most successful companies on the New York Stock Exchange. But according to George Washington University Law School Professor Lawrence Cunningham, that “purely opportunistic” quality might just be the secret to Berkshire Hathaway’s success—and the secret that will help it not only survive, but also perhaps thrive after the departure of its remarkable CEO, Warren Buffett.
At the book launch for “Berkshire Beyond Buffett: The Enduring Value of Values,” held in GW’s Jack Morton Auditorium on Tuesday, Mr. Cunningham said that prevailing commentary points to Mr. Buffett’s “irreplaceable magic touch” as Berkshire’s central engine and forecasts doom for the company without him.
But, Mr. Cunningham said, his research showed reasons to believe the opposite: that Mr. Buffett has built “an organization larger than himself” and that Berkshire’s “distinctive and attractive corporate culture” will spell its continued success, whoever Mr. Buffett’s successor or successors may be.
The key, he said, lies in a managerial philosophy that has been unchanged since the company’s inception. Commentary tends to focus on the diversity of Berkshire’s subsidiary companies—their vastly different sizes, profit margins and industry genres—to explain its success, but Mr. Cunningham said this analysis overlooks the “extraordinary unity of corporate culture” at Berkshire.
“Intuitively, people don’t expect conglomerates—vast, diverse organizations—to have discernible corporate cultures, but Berkshire has a distinctive one, based on a core set of shared values,” Mr. Cunningham said. “In my research, I profiled Berkshire’s 50 main subsidiaries, probing them for the beliefs and practices that define them.”
In doing so, he said, he found a set of nine principles shared across every company—all “intangible values that translate into economic gain,” including thrift, integrity, autonomy and permanence.
Mr. Cunningham, who also is the editor of “The Essays of Warren Buffett: Lessons for Corporate America,” also looked into the culture at the top of the company, which holds as strongly to those core values as subsidiary managements do. Berkshire has not sold a subsidiary company in 40 years, he said, and pledges not to do so unless that company is “doomed.” In addition, members of the company’s board of directors make only minimal salaries, receiving most of their compensation in the form of stock, so that working for the company’s long-term benefit is in their own interest.
By adhering to these principles, and to the simple acquisition criteria that Buffett set out for his company in 1982—proven profitability, strong management in place and a minimum baseline size—Berkshire can continue to be a runaway success, Mr. Cunningham said.
He was joined on stage by GW President Emeritus Stephen J. Trachtenberg and by Donald Graham, CEO and chairman of Graham Holdings and a longtime insider at Berkshire Hathaway.
“There is no previous book that seeks to describe what Warren would describe as his great creation,” Mr. Graham said. “Berkshire is an extraordinary company, and this book is the single best description of it.”