Mark Donegan’s executive team at Precision Castparts Inc. spent hours prepping for conference calls with Wall Street analysts.
For days, they compiled detailed financial statements and other documents for federal agencies, which posted the information where thousands of stockholders — not to mention competitors — could judge the company’s efforts.
Every three months, they would do it all over again, and other requirements of being a publicly traded company consumed days and weeks, too.
All that ended in March when the Oregon-based manufacturer of high-value aircraft, aerospace and industrial parts was purchased by Berkshire Hathaway Inc.
Donegan, during a visit to Omaha this spring for the annual meeting of Berkshire shareholders, estimated that since he became a Berkshire CEO, he can devote 15 percent more of his days to actually running Precision Castparts.
That’s a substantial gain in perhaps the most valuable of economic commodities — time — and an example of how business life inside Berkshire is different from business life outside.
Berkshire Chief Executive Warren Buffett touts such advantages when talking with company owners who might join his stable of 100-plus businesses: Come with me and I’ll help any way you want, but you’re in charge.
“We can tap into the strength of the company overall, but we still get to run this like it’s our family business,” said Sam Taylor, chief executive of Omaha’s Oriental Trading Co., a part of Berkshire since 2012. “This is the best company I’ve ever worked for. ... I think it’s unique in American business.”
Sure, Taylor is talking about his boss. But he has the perspective of a former division chief for large corporations and as an executive for a company run by a private-equity firm, both owners who tend to manage closely with short-term gains in mind.
Bill Child, chief executive of R.C. Willey Co., Utah’s biggest furniture retailer, said in a book that business people would ask him about his 1995 decision to sell the business to Berkshire.
“I have told them that if they ever have a chance to associate with or be a partner with Warren Buffett, to do it and do it fast,” Child wrote. “It will be the best decision of your life.”
Some may see occasional disadvantages of being a Berkshire company.
CEO Buffett’s political comments and social views rile some consumers. He doesn’t believe in stock options for executives. There’s a whiff of uncertainty because the name of Buffett’s successor isn’t known.
Lawrence Cunningham, a law professor at George Washington University who has written books about Berkshire, said if you look hard you might spot some disadvantages, even though he said they are far outweighed by advantages.
For example, Cunningham said, a competing CEO can turn a legal problem over to a company’s law division. Berkshire has no corporate legal department, HR department, IT division or purchasing office.
“You’re not able to leverage your internal corporate resources the way that a rival might,” Cunningham said, leaving each Berkshire CEO to set up all those corporate functions. “They’re not going to get any help from Berkshire corporate.”
He gave as an example the responses by Berkshire’s Clayton Homes division, which makes and finances factory-built housing, to criticism in a series of news stories last year about its lending practices.
Buffett defended Clayton, arguing that the stories were misleading, but Cunningham said Clayton “looked like a relatively small company with a modest response. It wasn’t equipped to deal with the journalistic attacks and other kinds of political pressures.”
The mere prominence of Buffett and Berkshire can become an issue at times, such as when special-interest groups seek to use that fame to boost their causes.
Last spring, Nebraskans for Peace made a formal proposal for Berkshire to report on the risks that global warming poses for its insurance companies. The proposal generated more news stories than if it had been aimed at a less visible company or CEO.
Buffett responded with comments in his yearly letter to shareholders and at the shareholder meeting, which was covered by dozens of U.S. and foreign reporters.
Proponents of the measure got a chance to speak, briefly, to the thousands attending the meeting in person and watching via live-streaming over the Internet, an audience they never could have reached otherwise.
Cunningham, the law professor, said Buffett’s political views don’t hurt the company, and the advantages he has put in place at Berkshire include being a permanent owner; ready access to low-cost capital; independent decision-making by CEOs; a long-term focus on profits; fair, clearly defined compensation plans; and occasional praise from Buffett.
“Those showers of praise are deeply prized by managers,” Cunningham said. “Praise is an absolute stimulus, and these executives love it. Plenty of executives throw people under the bus. To get that kind of solid praise is valuable.”
Buffett recently praised Precision Castparts’ Donegan, along with Jacob Harpaz, CEO of International Metalworking Cos., the Israeli firm Berkshire bought in 2006 as Iscar Metalworking.
“Each is the da Vinci of his craft,” Buffett wrote. “The two men transform very ordinary raw materials into extraordinary products that are used by major manufacturers worldwide.”
Buffett added: “In building his business, Mark has made many acquisitions and will make more. We look forward to having him deploy Berkshire’s capital.”
Having Berkshire as a “friendly banker” is a huge advantage. Far from having to negotiate interest rates with outsider financiers, Berkshire businesses have billions at their disposal or, if it makes more sense, a credit rating that means low borrowing costs.
Just being purchased by Berkshire is an endorsement of the company’s past accomplishments, Cunningham said. “In corporate matters these days, there’s probably few greater honors than selling to Warren Buffett.”
As a result of those advantages, Buffett often gets a discount in his purchases.
In 1995 Buffett offered $170 million in cash or Berkshire stock for the Utah retailer R.C. Willey Co. Then-CEO Child said that was $20 million or $30 million less than other buyers had offered.
“But there was so much more to Buffett’s offer,” Child said in a later book by Jeff Benedict, “How to Build a Business Warren Buffett Would Buy.”
Child especially liked Buffett’s pledge to let him and his brother, Sheldon, continue running the business; the fact that customers wouldn’t notice a change in ownership; and Buffett’s reputation of integrity.
Buffett eventually added $5 million more to the purchase price to resolve a tax issue, and Child opted to take Berkshire stock as payment. Those shares would be worth about $1.7 billion today.
Cunningham said among the biggest advantages of being part of Berkshire is its cadre of company CEOs and Buffett himself.
The Berkshire brains are on display when company CEOs gather for a round-table event and other informal meetings during the days surrounding the annual shareholders meeting.
And it’s all voluntary, said Taylor, the Oriental Trading CEO, part of Buffett’s pledge to let managers run their businesses on their own.
That’s not the case with most other corporate owners. Before joining Oriental Trading, Taylor headed Hewlett-Packard Co.’s global direct sales business and its HP.com website and earlier worked for Best Buy Co., Lands’ End Inc., the Walt Disney Co. and Bain & Co.
Oriental Trading was owned by New York investment company Kohlberg Kravis Roberts & Co. and several other private-equity firms when Taylor was hired.
“If you’re in private equity, you’re up for sale every three to five years,” Taylor said. “You don’t have a lot of control over that and what changes they might bring to the business.”
When Berkshire bought the company in 2012, Buffett met with its employees and announced, “I’m going to own it forever.”
“That was a huge relief for us,” Taylor said. “Now we have a long-term perspective on how we run the business. Warren let us know he’s interested in 10, 15 years and beyond for growth of Oriental Trading.”
Proof that it works, he said: 2015 was Oriental Trading’s best year out of the past nine, with the highest readings for employee engagement, customer satisfaction and profits.
Oriental Trading also has zero debt, a relief after years of interest eating up earnings under the previous owners.
Berkshire CEOs also work on co-marketing opportunities or sharing resources, Taylor said. Other Berkshire companies may be able to profit by using Oriental Trading’s world-class call center and fulfillment center, for example.
Taylor said Berkshire’s management methods and its culture of integrity are widely known among other companies’ executives. Even Buffett’s aversion to stock options is not a handicap in hiring, Taylor said.
“When I’m recruiting senior executives, I can compare and contrast how we work with their (previous) employers,” he said. “We have all the resources that we would ever need, but we get to be entrepreneurial.”
As for Berkshire’s plans for its next CEO, Taylor said that’s not a concern of the company managers.
“Warren and Charlie and the board talk about it at the CEO roundtables,” Taylor said of Buffett and Vice Chairman Charlie Munger. “We don’t know who the individuals are going to be, but I have complete confidence based on what Warren has told us and Charlie and the board are doing.
“Whoever the successors are, they will remain true to the Berkshire culture of autonomy and integrity. None of that will change.”
The Omaha World-Herald is owned by Berkshire Hathaway Inc.
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» More time to manage
» Direct line to Buffett
» Permanent home
» Long-range views
» Independent decision-making
» “Brain trust” of managers
» Profits go to Berkshire
» No stock options
» Succession uncertainty
» No common corporate purchasing
» Possible political fallout from Buffett’s views