Warren Buffet and the power of trust in a competitive world

[SBGroup]

Standard Bank Group’s Wealth and Investment partnered with South African radio stations 702 and Cape Talk to cover insights from the “Woodstock of capitalism” (also known as the annual general meeting of Berkshire Hathaway Inc.) in Omaha, USA.

Warren Ingram, 702’s resident personal finance expert, was the lucky pilgrim to the event at the end of April. He shared his experiences with a select group of clients of our Wealth and Investment portfolio. The highlight of the meeting is taking in words of wisdom from the 85-year-old Warren Buffet.

The AGM is the most sought-after thought leadership events in the business and investment world and is attended by over 35 000 people. It is also, without doubt, the biggest event in Omaha’s annual calendar.

Berkshire Hathaway Inc’s unpaid shareholders, who act as non-executive directors and include Bill Gates, were present on stage throughout the five-hour event. That said, Buffet and his business partner of 54 years, Charlie Munger, were undoubtedly the stars of the show, providing a unique view of the personal philosophy of one of the world’s most respected businessmen.

With the AGM over in 15 minutes the rest of the day was devoted to answering upwards of 90 questions from the vast and highly-charged audience, many of them shareholders in the companies that Berkshire Hathaway has acquired across the globe.

It’s all about trust

Consistent in Buffet and Munger’s responses is their world-view based on the application of ethics, trust, integrity and humility over time.

Trust emerges as central to the Buffet business philosophy, especially when one considers that Berkshire Hathaway has no Board. No budgets are provided or required.

Moreover, there is no reporting or presenting of elaborate business plans – informed by independent analysts – to “the Board”. Instead, “the managers” (as Buffet calls the CEOs of the often multi-billion dollar businesses that Berkshire Hathaway has bought) simply call Buffet up (he does not use email) and run their proposals past the “Oracle of Omaha”.

With Berkshire Hathaway sitting on a cash pile estimated at around US$20-billion, Buffet and his 26-person team back in Omaha, consider the proposal, secure in their trust of the sponsoring manager. If Buffet, Munger and the head-office team are satisfied that the idea will generate cash Buffet makes the money available – instantly, without the onerous and expensive process of having to raise and fund external capital.  

Operating on trust and not having to report to boards every quarter or meet difficult funder requirements also means that “the managers” can take ten or even twenty-year views on growth or innovation. Since Buffet is building a business to last for 100 years or more, longer time-frames based on trust, integrity, ethics and humility – applied consistently over time – have become the defining feature of Berkshire Hathaway’s success.

Also read: Why everyone adores Warren Buffett (and Charlie Munger)

Photo credit: Warren Ingram