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Behind the Berkshire Hathaway Curtain: Lessons from Warren Buffett's Top Business Leaders

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An Interesting Look Behind the Berkshire Hathaway Curtain

By Ravi Nagarajan

Published on April 27, 2010 at 8:35 pm

"We are given two eyes, two ears, and one mouth, so we should always observe and listen, and talk only 20 percent of the time."

- Randy Watson, President and CEO of Justin Brands

As value investors, most of us search diligently for opportunities to purchase companies below intrinsic value that offer the prospect of superior returns with minimal downside risk. We look at investors who have a proven track record over many decades and attempt to gain insights into their success and to emulate their approach. No investor is more closely examined than Berkshire Hathaway Chairman and CEO Warren Buffett, yet the normal emphasis is on his stock picks rather than his ability to select managers. Few investors pay much attention to Berkshire's depth of management talent. After all, Berkshire is simply Mr. Buffett's show, isn't it?

While Warren Buffett is clearly the genius behind Berkshire Hathaway's overall success, the company also has an exceptionally deep bench of management talent. Behind The Berkshire Hathaway Curtain is a new book written by Ronald W. Chan which provides an excellent introduction to several subsidiary managers as well as one director. The idea behind Mr. Chan's book is similar to The Warren Buffett CEO by Robert P. Miles which was published in 2002. In both cases, the subsidiary managers are highlighted in ways that are often overlooked.

What Drives Management Success?

Those of us who focus on quantitative analysis when searching for investment opportunities may lose sight of the qualitative factors that can make or break a business. Whether a company has management that is capable, ethical, and driven to succeed is a key factor for long term success and the managers profiled in Mr. Chan's book all fit the bill. Warren Buffett's hands off management style can only work when subsidiaries are in the hands of capable and ethical individuals.

One interesting aspect of Mr. Chan's book is the fact that he has chosen to interview several subsidiary managers who are not often in the limelight. Randy Watson of Justin Brands, Cathy Baron-Tamraz of Business Wire, Dennis Knautz of Acme Brick, and Marla Gottschalk of The Pampered Chef are hardly household names and chances are that most Berkshire shareholders who attend the annual meeting on Saturday would not recognize these CEOs if they ran into them in the convention center. However, the qualities that they bring to the table have added great value for shareholders.

Others interviewed for the book include Stan Lipsey of The Buffalo News, Barry Tatelman of Jordan's Furniture, Brad Kinstler of See's Candies, David Sokol of MidAmerican Energy, and Berkshire Director Walter Scott Jr. All of the individuals profiled in the book have different backgrounds and faced unique challenges as they rose through the management ranks but they share a common enthusiasm for their business and a desire to make sure that they live up to Warren Buffett's expectations.

What About Insurance?

One surprising aspect of the book is that Mr. Chan did not interview any of Berkshire Hathaway's insurance subsidiary managers. While Brad Kinstler, See's Candies current CEO, has experience within Berkshire's insurance subsidiaries, we do not get any direct input from managers such as Ajit Jain or Tony Nicely. Given the importance of the insurance business at Berkshire, the lack of such material seems like a significant omission. While the book has some great content, it would be much improved if it had at least one interview with an insurance subsidiary manager.

MidAmerican Voting Interest

The book also contains one error on page 152 related to MidAmerican Energy. Mr. Chan states that Berkshire is restricted to a voting interest of less than 10 percent due to the Public Utility Holding Company Act of 1935. However, the act was repealed in 2006 and Berkshire converted its non-voting preferred stock to common stock on February 9, 2006. As of December 31, 2009, Berkshire had a 89.5 percent economic and voting interest in MidAmerican.

Despite these two issues, the book is well worth reading for anyone who is interested in learning more about the men and women who run the day to day operations at Berkshire Hathaway's subsidiaries. The future success of Berkshire will depend on the continued performance of these individuals. In addition, Mr. Buffett's successor will be chosen from the current pool of management talent at the subsidiary level. The book is quick to read and hard to put down. As I write this review, less than 24 hours has passed since my copy arrived.

Disclosure: The author received a complimentary review copy from the publisher. The author owns shares of Berkshire Hathaway and is the author of The Rational Walk's Berkshire Hathaway 2010 Briefing Book which provides a detailed analysis of the company along with estimates of intrinsic value. More information at [...]

Great, quick, read about several of the managers (CEO's) that run companies inside Warren Buffett's Berkshire Hathaway.

I've read many books about Buffett, but I like this one because it takes a different angle. Why do people go to work when they don't have to? Not because they have to, but because they want to. Most of the leaders featured in Ronald Chan's new book are now wealthy. What drives them? What got them going in their 20's 30's and 40's makes for an interesting story.

Also, included is background on how and why these nine businesses ended up with Berkshire.

I think this book fits a view of life and business as it should, and can, be run. Well worth your time and money.

For full disclosure. I bought the book from the author at the 2010 Berkshire Hathaway meeting in Omaha May 1st. I only meet Ronald Chan for a moment. But I liked him right away. Ronald is not looking to get rich off the book and has pledged to give part of the profits to charity.

Prior to reading this book, I had already read two biographies of Warren Buffett, Roger Lowenstein's Buffett: The Making of an American Capitalist by and then Alice Schroeder's The Snowball: Warren Buffett and the Business of Life as well as The Essays of Warren Buffet, brilliantly edited by Lawrence A. Cunningham. In the Introduction to that anthology, Cunningham observes: Lawrence A. Cunningham observes, "The CEOs of Berkshire's various operating companies enjoy a unique position in corporate America. They are given a simple set of commands: to run their business as if (1) they are its sole owner, (2) it is the only asset they hold, and (3) they can never sell or merge it for a hundred years." With regard to investment thinking, "one must guard against what Buffett calls the `institutional imperative.' It is a pervasive force in which institutional dynamics produce resistance to change, absorption of available corporate funds, and reflexive approval of suboptimal CEO strategies by subordinates. Contrary to what is often taught in business and law schools, this powerful force often interferes with rational business decision-making. The ultimate result of the institutional imperative is a follow-the-pack mentality producing industry imitators, rather than industry leaders - what Buffett calls a lemming-like approach to business."

In this volume, Ronald W. Chan shares what he learned during interviews of nine executives who head companies owned by Berkshire Hathaway: Business Wire, Justin Brands, Buffalo News, Jordan's Furniture, Acme Brick Company, See's Candies, The Pampered Chef, and Mid American Energy Holdings Company. He devotes a separate chapter to nine executives and focuses on a valuable lesson he learned from each that provides "a sense of what life is, can be, or should be." For example, in Chapters 1, 3, and 7:

"Teaming Up with Randy Watson"

Justin Brands

Watson Quotation: "My job is to make sure that I have the right people in the right place, and then stay out of their way."

Relevant Quotation "There is no limit go what a man can do or how far he can go if he doesn't mind who gets the credit." Ronald Reagan"

"Taking Action with Stanford Lipsey"

Buffalo News

Lipsey Quotation: "I thrive on the satisfaction of accomplishment...the feeling of getting things done gives me passion in life and in business."

Relevant Quotation: "Never mistake motion for action." Ernest Hemingway

"Look Forward with Marla Gottschalk"

The Pampered Chef

Gottsckalk Quotation: I am willing to take on less glamorous assignments if I thought I could learn from them and be recognized for my contributions."

Relevant Quotation: "I am a slow walker, but I never walk backwards." Abraham Lincoln

Unlike the situation in L. Frank Baum's classic, The Wizard of Oz, when Dorothy and her valiant companions are shocked to discover that The Great Oz behind the curtain is a fraud, those who read this book will soon realize that behind the BH curtain, there are wholly authentic leaders, immensely talented and decent men and women, who head its companies. The confidence Warren Buffett's has in them and his deference to them (as indicated in Lawrence's comments) are wholly understandable.

Buffett is of course a financial genius but it must also be said that he is a world-class judge of character as well as of talent. He once observed, "In looking for someone to hire, you look for three qualities: integrity, intelligence and energy. But the most important is integrity, because if they don't have that, the other two qualities, intelligence and energy, are going to kill you."

The author, Ronald Chan, provides a unique and intriguing look at the leadership qualities that is behind the companies that Warren Buffet puts his trust in when looking for long term business success.

The informative interviews with these captains at the corporate helm to understand what each of these leaders possess in their attitude, experience, and essence that makes them excel.

Warren must have seen similar key qualities in each one of these companies to have allocated investing long term, and being the undisputed investment guru of the 21st Century, warrants a closer look at his investments. Ronald's book provides for that intimate conversation with these leaders to help us better understand what differentiates them from the rest and why they made the mark to be a part of Berkshire Hathaway.

"Behind the Berkshire Hathaway Curtain: Lessons from Warren Buffett's Top Business Leaders" is a must read for any study of business and investing and would highly recommend with the likes of key books within business and finance such as; "The Money Masters", "Random Walk Down Wall Street", and "Market Wizards" to just name a few.

Behind the Berkshire Hathaway Curtain: Lessons from Warren Buffett's Top Business Leaders

Most books about Buffett focus on his investment success and how the reader can invest profitably. Refreshingly, this book is not like the others. Instead of focusing on the investment part of Berkshire Hathaway's success, it lifts the veil on the other and less noticed part: the many successful operating companies and the people who run them.

Lost in the noise about Buffett's investing acumen is the realization that he is also a good judge of character (most of the time) and very good at motivating other people. This book gives you profiles of the people who run the companies, and asks them to detail what made them successful.

It's also an extremely fast read, definitely worth a place on the bookshelf of any Buffett fan!

Anyone that is familiar with Warren Buffett knows that he is a financial genius. But he is a also a genius at recognizing talent. Ronald Chan's book highlights the individuals that run Berkshire Hathaway businesses and demonstrates that Warren Buffett cannot only pick stocks but people as well. Throughout the book you learn what makes these individuals great leaders and get some very valuable advice. You also learn that like Mr. Buffett, the leaders at Berkshire Hathaway are all individuals with passion, integrity, and a strong work ethic. Mr. Chan has done a great job capturing what makes these individuals great and sharing their advice and "lessons learned". I would recommend this book to anyone that is interested in learning about great leaders or becoming one themselves.

This is not a book that teaches you how to find a winning investment formula; rather it shares with you many valuable experiences from the managers of Berkshire Hathaway. You can learn from these managers about their road to success, and get an idea why they were picked by Buffett. The author did a great job and you can tell from the reading that he wrote with his heart.

Very well written and I would recommend to the younger generation, or people who wish to learn about various skill sets in today's corporate world!

Ronald Chan has done a great job in putting together a brief summary of several Berkshire managers. I especially enjoyed the chapter on Stan Lipsey, the longest serving BRK manager and David Sokul(rumored to be the next CEO of Berkshire) and Walter Scott, both of Mid-American Energy. This book should probably be incorporated into MBA programs, many of these extremely successful business leaders have stood the test of time, and done it while being ethical. Examples of where the good guy/gal wins.

As the curtain rises on high school and college commencements this spring every graduate should have this priceless narrative wrapped around their diploma as a must read. Ron Chan has delivered a brief biography in pithy conversational style of nine ordinary citizens who found their niche as leaders in a business setting sometimes by chance and often long soul searching of what they really wanted to do in life. Inundated as we are by a plethora of "How To" books, seminars, manuals, and lectures, ad infinitum, at high cost and questionable value, Behind the Berkshire Hathaway Curtain capsulizes in real time the essential character traits each student and mid-life individual should extract to put them on the short tract to achieve accomplishment in their personal life whatever their job or career aspirations may be.

This is much more than a book about " business" and money. It is a redefining of the principle of "success" so often misread and ill defined and should be part of our core curriculum in secondary school and college up to and including the Master's program in Graduate Business School. Ron Chan brings to life through personal interviews the true stories of these nine people who like many young students today may have felt slightly lost with minimal real sense of direction or " what should I do now" or " where do I go from here". Whether one aspires to be an artist, a scientist, doctor, or lawyer or simply has no clue and feels bewildered and confused, these quick reads of each of these nine all have a common thread. Find your passion and pursue it with determination and grit and it will lead you to where you may not even realize you want to be. This quick two-hour read between lunch at the fast food chain and dinner on the run before the rock concert will short cut one's inevitable conclusion as to the simple key principles to grasp to have your cream rise to the top.

Ron Chan has performed an invaluable service with this excellent well written human narrative. It should be the "buzz" all over Facebook and Twitter and displayed prominently in every school library in the U.S., Europe and Asia. And as one asks rhetorically of the myriad fiction and non-fiction new offerings, " what book should I REALLY read" this should be the one in any New York Times, Financial Times and the local and suburban journals book reviews. This book is a sleeper. And we will hear more from Ron Chan's personable style and incisive writing in the future.

These nine likable and down-to-earth individuals are " everyman" and exemplify the spirit of Warren Buffett's Berkshire Hathaway. They are each the internal combustion engine and premium fuel that make their companies and Berkshire succeed beyond our wildest imagination. They are the mirror image of Warren Buffett's character and style working in the trenches of the most respected company in America. Every parent, teacher, professor, preacher, and business owner should have this book to read and pass on to every young person today. If there was ever a time in the crises and challenges facing our democracy we cry out for leadership, it is now. And in their own way and setting each of these nine contribute to a sense of successful capitalism as it should be that our youth should emulate to assume the mantle of responsibility to make our society a better place - and their personal lives a success in every manner.

When you are celebrating this memorable graduation day, slip a copy of Ron Chan's stimulating fun-to-read book in the backback of your son and daughter. They - and you - will be forever grateful. Five Unique Stars !

Excellent well-written book about the men and women behind the scenes that help make Berkshire Hathaway such a superb entity. The people described in this book are the types that Warren Buffett admires, and reading about them should inspire anyone that wants to start a business career. The book provides information about these business leaders that would be difficult to obtain elsewhere. This is an excellent read and well worth the price. Highly recommended!