Part 4 Subjective governance model Berkshire Hathaway

Recently, I read all 46 Warren Buffett’s Letters to Shareholders. There are two distinguishing themes about governance Cardano should look for ways to emulate: high trust and long term commitment.

He and Charlie Munger will not do business with someone of questionable integrity. They acquired 10% of Wells Fargo stock when they admired its CEO Richard Kovacevich. They sold all their WF stock because of the scandals under CEO’s John Stumpf and Tim Sloan, even though the stock price under them rose from $35 to $48.

They have learned to discard most business school metrics when evaluating a company. They look for a CEO whose purpose is improving their company. If they sense the CEO would advance himself at the company’s expense, they walk.

CEOs of Berkshire Hathaway subsidiaries are trusted to manage their companies without supervision. They employ 360,000. BH is free to only do capital allocation and set executive compensation with a staff of just 12. No CEO of companies they own has left BH to join another company in their 58 year history.

The famous annual letter to shareholders is meant to gain their trust. He describes the good and bad news as he would to a business partner. He writes the letters himself to be clear this is what Buffet thinks.

Buffet bought BH for $11.65 per share. He has never sold a single share and says he never will. At the moment, each share is $469,760.00. This is the ultimate way to show his faith and commitment to the company. Never splitting the stock and letting it become unaffordable to most people has created a shareholder population that treats buying the stock like buying a house. It’s a long term investment. Compared to other mega stocks, BH shareholders have done more research and they don’t sell to buy another stock.

When BH buys control of a company it intends to never sell it. There are a couple exceptions, a shoe company and a newspaper were sold when it was clear those types of businesses had no future.

So, two legs of one of the best companies ever are subjective. Can’t be evil says algorithms can replace and improve on this. Crypto has anonymous coinholders and transactions are trustless. Perhaps this anonymous, trustless ethic has been applied internally to crypto companies, like FTX.