Collection: Warren Buffett - #35 | The Secret of Avoiding Lawsuits



How do Berkshire and Berkshire companies protect themselves against lawsuit-happy lawyers? And is it possible for American businesses to survive the financial and time-consuming costs of dealing with lawyers? WARREN BUFFETT

Well, that’s a good question and we’ve probably had less litigation than any company, you know, with a $25 billion market value in America. But it’s, you know — we were sued one time at Blue Chip Stamps — what was it for, Charlie, and how many billion by some guy? CHARLIE MUNGER


Yeah. It was — you know, there — you cannot protect yourself against lawsuits, and there are certainly a lot of frivolous ones we’ve — like I say, we have — it’s not been a drain on our time or money — but particularly time — to date. And I think one thing you’d have to do is, if you ran into anything of that sort, you would not pay and you would make life as — try to make life comparably difficult for the other party as they made it for you. But that has not been our experience so far. Charlie? CHARLIE MUNGER

Yeah. Well, I can tell an Omaha story on that one which demonstrates the Berkshire Hathaway technique for minimizing lawsuits. When I was a very young boy, I said to my father, who was a practicing lawyer here in Omaha, “Why do you do so much work for X,” who was an overreaching blowhard — (Laughter) — “and so little work for Grant McFayden,” who was such a wonderful man? And my father looked at me as though I was slightly slow in the head. And he said, “Charlie,” he said, “Grant McFayden treats his employees right, his customers right, everybody right. “When he gets involved with somebody who’s a little nuts, he gets up from his desk, and walks to where they are, and extricates himself as soon as he can.” And he says, “Charlie, a man like Grant McFayden doesn’t have enough law business to keep you in school. (Laughter) “Ah, but X,” he said, “he’s a walking minefield of continuous legal troubles, and he’s a wonderful client for a lawyer.” Now, my father was trying to teach me, and I must say it worked beautifully, because I decided that I would adopt the Grant McFayden approach. And I would argue that Warren independently reached the same approach very early in life. Boy has that saved us a lot of trouble. That is a — it is a good system. WARREN BUFFETT

You can’t — yeah, we basically have the attitude that you can’t make a good deal with a bad person. And you can — that means we just forget about it. I mean, we don’t try and protect ourselves by contracts, or getting into all kinds of, you know, due diligence, or — We just forget about it. We can do fine over time, dealing with people that we like, and admire, and trust. So we have never — and a lot of people do get the idea, because the bad actor will tend to try and tantalize you in one way or another, and —you won’t win. It just pays to avoid them. We started out with that attitude, and you know, maybe one or two experiences have convinced us, even more so, that that’s the way to play the game.

Zone 2.


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[YAPSS Takeaway]

Treat your employees, customers, suppliers and everybody right.

"You can't make a good deal with a bad person." ~Warren Buffett