Good afternoon. My name is John Weaver. I’m a shareholder from Bellingham, Washington. You have discussed what a wonderful business is. One of the criterias in your acquisition, page 23 of your annual report, is management. Could you discuss how you decide what good management is and how you decide whether you have a good manager? WARREN BUFFETT
The really great business is one that doesn’t require good management. I mean, that is a terrific business. And the poor business is one that can only succeed, or even survive, with great management. And — But we look for people that know their businesses, love their businesses, love their shareholders, want to treat them as partners. And we still look to the underlying business, though. We — If we have somebody that we think is extraordinary, but they’re locked into one of those terrible businesses, because we’ve been in some terrible businesses, and you know, the best thing you can do, probably, is get out of it and get into something else. But there’s an enormous difference, frankly — there’s an enormous difference in the talent of American business managers. The CEOs of the Fortune 500 are not selected like 500 members of the American Olympic track and field team. And it is not the same process. And you do not have the uniformity of top quality that you get with the American Olympic team in any sport. You do not get that in top management in American business. You get some very able people, some terrific people, like a Bill Gates, that we just mentioned. But you get a lot of mediocrity, too. And the test — I think, in some cases, that it’s fairly identifiable, who has done an extraordinary job. And we like people that have batted .350 or .360, in terms of predicting that they’re going to bat over .300 in the future. And some guy says, you know, “I batted .127 last year. But I’ve got a new bat or a new batting coach,” you know, some management consultant has come in and told them how to do it, supposedly. We’re very suspicious of that. So we don’t like banjo hitters who suddenly proclaim that they can become power hitters. And then we try to figure out what their attitude is toward shareholders. And that isn’t uniform, either, throughout corporate America. It’s far from uniform. We still want them to be in a good business, though. I would emphasize that. We feel that — I mean, I gave the illustration of Tom Murphy in the annual report. I mean, no one had either the ability — no one could top his ability or integrity, in terms of the way he ran Cap Cities for decades. I mean, and you could see it in 50 different ways. I mean, he was thinking about the shareholders. And he not only thought about them, he knew what to do to forward their interests, and — In terms of building the business, he only built it when it made sense, not when it did something for his ego or to make it larger alone. He did it when it was in his shareholders’ interests. And they’re not all Tom Murphys. But when you find them, and they’re in a decent business, you want to bet very heavily and not make the same mistake I made by selling out once or twice, too. (Laughter)
Zone — was that zone 3 or —? Yeah, zone 4.
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Criteria of Good Management:
1. Know their businesses.
2. Love their businesses.
3. Love their shareholders and treat them as partners.