Warren Buffett’s annual letter to Berkshire Hathaway shareholders is always one of the best-read business documents of the year.
And his latest coincided with a notable milestone – 50 years at the helm of Berkshire Hathaway.
American billionaire Buffett highlighted the main themes broached in his last 49 letters – and looked ahead to the next 50 years.
He did admit that his stake in Tesco was a misfire. Berkshire Hathaway was still Tesco’s third-largest shareholder last autumn, even after Britain’s biggest grocer had issued four profit warnings and become embroiled in an accounting scandal. Buffett eventually pulled the plug by the end of last year.
“An attentive investor, I’m embarrassed to report, would have sold Tesco shares earlier,” Buffet wrote. “I made a big mistake with this investment by dawdling.”
As for his successor, as yet still unidentified, Buffett says the executive must be able to avoid the “ABCs of business decay…arrogance, bureaucracy and complacency”.
He wrote: “Choosing the right CEO is all-important and is a subject that commands much time at Berkshire board meetings. Managing Berkshire is primarily a job of capital allocation, coupled with the selection and retention of outstanding managers to captain our operating subsidiaries. Obviously, the job also requires the replacement of a subsidiary’s CEO when that is called for. These duties require Berkshire’s CEO to be a
rational, calm and decisive individual who has a broad understanding of business and good insights into human behavior. It’s important as well that he knows his limits. (As Tom Watson, Sr. of IBM said, “I’m no genius, but I’m smart in spots and I stay around those spots.”
“Character is crucial: A Berkshire CEO must be “all in” for the company, not for himself. (I’m using male pronouns to avoid awkward wording, but gender should never decide who becomes CEO.) He can’t help but earn money far in excess of any possible need for it. But it’s important that neither ego nor avarice motivate him to reach for pay matching his most lavishly-compensated peers, even if his achievements far exceed theirs.
“A CEO’s behavior has a huge impact on managers down the line: If it’s clear to them that shareholders’ interests are paramount to him, they will, with few exceptions, also embrace that way of thinking.”
For Buffett’s entire shareholder letter, go here: http://www.berkshirehathaway.com/letters/2014ltr.pdf