Six Questions for the Annual Meeting
Board: Berkshire Hathaway
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Six questions of the bearish variety that could be asked at the annual meeting. Note that I do not necessarily agree with any of the points made, but these would be reasonable questions to ask. Hopefully Kass doesn't waste everyone's time with nonsense and comes up with questions worth asking.
(1) A significant amount of value has been created over the past half decade in deals that essentially traded on Warren Buffett's unique reputation and the benefits that a company obtains with his "stamp of approval". If we look at historical growth rates of book (and intrinsic) value and use those rates as guideposts for future performance, we are essentially capitalizing the assumption of future such transactions long into the future. Would it not make more sense to back out the incremental benefit of such deals when trying to forecast Berkshire's underlying capacity to increase intrinsic value over the next 10-20 years?
(2) Berkshire has recently added two investment managers who have performed very well but have been paid at levels far below what they could have earned in a typical hedge fund 2 & 20 pay structure. Is it realistic to believe that Berkshire will be able to retain the best possible investment talent without competing directly with hedge fund incentive compensation practices? Berkshire has a unique culture and almost certainly provides a better quality of life for investment managers vs. running a hedge fund but when differences in compensation start to run into the hundreds of millions of dollars annually, are you concerned about either Berkshire's long run cost of retaining such managers?
(3) The latest annual letter appears to identify IBM as a permanent holding along with Wells Fargo, Coca Cola, and American Express. Of these four businesses, IBM is the most exposed to technology which is an area that Berkshire has typically avoided in the past. Many investors are concerned that the large IBM investment is a sign of "style drift", perhaps a symptom of Berkshire being too large to consider meaningful investments in anything other than mega-cap companies. How is an investment in IBM better than returning cash to shareholders or repurchasing Berkshire Hathaway stock more aggressively?
(4*) Succession is a major concern for shareholders with much of the attention focused on the next CEO. However, the Chairman role is also very important. Other than being a member of the Buffett family, is Howard Buffett the most qualified candidate to be the next Chairman of Berkshire? Are there not other ways of maintaining Berkshire's culture other than to have a member of the Buffett family installed as Chairman? If the presence of a Buffett as Chairman is the primary way of continuing the culture, what happens when a Buffett is no longer Chairman? Wouldn't it be better if the culture was strong enough to not require having a Buffett as Chairman and is the need for this a sign of weakness?
(5) What steps has Berkshire put in place to deal with the aftermath of an unthinkable event such as simultaneous nuclear detonations in midtown Manhattan and the National Mall in Washington DC? Berkshire, and all American business, would be obviously exposed and worth far less under such circumstances. Would Berkshire be rendered insolvent? If not, would Berkshire perform equally to other large American businesses, better, or worse?
(6) Prior to the fall of David Sokol, you had nothing but glowing things to say about his business performance and personal character. Obviously, hindsight is 20/20 but what makes you certain that the current candidates to take over from you as CEO have both the character and capability to lead Berkshire in the future? Isn't it very possible that you have misread the character of the current front runner just as you clearly misread David Sokol's character? How can you reassure shareholders that you haven't made a similar mistake. (Note that this is not to imply that Sokol was the anointed successor, but clearly he was a highly regarded manager before his downfall).
* This is like belching at a dinner party, or worse, but frankly a legitimate question to ask.