Management管理

Well, what do you look for in a girl? Seriously, you look for the logical things - passion, an interest in running the business, honesty. Such as, do they love the business, or do they love the money? This is the first filter. I mean real passion; Mrs. B ran Nebraska Furniture Mart until she died at the age of 103 - that's passion. If temperament is the most important personal asset in managing money, in business, it's passion. Secondarily, if you've been doing it a while, you get to know how to do it. But obviously no management team is perfect, so you're often stuck making a judgment call. You don't want to wait forever to find the perfect team. Incidentally, a friend of mine spent twenty years looking for the perfect woman; unfortunately, when he found her he discovered that she was looking for the perfect man.

A shareholder asked how the pair assesses managers at companies in which they invest. Buffett informed the crowd that ““a really good business doesn’t need good management - and a poor business can’t do well no matter how good management a management is. There are enormous differences in the talent of American businesses. The Fortune 500 management doesn’t get picked like Olympic team athletes. In some cases, it’s fairly easy to pick out a good management. We think a .350 hitter will continue to be one; we don’t believe the .127 hitter who says, hey I’m different because I’ve got a new bat. In business, those are often the managements who say they’ve hired consultants. Once we see ability, we like to see how they treat their shareholders. Tom Murphy is a good example of a great manager.”

Buffett thinks there are two main factors in assessing management:

• How have their results been?
• How do they treat the company's shareholders? Look also at how management treats themselves relative to the shareholder by reading the proxy circular.

Buffett later went on to say that one of the two or three most important things a Chief Executive Officer does is to allocate capital (i.e., invest money - either retained earnings or new outside capital). Yet few CEO's are trained for capital allocation because they rose through other streams in the business such as operations, sales or finance. Referring still to capital allocation, Buffett said most CEO's, when they get the top job, are "like a concert pianist arriving at Carnegie Hall - only to be handed a violin".

Often CEOs who are inexperienced in the field of capital allocation will rely on so called "experts" Buffett sees this as extremely dangerous.

[Q: What do you look for in a manager?]

We look for managers that have a passion for their business. We've had terrific luck with entrepreneurs who love their businesses like I love Berkshire. They'll tell me to butt out if I'm going to screw it up. They are part of Berkshire, but guard their businesses jealousy.

We got a book from an investment bank from someone who bought a business a few years ago [and now wanted to sell it]. The business was a piece of meat to them. What are the odds that they didn't doctor the books?

[I look for people who] have a lot of love for their business. There can't be a company in the country, if you could measure passion for the business, no-one would come close [to Berkshire].

[CM: What matters most: passion or competence that was born in? Berkshire is full of people who have a peculiar passion for their own business. I would argue passion is more important than brain power.]

By the time they get to us, if they didn't have brainpower, they wouldn't have gotten to us. We're not going to see an incompetent but passionate manager -- those got weeded out a long time ago. But I do have to weed out a manager who just wants to cash out.

We see lots of businesses that play games with their accounting and just want to cash out.

Almost everything we learn is from public documents. I read Jim Clayton's book, for example. There is adequate information out there to evaluate businesses. We do not find it particularly helpful to talk to managements. Often managements want to come to Omaha to talk, and they come up with all sorts of reasons, but what they really hope is that we become interested in their stock. That never works. The numbers tell us a lot more than the managements. We don't give a hoot about anyone's projections. We don't want even want to hear about it.

It would be tough to evaluate a class of MBAs and pick which ones would prove to be the best managers, just like it would be tough to pick the best golfer by watching them hit on the practice range.

We haven’t tried to evaluate, before they have a record, who will be superstar managers. Instead, we find people who’ve batted .350 for 10-50 years. We just assume we won’t screw it up by hiring them. We take people who play the game very well and allow them to play.

I recall a study that correlated business success with the age at which a manager started. It turns out that those who started young did best. Of course, if you work with what you have, you can develop over time, but a lot of it is wiring – I’ve come to believe more so than I did 4-5 years ago. I’ve never heard Charlie say anything dumb about business – except when he disagrees with me. (Laughter) And I’ve never heard [GEICO CEO] Tony Nicely say anything dumb about business, ever.

[CM: Part of it is intelligence, partly temperament. Rick Guerin, for example, wanted to be rich, he was smart and had the right approach [so I knew he would be very successful]]

It’s interesting to think about the odds that the NCAA basketball Final Four will be cancelled [referring to his comment elsewhere that Berkshire had written a $75 million policy on the Final Four being cancelled]. Some people like thinking about this. My dad wouldn’t let me be a bookie, so I went into investing.

Passion is the number one thing that I look for in a manager. IQ is not really that important. They need to be able to work well with others and the ability to get people to do what you want them to do. I’d say intelligence, energy, integrity. If you don’t have the last one, the first two will kill you. All you have is a crook who works hard. If a person doesn’t have integrity, you want them dumb and lazy.

If you could put 10% of your future earnings on one of your classmates, you would pick the one that’s most effective at working with people. These are qualities that are elective. If you could pick one to sell short, it would be the person that no one wants to work with. You can elect to be the kind of person you want to be. Look at those qualities of the two people you’ve selected (one long and one short). They’re all qualities that you possess. It’s like marriage. If you want a marriage that’s going to last, look for someone with low expectations. Don’t keep score. Keeping score doesn’t build organizations, homes, etc. I have never had one fight with Charlie. When I took over Solomon I had to pick the best person to run it. I interviewed 12 people for 15 minutes each and I asked myself, “Who would I go into a foxhole with?” I never look at grades or where you went to school. When I picked Deryck Maughan, he never asked me about pay or options or indemnity. He went to work.

Chains of habit are too light to be felt until they’re too heavy to be broken. In terms of picking people how do you lead your life in a way that I’d pick you?

The way to get a reputation for being a good businessman is to buy a good business.

You look for three things, you look for intelligence, you look for energy and you look for integrity. You don’t need to be brilliant, just reasonably intelligent, Ray Kroc, for example, has good intelligence, which he combined with good busi- ness principles and passion for business and a passion for his particular business. Every business student you have has the requisite intelligence and requisite energy. Integrity is not hard wired into your DNA. A student at that age can pretty much decide what kind a person they are going to be at sixty. If they don’t have integrity, they never will. The chains of habit are sometimes too heavy to be broken. Students can forge their own chains. Just pick a person to admire and ask why you admire them, usually it is because they are generous, decent, kind people, and those are the kind of people to emulate.

I don’t believe in fear as a manager. Ben Graham, Don Keough, and my dad are the people I have worked for and they never tried to get people to respond by fear. Certain industries may be conducive – platoon operators maybe – but even then, if you turn back and desert your buddies...I don’t operate like that. I don’t like this life. Probably certain circumstances call for it: operate this way for a policeman. I believe the most powerful force is love and that is the most effective way of dealing with people. I would not want to live a life where people are afraid of me. People don’t operate well under fear. Some circumstances where mutually assured destruction is the end result, fear is good. But not at Berkshire Hathaway, love is way better to operate. By the way, how did Machiavelli do? There is no religion of Machiavelli 500 years later, is there?

Good question. The question I ask is will they still work after they have sold their business? Do they love the money or the business? If it’s the business, then we have a deal. If it’s the money, that’s ok, it’s just not what we are looking for. I don’t have to identify all of the ten’s out there; I just have to make sure the ones I make deals with are tens. I can’t look at the class and say, “You’re a 6.5. You’re an 8.” I just need to find a few 10s. Do I have an intuition when judging a business owner? Sometimes. People give themselves away; I don’t know what it is. We don’t have any contracts at Berkshire; people stay because they have a passion for their business and I don’t want to screw that up. Not much changes at 65 years old. I have 40 CEO’s working for companies owned by Berkshire. Since 1965, not one of them has left Berkshire Hathaway. If I told Lou Simpson of Geico to be at the office at 9am and he could only get one hour for lunch, he would leave. I don’t need to identify every ten out there, just the ones we invest in.

[CM: The scale of experience matters.]

One of the things that would be helpful for the person with ten-years experience would be the ability to construct models on observations, and the ten-year veteran would have more observations than the two-year.

[CM: Bernie Ebbers and Ken Lay were caricatures – they were easy to spot. They were almost psychopaths. But it’s much harder to spot problems at companies like Royal Dutch [Shell].]

[Throwing up his hands] Charlie and I would not have spotted the problems at Royal Dutch.

But we don’t learn because I’d still expect that Exxon’s figures are fair.

In the late 1990s, one business leader after another was cutting corners. They sink faster to a lower prevailing morality than rise to a higher prevailing morality, but they still generally follow the crowd.

[CM: I want to make an apology. Last night, referring to some of our modern business tycoons – specifically, Armand Hammer – I said that when they’re talking, they’re lying, and when they’re quiet, they’re stealing. This wasn’t my witticism; it was used [long ago] to describe the robber barons.

We have 45 managers. Some of them we communicate with once a year, some once a month, some everyday. I usually have dinner with the Blumkins every month, and we go on vacation, because we’re friends. What we look for in managers is a passion for the business. They usually come to us. I’ve never bought from a financial seller. We can’t run the business so I am counting on them to behave well; we have very little in the form of contracts. The business needs to continue just the same after I hand them the check as before. My big question is whether he will still get up at 6 AM just the same with $500 million, and continue to send money toOmaha. I have to look them in the eye and decide whether they love the business or they love the money. It’s fine if they love the money, but they have to love the business more. Why do I come in at 7 every morning, can’t wait to get to work. It’s because I get to paint my own painting and I like applause.

We bought a jeweler, Ben Bridge. It was a 4th generation company, with over 100 stores. They were only interested in selling to us. The family didn’t want to sell to others, the employees didn’t want it. I never met him. He didn’t want to sell either, but the family needed it.

At Borsheims we have a woman from Zimbabwe. She didn’t even have the benefit of an MBA. We didn’t look at a resume, or grades, or HR recommendations, but were looking for passion and we’ll pay fairly because we don’t want the resent that comes with unfairness. We want people that will work regardless.

I got a fax from Pete at Forest River saying this is the type of business you would like to own. He didn’t want to worry about if he died tomorrow, and left his wife and daughter behind. After we made the deal, we had dinner and I brought up the topic of salary. I told him to name whatever number he wanted and I would sign the check. He asked me what I made. I told him $100,000 and he said he didn’t want to make more than me, so we settled on $100,000. Pete called yesterday, and said he wanted to make an offer for another business. We talked for five minutes, I gave him some advice, but I really give them a lot of freedom. I’ve spent $1.7 billion and I’ve never even been to the company, at least I hope it’s there.

I can’t look at this group and tell you which 3 are going to be great managers. I can see it after they’ve been doing it for a while. Look at Mrs. B. She had one son involved in the business and 3 daughters not involved. She wanted a way to fairly distribute the proceeds of the business and this solved her problem. She worked until she was 103, and died at 104. She lived two blocks from the store. She left price tags on the furniture at her home because it made her feel more comfortable, like she was in the store. She left Russia and landed in Fort Dodge, Iowa. She saved $500 for 16 years to start this business that has the top 2 furniture stores in the nation. You can’t hire those kinds of people, no matter what you pay them. We’ve been lucky that we’ve never lost a manager to competitors since 1965. Some retire, some were fired, but we give them the opportunity to paint their own canvas.

[CM: I think corporate managers should learn to be better investors because it would make them better managers.]

Charlie makes a good point. Managers should learn about investing. I have friends who are CEOs and they outsource their investing to a financial advisor because they don’t feel comfortable analyzing Coke and Gillette and picking one stock vs. the other. Yet when an investment banker shows up with fancy slides and a slick presentation, an hour later the CEO is willing to do a $3 billion acquisition. It’s extraordinary the willingness of corporate CEOs to make decisions about buying companies for billions of dollars when they aren’t willing to make an investment for $10,000 in their personal account. It’s basically the same thing.

[RE: Management Compensation in a Cyclical Industry?]

Buffett: That’s a terrific question. If you run a copper company and it’s at $3.50/lb., you could be the village idiot and coin money. But if it’s at 80-90 cents/lb., which is what it’s been for most of my life, there can be tough times.

We have a wide range of businesses at Berkshire – some are easy to run and some not. We have a wide range of compensation systems. Most people, left to select their own compensation systems, [will pick one that gives them big guaranteed rewards].

If we owned a copper-mining company in its entirely, we’d base compensation on costs of production, which management has control over, rather than things based on market prices, which they don’t control. Costs won’t fluctuate a lot. Compensation should tie to what is under the control of management. Try to understand what management can have impact on.

At GEICO, we measure and compensate management and employees on two factors: unit growth and the profitability of seasoned business. (New business initially costs us money and we want it, so we don’t penalize for it.)

If oil is $70 per barrel, I don’t think management has anything to do with it – in fact, they denied they did in front of Congress. I’d measure the cost of finding new reserves over time – the ability to discover and extract oil at low unit costs. Some firms are much better at this than others.

[RE: Management Compensation in General]

Munger: It’s easy to have a fair compensation system like we have at Berkshire. A lot of other public companies have fair systems, but about half have grossly unfair systems in which top management gets paid too much. But our impact on this matter has so far been about zero.

Buffett: We have 68 operating companies and I have responsibility for compensation of 40 managers (some have businesses grouped under them). I can’t think of anyone we’ve lost over a 40-year period because of different views on compensation. We’ve never had a comp consultant (maybe at a subsidiary, but they’re smart enough not to tell me [Laughter]). It’s not rocket science. But a complicated, confusing system works to the advantage of people who have their hand on the switch.

I was put on one comp committee, and Charlie can tell you what happened...

Munger: We were the largest shareholder at Salomon, we were both on the board and Warren was on the comp committee. [When it came time for bonuses, there was] a frenzy of envy. Warren pushed toward slightly – and I emphasize slightly – more reasonable compensation and was voted down.

Buffett: Charlie used the term envy, not greed. Our experience is that envy is what really drives people. You can give someone a $2 million bonus and they’re happy until they see the next guy got $2.1 million and then they’re miserable.

Charlie has pointed out that of the seven deadly sins, envy is the most useless, because you just make yourself miserable and can’t sleep. There’s real upside to gluttony – I’ve had some great times with gluttony. And we won’t get into lust. [Laughter]

Incidentally, the SEC wants more transparency in pay, which is a good idea, but it can become a shopping list. One CEO sees the other getting his haircuts paid for and he wants it too.

Munger: The question is about the unfairness of executive compensation and the effect on investors. Now that you know the question, you can solve it.

Buffett: There are more problems with having the wrong manager than the wrong compensation system. It’s enormously difficult to run a big company, so the greater sin is having the wrong person [as CEO vs. overpaying that person].

There is a natural tendency toward rising compensation due to ratcheting, the publicity of what other CEOs get and the lack of intensity of the bargaining process. You read about labor negotiations going on for weeks, both sides declare an impasse, they negotiate until 3 am, etc. When was the last time you heard about anything like this when a board negotiates pay with a CEO? There’s not parity in the negotiating process – one side really cares and the other doesn’t.

Comp consultants know that getting hired in the future depends on a recommendation from the CEO. Under those circumstances, it’s an unfair fight. It’s a joke.

I’ve been on 19 boards and they put me on one comp committee – and they regretted it. They’re looking for cocker spaniels, not dobermans. I try to pretend I’m a cocker spaniel, but nobody’s fooled. [Laughter]

What really drives it is envy, not greed. You pay someone $2 million and they might be quite happy until they hear that someone else got $2.1 million.

Charlie said of the seven deadly sins, envy is the worst because it makes you miserable. The other guy doesn’t care. Compare this to gluttony, which we’re about to do [referring to the See’s candy in front of them]. I’ve heard good things about lust, but I’ll let Charlie address that. [Laughter]

Compensation is not rocket science. We have very simple systems to compensate our people. We don’t make it complicated. We don’t pay them for things that are happening that they have nothing to do with.

If oil goes from $30 to $60, there’s no reason to pay [an oil company executive] for that. If they have low finding costs, which they can control, I’d pay them like crazy for that. That is the job you hire them for. To hand them huge checks for something they have no control over is crazy, and it’s equally crazy to penalize them if oil prices go down. If oil prices went down and my CEO had low finding costs, we’d pay him like crazy.

Munger: This process has contributed to the rise of comp consultants. It reminds me of the joke about why the woman told the census taker that the man of the house was in jail for embezzlement. Because she didn’t want to admit that her dad was a comp consultant. [Laughter]

[Q -Executive pay - what can we do to get the country and the issue going the right way?]

WB: Compensation - you can’t do much. There are relatively few people that could do a lot, by withholding votes. Big shots don’t like being embarrassed and it will make boards of directors sit up and take notice. It would not take many of the big institutions, only a few of the biggest, and the press would do the rest. You want a good press. The press needs material. I don’t know how you create incentives for big institutions to do that. A lot of checklists that institutions use are asinine. Ben Graham bemoaned investors as a bunch of sheep. The press would do the work if they had material, but they won’t respond to you. Small shareholders can write persuasive notes. It takes a real effective pressure to change behavior when self-interest is in their favor.

CM: In England, they got taxes up to 90%, so there was no possibility of earning a large income. That was counterproductive. You can get the politics of envy that ruins economics. I think people taking compensation have a moral duty not to take it; a moral duty to be underpaid. If generals and archbishops can do it, why can’t the leaders of a large enterprise take less than the last dollar? That said, it is very difficult to implement.

WB: Envy is the silliest [of all the sins], because you feel worse and the other people feel fine; maybe they feel better. Rule out envy as part of your repertoire. Gluttony has some upside, with maybe some temporary side effects. Lust—of course I’ll let Charlie speak to that. [laughter]

[Q - on executive compensation packages in capital-intensive companies.]

Buffett: We spend a lot of time talking about compensation in capital-intensive businesses. You must include a capital cost element in a compensation system. See’s Candies needs no capital. We think incentives are very important. Boards have relatively little impact on CEO compensation. The CEO has a big effect on his own compensation. They appoint their own compensation committee members, and CEOs aren’t looking for Dobermans—rather they’re looking for Cocker Spaniels. In my experience, boards have not thought about what to pay these people [CEOs]. There must be incentives to do the right thing and incentives not to do the wrong thing. Boards thinking like owners is ideal. Not every CEO wants a rational compensation policy. Who would, when an irrational system pays more? I don’t think there should be compensation committees. [The board should]: hire the right CEO, and make sure he doesn’t overreach. Boards don’t care as much as the guy on the other side of the table [when it comes to CEO compensation]. Boards have gotten better in recent years, but started from a very low base.

Munger: I would argue that liberal pay for directors is counterproductive. It would be better if boards were not paid at all.

Buffett: The SEC will question a real owner’s independence. To get business-savvy directors who think like real owners’ representatives on the board is tough. [Board] compensation arrangements are more baloney. If compensation is too high, [the director] is not independent. Highly paid boards aren’t going to argue with the CEO. It gets club-like. [Having] 100-page proxy statements explaining board compensation is wrong.

Munger: A director who has a lot to lose is loathe to be independent.

[Q - how shareholders can influence executive compensation.]

Buffett: The AIG outrage was probably disproportionate, but it doesn’t matter. You can’t legislate compensation. In the early Clinton administration, they legislated a cap on salaries, with unintended results. The Clinton administration attempt to do so was the worst legislation ever and resulted in much higher executive compensation. The result was taxes paid by shareholders and all kinds of counterproductive compensation arrangements. All you need is for the top half-dozen investment managers to speak out against the most egregious executive compensation arrangements. That would change behavior. The way to change big shots is to embarrass them. Directors don’t like to look foolish and see their names in the paper. There is no constraining factor now. Every compensation committee hires a consultant, who raises the recommended compensation. It ratchets up executive compensation. We have the honor system— shareholders have the honor, and the executives have the system. [laughter]

Munger: The manager is like the guy in a glass house throwing stones. Sometimes the cure is worse than the disease.

[Q - How do you determine management compensation plans at Berkshire?]

WB: I try to figure out if I owned the entire business what I’d pay them. This is not rocket science. The seventy businesses we have each have different economics – we don’t set a standard Berkshire compensation plan. A BNSF needs lots of capital, others could be run by a chimpanzee, while others with Alfred P Sloan as CEO couldn’t run them well. I try to figure out the best strategy – and we find that managers stay with us. It is not rocket science. But I spend time on it, and it takes ability to differentiate. An HR dept would be a disaster, and they would have people telling them all sorts of different equations. It requires common sense and interaction with managers. We agree on a measure of what they are adding to company.

CM: We have opposite system to GE and Army, and it works for us. Practically nobody is like us. It works, and makes us peculiar.

WB: I get worried when people agree with us. We have managers that will make tens of millions annually. Everyone wants to be treated fairly. The rationale should be understood, but there is no cross Berkshire rationale. It is ridiculous to put a cost of capital on each business. No difference if 40m or 43m or some other number is used in the business. The real thing is to pay managers for widening the moat that differentiates our business from competitors. I can’t think of a manager who has left us over compensation.

CM: Amazing how simple it has been, how little time it has taken, and how well it has worked. Headquarters is typically hated in the field. We don’t want an Imperial headquarters with charges imposed everywhere. We charge for credit, but that is it. Most headquarters charge for costs.

We’ve spent many years buying many things without meeting managements at all. The $5 billion of stocks we bought in the first quarter are mostly run by managements we’ve never talked to. We read a lot, 10Ks, etc.

If we buy the entire business, we care very much about management and whether they’ll behave in the future as they have in the past. We’ve had good luck with this.

But in marketable securities, we read the annual reports. Charlie and I read an annual report recently – it was very fancy – for an oil company that didn’t talk about finding costs per MCF [million cubic feet of gas] or barrel [of oil]. The most important metric, over time, wasn’t even discussed and when it was touched on, it was in a dishonest manner. That tells us a lot about the individual running the company. If he’s not willing to talk to the owners, even once a year, that makes me question the person. In marketable securities, however, we’ve still bought into some extremely good businesses run by people we didn’t care for because we thought they couldn’t screw them up.

Munger: Two things matter: if the quality of the business is good enough, it can carry bad management. The reverse isn’t true, though. It’s very rare for a great manager to take over a bad business, say the textile business, and make it great. You shouldn’t look for Warrens.

Buffett: It took me 20 years [to get out of the textile business]. If you asked me to run a tough business, I wouldn’t do it. It’s too tough. Even the best manager in the world couldn’t fix it. If you gave me first draft pick of all CEOs in America and you said it was my job to run Ford Motor now, I wouldn’t do it.

You have to understand that we cheat. If you give me 100 MBAs (I am meeting over 30 schools this year), I no more could take the 100 and rank them - it would be impossible. We buy businesses with great management in place. We have seen their record. They come with the business. Our job is not to select great managers; our job is to retain them. A majority of them are wealthy. They don’t have a monetary reason to work in many cases. We have 19 people at head- quarters and 250,000 around the world. Our job is to make sure they have the same enthusiasm. We have to see passion in their eyes and believe the passion will remain, but we can create an environment to keep them happy. At these annual meetings, we tell them what a great job they did and make them feel appreciated. We don’t have contracts — it doesn’t work. Our managers are appreciated.

I can’t be of help if you are looking at a group of MBAs. They know at this point in life how to fool you, what answers to give you. I would look for people with a passion for the job, doing more than their share, who are good communicators. In baseball, you have to hang up your cleats at 40, but our guys go on and on and on. Mrs. B worked until she was 103, then died the next year. That’s a good lesson for our managers. [laughter]

CM: Story of Howard Amundsen; a young man asked him how do you get ahead? He replied, ‘I always keep a few million dollars lying around just in case a good opportunity shows up.’

[Showed his blank schedule book]. Bill Gates is overscheduled. I am extremely lucky and I can say no to anything because there isn’t an entity that can use economic pressure to make me do something. A lot of CEOs get into a lot of the rituals that are part of the job. I would rather deliver papers than be the CEO of GE. They have too much stuff to do that is a big pain. Don’t get me wrong, CEOs have it pretty good. I’d imagine that every CEO in the Fortune 500 would be willing to take the job for half of the money. The 76 or so CEOs that run companies at Berkshire don’t have to deal with bankers or lawyers. At Berkshire, we’ve never had a meeting for all of them anywhere. There are no presentations and no committees. They can be more productive, and it makes it attractive when they can do what they like to do best.

CM: The crisis was started by lack of integrity. Fortunately some of them are now gone. Pope Urban said it about Cardinal Richelieu – if there is a god, Cardinal Richelieu has much to answer for. But if there is no God, he’s done rather well. Integrity is important. But everyone mouths the integrity even when it is lacking. Professing it is not same as doing it.

WB: Everyone else doing it is the problem. In 1993 stock options were going to be expensed. Accounting standards board backed off, and Senate voted 88-9 in support. Accounting Standards Board suggested doing it one of 2 ways, with first way preferred (expensing options through income statement). 498 companies chose #2. 2 companies took the preferred way. I spoke to many CEOs, and they said “I can’t do it, because the other guy isn’t doing it. I would be penalizing my shareholders if I report less than I can earn.” Situational ethics problem is huge. A study showed how rare it is to find a 4 in the third digit of EPS. Many find that 1/10 of a cent to round it up. We try to find ways to avoid inducing that behavior. There is no Berkshire budget. Many subsidiaries use them. But if they submit to me, temptation is to fudge to match it in some way. If others thought others were doing it, they would do it. You want structures that eliminate bad behavior, that minimize human weakness.

CM: So much of bad behavior comes not from malevolence, but from the subconscious justification of poor decisions as being just part of the system. Best cure is that people that make the decisions bear the consequences. No one felt any responsibilities on Wall Street, for making bad loans sold on to someone else. It is deeply immoral to create systems like this. Who do you see apologizing for our recent mess? People think they did fine.