The Buffett Essays Symposium A 20th Anniversary Annotated Transcript with Warren Buffett & Charlie Munger hosted and edited by Lawrence A. Cunningham The Buffett Essays Symposium A 20th Anniversary Annotated Transcript with Warren Buffett & Charlie Munger hosted and edited by Lawrence A. Cunningham Published and Distributed as a Joint Venture by The Cunningham Group & Harriman House Copyright © 2016 Lawrence A. Cunningham All rights reserved Library of Congress Cataloging-in-Publication Data Cunningham, Lawrence A., 1962— The Buffett Essays Symposium / Lawrence Cunningham. pages cm Includes transcription of live dialogue and annotation. Paperback ISBN: 978-0-85719-538-8 eBook ISBN: 978-0-85719-539-5 1. Berkshire Hathaway Inc. 2. Buffett, Warren. 3. Munger, Charlie. 4. Investments. 5. Management No one has a monopoly on truth or wisdom. We make progress by listening to each other. ELENA KAGAN A conversation is a dialogue, not a monologue. TRUMAN CAPOTE Tell me and I forget. Teach me and I remember. Involve me and I learn. BENJAMIN FRANKLIN Contents Prologue Production Note Contributors Greetings from Dean David Rudenstine Corporate Governance Finance and Investing Mergers and Acquisitions Accounting and Taxation Reminiscences Gallery Subsequent Steps Notes from Omaha Epilogue Prologue ntellectual sparks flew among Warren Buffett, Charlie Munger, and other guests at the 1996 symposium to launch The Essays of Warren Buffett: ILessons for Corporate America—then a manuscript few guessed would become an international bestseller. After governance expert Ira Millstein declared that boards must develop strategic plans for acquisitions, Buffett countered that “more dumb acquisitions are done in the name of strategic plans than any other.” When I and a colleague acknowledged including modern finance theory in our teaching, Munger chastised us for peddling “twaddle and gibberish”—quickly adding, “I like both these guys.” The two-day conference in New York City began on a Sunday in October, the day after the New York Yankees won the World Series. We probed profound issues of corporate life, topics still being argued about today by shareholders, directors, executives, judges, and scholars. I recently came upon the original tapes of the conference after an old friend, Peter Bevelin, asked me about the event. I had not examined this material in two decades but, when I did, I was struck by how many of the questions we discussed remain vital today. Plus ça change, plus c’est la même chose. For Buffett, change and continuity have been dominant themes since 1956. Back then, the 26-year-old prodigy formed a partnership to acquire small businesses and equity stakes in larger companies. In 1965, the partnership took control of Berkshire Hathaway Inc., a publicly-held and struggling textile manufacturer. The Buffett Partnership soon dissolved, with Berkshire shares distributed to the partners, Munger chief among them. Berkshire proceeded to acquire interests in diverse businesses, including insurance, manufacturing, and retailing. Under Buffett and Munger, Berkshire has gone through two massive transformations. In the first, the company went from a failed textile manufacturer into a prosperous investment vehicle by 1996. At that time, assets were comprised of 80% marketable securities and 20% in operating companies. In the second, since 1996, Berkshire morphed into a massive conglomerate. Today its assets are comprised 80% of operating companies and 20% marketable securities, though the latter’s market value exceeds $100 billion. Performance has been stellar: through 2015, results vastly exceeded benchmarks such as the Dow Jones Industrial Average or Standard & Poor’s 500. From 1965 to 2015, the Dow increased 18-fold while Berkshire increased 12,000 times, a compound annual rate of 21%, double the S&P. Despite changing from the partnership to the corporate form, Buffett preserved Berkshire’s sense of partnership. The legacy is reflected in the first of 15 principles stated for decades in Berkshire’s “owners’ manual”: “While our form is corporate, our attitude is partnership.” The “Berkshire system,” as Munger dubbed it in 2015, differs significantly from prevailing practices at other large American corporations. Buffett provides unconventional takes on numerous topics of corporate life, which is why his company and writings have been so fascinating to study all these years. In governance, the Berkshire emphasis is on trust not control; on mergers, Buffett favors letting shareholders rather than boards make final decisions; in corporate finance, he shuns debt and attracted legions of followers to the field of value investing; and on accounting and taxation, he shaped debates from stock options to merger accounting and raised public attention to inequality in his famous declaration that his secretary’s tax rate exceeds his own. Buffett’s writings are primarily contained in his letters to Berkshire shareholders, the centerpiece of the symposium. After carefully reviewing all those letters, I rearranged and collated them by topic into a 150-page booklet for the symposium: governance, investing, acquisitions, accounting, and taxation. At the symposium, a series of panels examined each, spanning more than twelve hours. Soon after, I prepared an edited version of the formal remarks and supervised the publication of a resulting academic volume of 800 pages, consisting of 18 articles and a transcript of 100 pages. In the two decades since, several of the articles have become classics in their fields and I have regularly released updated editions of The Essays of Warren Buffett: Lessons for Corporate America, which has been translated into a dozen languages. I invited Warren to participate in the symposium and volunteered to rearrange and republish his letters because my research indicated that they were valuable but underappreciated. I was honored that he accepted. He spent two days with a great crowd, which included many of my students, along with a dozen business law professors whom I enlisted to speak on the panels. Among these was my own teacher, Elliott Weiss, who first introduced me to Buffett’s writings and