Trust and Consequences: A Survey of Berkshire Hathaway Operating Managers

For much of its history, Berkshire Hathaway has been regarded primarily as the investment vehicle of Warren Buffett rather than a bona fide corporation. However, as Berkshire Hathaway has expanded beyond its core insurance operations, more attention is being paid to the structure by which these entities are managed. Notable features of the company’s system are its decentralization, the autonomy afforded to its managers, its long-term investment horizon, and its emphasis on ethical behavior.

We explore this system in greater detail, based on the results of a survey of the chief executive officers of the company’s operating subsidiaries. We ask:

• How important is a “trust-based” system to the company’s results?
• When is it appropriate for corporate overseers to take a hands-off approach to management, and when is greater involvement warranted?
• Could elements of the Berkshire Hathaway system be adopted more broadly? When would it succeed, and when might it fail?
• What actions can corporations take to extend the investment horizons of their managers?
• How important is integrity to business results? What actions can corporate overseers take to extend ethical behavior throughout a company?