Berkshire Hathaway 1997 Annual Meeting Transcript

Transcript of the 1997 Berkshire Hathaway Annual Meeting held on May 5, 1997 on Omaha, Nebraska:

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(To see the full transcripts of all Berkshire Hathaway Annual Meetings on record, click here)

Warren explains how the meeting will proceed

Warren Buffett:

Good morning. I’m Warren Buffett, the chairman of Berkshire Hathaway, as you probably have gathered by now.

I had a real problem last night. I was losing my voice almost entirely. I don’t want you to think I lost it cheering for myself this morning here. I think I’ll do all right, but we’ve always got Charlie here to… he’s always done the talking. I just move my lips, you know.

So I’d like to tell you a little bit about how we’re going to conduct things. And then we’ll go through a script that was written by the speechwriter for Saddam Hussein. It has all the warmth and charm and participatory elements you’d expect.

And we’ll get through the business of the meeting as promptly as we can, which is usually about five or six minutes. And then Charlie and I will answer questions, your questions until noon, when we’ll have a break for about a half an hour.

There’s food outside all the time. And then at 12:30 we’ll reconvene, and we’ll go till 3:30 or thereabouts. And I hope my voice lasts. We’ve got various non-Coca-Cola products here designed to keep it going.

We’ll have a zone system where we have 12 microphones placed around, and… I believe it’s 12… and we’ll just go around in order. And if you’ll go to the microphone nearest you, there will be someone there who will try to arrange the people… get to ask questions in the order in which they arrived. And we’ll make sure that everybody gets a chance to ask their questions before people go on to second questions.

Particularly in the afternoon, we’ll make a special effort to answer the questions from people that have come from outside North America. We really got quite an attendance today. All 50 states… at least in terms of tickets… all 50 states are represented.

We had… I had it here somewhere. Yeah, we had ticket requests, at least, and I met a number of people from South Africa, Australia, Brazil, England, France, Germany, Greece, Hong Kong, Ireland, Iceland, Israel, Saipan, New Zealand, Saudi Arabia, Singapore, Sweden, Switzerland.

So when people have come from that sort of distance, we want to make sure that they… obviously we want to make sure that they particularly get their questions answered.

Interestingly enough, we have an increased percentage from last year who come from Nebraska this year. And you have to be a little careful in interpreting that, because some people say they’re from Nebraska and really aren’t, because for status reasons they, you know, like that.

So make them produce their driver’s license if they tell you they came from Nebraska.

Start of formal annual meeting and introduction of Berkshire’s directors

Warren Buffett:

I think that’s most of the preliminaries, so I’m going to get into this. We’ll get the meeting over with here promptly with your cooperation.

And I will go through this little script that’s been prepared for me, and it says, the meeting will now come to order. I’m Warren Buffett, chairman of the board of directors of the company. I welcome you to this 1997 annual meeting of shareholders.

I will first introduce the Berkshire Hathaway directors that are present in addition to myself. I’ve introduced you to Charlie already.
And the other directors, I believe, are in the front row here. If they’d stand when I mention their names, you can withhold any applause until finished, and then it’s optional.

Howard Buffett, Howie you want to stand up? Susan Buffett. Walter Scott. And Malcolm Chace III, “Kim” Chace. And that is our extensive directorate.

Give them a lot of applause because they don’t get much else for it. It’s a rather low-paying board.

Also with us today are partners in the firm of Deloitte and Touche, our auditors. They are available to respond to appropriate questions you might have concerning their firm’s audit of the accounts of Berkshire.

Mr. Forrest Krutter is secretary of Berkshire. He will make a written record of the proceedings.

Miss Becki Amick has been appointed inspector of elections at this meeting. She will certify to the count of votes cast in the election for directors.

The named proxy holders for this meeting are Walter Scott Jr. and Marc B. Hamburg. Proxy cards have been returned through last Friday representing 1,012,050 Class A Berkshire shares and 645,940 Class B Berkshire shares, to be voted by the proxy holders as indicated on the cards. That number of shares represents a quorum, and we will therefore directly proceed with the meeting.

We will conduct the business of the meeting and then adjourn the formal meeting. After that we will entertain questions that you might have.

First order of business will be reading of the minutes of the last meeting of shareholders, and I recognize Mr. Walter Scott Jr. who will place the motion before the meeting.

Walter Scott Jr.:

I move the reading of the minutes of the last meeting of shareholders will be dispensed with.

Warren Buffett:

Do I hear a second?

Audience:

(This part of the audio is inaudible)

Warren Buffett:

We got a second. The motion has been moved and seconded. Are there any comments or questions? We will vote on this motion by voice vote. Those in favor say “aye.”

Audience:

Aye.

Warren Buffett:

Opposed? Say, “I’m leaving.”

The motion is carried. Does the secretary have a report of the number of Berkshire shares outstanding, entitled to vote, and represented at the meeting?

Forrest Krutter:

Yes, I do. As indicated, a proxy statement that accompanied the notice of this meeting that was sent by first-class mail to all shareholders of record on March 7, 1997, being the record date of this meeting, there were 1,205,078 shares of Class A Berkshire Hathaway common stock outstanding, with each share entitled to one vote on motions considered at the meeting, and 815,015 shares of Class B Berkshire Hathaway common stock outstanding with each share entitled to 1/200th of a vote on motions considered at the meeting. Of that number, 1,012,050 Class A shares and 645,940 Class B shares are represented at this meeting by proxies returned through last Friday.

Warren Buffett:

Thank you. If a shareholder is present who wishes to withdraw a proxy previously sent in and vote in person on the election of directors, he or she may do so.

Also, if any shareholder that is present has not turned in a proxy and desires a ballot in order to vote in person, you may do so. If you wish to do this, please identify yourself to meeting officials in the aisles who will furnish a ballot to you.

Will those persons desiring ballots please identify themselves so that we may distribute them?

Berkshire’s Directors are formally elected

Warren Buffett:

Okay, the one item of business for this meeting is to elect directors. I now recognize Mr. Walter Scott Jr. to place a motion before the meeting with respect to election of directors.

Walter Scott Jr.:

I move that Warren E. Buffett, Susan T. Buffett, Howard G. Buffett, Malcolm G. Chace III, Charles T. Munger, and Walter Scott Jr. be elected as directors.

Warren Buffett:

It sounds good to me. Is there a second?

It has been moved and seconded that Warren E. Buffett, Susan T. Buffett, Howard G. Buffett, Malcolm G. Chace III, Charles T. Munger, and Walter Scott Jr. be elected as directors. Are there any other nominations? Is there any discussion?

My kind of group.

The nominations are ready to be acted upon. If there are any shareholders voting and present, they should now mark their ballots on the election of directors and allow the ballots to be delivered to the inspector of elections. Think we had one or two to collect there.

Would the proxy holders please also submit to the inspector of elections a ballot on the election of directors, voting the proxies in accordance with the instructions they have received?

Miss Amick, when you are ready you may give your report.

Becki Amick:

My report is ready. The ballot of the proxy holders in response to proxies that were received through last Friday cast not less than 1,015,697 and 2,300 votes for each nominee. That number far exceeds the majority of the number of the total votes related to all Class A and Class B shares outstanding.

The certification required by Delaware law of the precise count of the votes, including the additional votes to be cast by the proxy holders in response to proxies delivered at this meeting, as well as those cast in person at this meeting, if any, will be given to the secretary to be placed with the minutes of this meeting.

Warren Buffett:

Thank you, Miss Amick.

Warren E. Buffett, Susan T. Buffett, Howard G. Buffett, Malcolm G. Chace III, and Charles T. Munger, and Walter Scott Jr. have been elected as directors. After adjournment of the business meeting I will respond to questions that you may have that relate to the business of Berkshire but do not call for any action at this meeting.

Does anyone have any further business to come before this meeting before we adjourn? If not, I recognize Mr. Walter Scott Jr. to place a motion before the meeting.

Walter Scott Jr.:

I move this meeting be adjourned.

Warren Buffett:

Second?

Audience:

(This part of the audio is inaudible)

Warren Buffett:

Motion to adjourn has been made and seconded. We will vote by voice. Is there any discussion? If not, all in favor say “aye.”

Audience:

Aye.

Warren Buffett:

Opposed, say “no.” The meeting is adjourned.

You’re a very good group. You know, in that movie they said something about $350,000 an hour, and I see you’re conserving your money here by moving this thing right along.

Q&A Guidelines

Warren Buffett:

Now we’re going to answer questions. And if you’ll just go to the nearest microphone, and let’s see where we start here. I’m just orienting myself to a map here. And we have area 1 is right here.

I might describe this ahead of time. We have six areas on the main floor and we have six areas throughout the balcony. And they sort of work their way back one through six, and then seven starts over here, and then it works its way around to 12. And we look forward to having questions, the tougher the better. And if you always would just identify yourself and where you’re from, and that you’re a shareholder.

Q&A – Morning Session

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1. There’s not much customer loyalty in the food business.
2. Beware of paying too much even for great companies.
3. Why shareholders holding their stock in street name is not eligible to make recommendations for donations.
4. The Berkshire annual reports are “sort of a book on the installment system” written by Warren.
5. Charlie: Warren targeting 15 percent growth per annum on Berkshire’s book value is “not modest, it’s arrogant”.
6. Shareholders that owned Berkshire longer than Warren and Charlie.
7. Berkshire’s corporate jet will be renamed from “The Indefensible” to “The Indispensable”.
8. Warren thinks in terms of business risk and not stock market risk.
9. On the calculation of owner earnings.
10. How ABC is doing after being acquired by Walt Disney.
11. Berkshire will not split its stock even if there’s a capital gains tax cut.
12. Invest in businesses that you understand and feel very certain about.
13. On the future of Salomon Brothers.
14. The only ways to switch shares in one company into shares of another is to have a tax-free merger or form a partnership.
15. What Warren think will be the growth rate of Berkshire’s insurance float and other businesses in the coming years. To read about what insurance float is, click here.
    
16. Money managers have continued to underperform index funds.
17. Warren still thinks he made a mistake getting into USAir.
18. Should anyone put all their money into Berkshire Hathaway instead of maintaining a diversified portfolio?
19. Warren won’t discuss what Berkshire owns now, but admits having owned tobacco stocks in the past.
20. Warren comments on the anti-abortion protesters outside the meeting venue.
21. Berkshire stock is now more appropriately valued than it was a year ago.
22. Warren and Charlie recommends the World Book over Encarta.
23. On the just rate of taxation on Capital and the future of industrial America.
24. A share of class A stock can be exchanged for 30 shares of class B stock forever, but you cannot do it in reverse.
25. Why Warren is able to evaluate a potential acquisition in just 5 minutes.
26. Warren’s normal day.
27. Warren and Charlie talks about executive compensation.

Start of afternoon session

Warren Buffett:

Okay. If we’re live now… what we might do is maybe have just… I think maybe we only need four microphones for the afternoon session. So we’ll have two on each side, one toward the back, one toward the front. And we’ll just go around in four microphones. Are we okay on that?

And we’ll start just one second. Everybody has a chance to get to their seats.

Charlie has promised to stop tapping the Coke can during this… session.

Charlie Munger:

I only did that when somebody else was talking.

Warren Buffett:

Number 2? Okay.

I used to have a friend that was a stock salesman many years ago. And when you’d have lunch with him, he would just keep going like this: (knocking sound).

And finally, it would get to you. And you’d say, “What’s that?” And he’d say, “That’s opportunity.”

He was pretty good.

Q&A – Afternoon Session

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1. How to determine a company’s intrinsic value.
2. Warren’s fair valuation of the Dow Jones and S&P.
3. When Berkshire stock is cheap, there are almost always other great companies that are cheaper.
4. Warren’s opinion about investing in foreign companies.
5. Warren and Charlie on the Kansas Bankers business and its competitors.
6. Sometimes doing debt deals with a company makes more sense than buying its stock.
7. On whether the upcoming capital gains tax reduction cause increased selling pressure on Berkshire stock.
8. Did Hurricane Andrew destroy the super-cat insurance industry?
9. The importance of a large margin of safety.
10. The best thing to do is learn from other guys’ mistakes.
11. Government bonds are a useful yardstick to compare all kinds of investment opportunities.
12. Berkshire’s different insurance businesses all have different characteristics but they are all “very, very good businesses”.
13. Why there aren’t more companies like Berkshire Hathaway.
14. American companies can’t have a return on equity of 22 percent forever.
15. Warren explains what he calls the “mind of the consumer” and the “nature of the product”.
16. Do something you enjoy doing and not for the money.
17. Warren have “no problem whatsoever with gays being employed or receiving benefits or anything of the sort”.
18. Warren and Charlie don’t pay any attention to capital flows.
19. On buying companies for Berkshire, Warren prefers businesses with low costs of any kind.
20. The idea of intellectual capital and how that might be useful in valuing a business.
21. Warren have trouble distinguishing which pharmaceutical company to invest in.
22. A good general education helps investment performance.
23. Investors should stick to buying ownership in businesses.
24. Warren and Charlie have never looked at hazardous waste disposal companies.
25. How Warren adjusts a buying price for risk and expects GEICO’s float to grow in the future.
26. On the intrinsic value of the companies Warren likes to call “The inevitables”.
27. Warren and Charlie talks about Wesco.
28. On the evolution of Warren’s investment philosophy.
29. How McDonald’s stack up against the “The inevitables”.
30. On the aspects of the environmental impact in our accounting system.
31. On how much claim Berkshire’s operating businesses have on the company’s marketable securities portfolio.
32. Warren and Charlie expects average returns from stock market index-type investing to regress somewhat down.
33. You should just hold a business you understand and think is a really outstanding business and don’t worry.
34. Warren and Charlie’s filters when looking at a company.
35. On Warren’s organizational model and the future of Dr. Pepper.
36. Warren and Charlie would like to buy cheap stocks if they are available but not in a way that would cause them to lose a minute of sleep about fulfilling Berkshire’s obligations.

End of Q&A

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