Berkshire Hathaway 2009 Annual Meeting Audience Question # 36

Warren and Charlie are not big believers of contracts

Warren Buffett:

OK, let’s go to number 6.

Audience Member:

Yes, sir. Mr. Buffett, Mr. Munger, I’m Chuck Hosmer from California.

And you mentioned earlier the union cooperation at the Buffalo newspapers. Without the introduction of unions, how do you view contracts for other employees of BRK subsidiaries?

Warren Buffett:

I’m just trying to think whether we have any real contracts.

Charlie Munger:

I hope not.

Warren Buffett:

Yeah, we are not big believers in contracts. We hand people hundreds of millions or billions of dollars, in some cases, to sell us their business.

And the decision we have to make is, are they going to have the same passion for the business after they hand us the stock certificate and we hand them the money? Are they going to have the same passion that they had beforehand?

And if we’re wrong on that, no contract is going to save us.

We don’t want relationships that are based on contracts. So… I can’t… you know, I’m… I can’t really think of a formal contract that we have.

We have understandings about bonus arrangements and that sort of thing… and that’s not that complicated… with various managers.

I mean, we have… the comp of the top person at each company is basically my responsibility. And we have all kinds of different arrangements, because we have all kinds of different businesses.

Some of our businesses, capital’s an important factor. So you have to put that in the comp arrangement. Some of it, capital doesn’t mean a thing. Some of our businesses are very easy and very profitable. Some of them are very tough. And it takes a genius to, you know, to get a so-so result.

So we have a whole bunch of different arrangements on that. But we don’t try to hold people by contracts. And it wouldn’t work.

And we basically don’t like engaging in them. So you’re looking at a company that… can you think of any contracts we have,


Charlie Munger:

No. Our model is a seamless web of trust that’s deserved on both sides. That’s what we’re aiming for. The Hollywood model, where everyone has a contract, and no trust is deserved on either side, is not what we want at all.

Warren Buffett:

Yeah, we don’t… we do not want to negotiate the size of the executive bathroom. I mean, that is not our game.

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