Berkshire Hathaway 2017 Annual Meeting Audience Question # 32

Warren and Charlie prefers to buy companies that are run efficiently

Warren Buffett:

Panel all here? OK. We’re back for action. And we’ll go right to Becky.

Becky Quick:

All right. This question comes from Anne Newman. She says that she’s a shareholder of the Class B stock.

And her question is, “The primary investment strategy of 3G Capital is extreme cost-cutting after the purchase of a company. This typically includes the elimination of thousands of jobs.

“With the current U.S. president focusing on retention of U.S. jobs, will Berkshire Hathaway still consider future investments with 3G Capital if those investments result in the purchase of U.S. companies and the elimination of more U.S. jobs?”

Warren Buffett:

Now, the, essentially, 3G management… and I’ve watched them up very close at Kraft Heinz… is… basically, they don’t… they believe in having a company as productive as possible.

And, of course, the gains in this world, for the people in this room, and people in Omaha, and people throughout America, have come through gains in productivity.

If there had been no change in productivity, we would be living the same life as people lived in 1776.

Now, the people… the 3G people… do it very fast. And they’re very good at making a business productive with fewer people than operated before.

But that… they’ve been, you know, we’ve been doing that in every industry, whether it’s steel, or cars, or you name it. And that’s why we live as well as we do.

We prefer at Berkshire… I wrote about this a year ago… we prefer to buy companies that are already run efficiently because, frankly, we don’t enjoy the process at all of getting more productive. I mean, it’s not pleasant.

But it is what has enabled the country to progress. And nobody has figured out a way to double people’s consumption per capita without, in some way, improving productivity per capita.

It’s a good question in the… whether it’s smart overall if you think you’re going to suffer politically because political consequences do hit businesses. So I don’t know that I can answer the question categorically.

But I can tell you that they not only focus on productivity and do it in a very intelligent way, but they also focus, to a terrific degree, on product improvement, innovation, and all of the other things that you want a management to focus on.

And I hope that, at the lunchtime, if you had the Kraft Heinz cheesecake, you’ll agree with me that product improvement and innovation there is a… is just as much a part of the 3G playbook as productivity. I don’t…

Personally, we have been through the process of buying into a textile business that employed a couple thousand people and went out of business over a period of time, or a department store, a business that was headed for oblivion.

And it is just not as much fun to be in a business that cuts jobs rather than one that adds jobs.

So, Charlie and I would probably forego, personally, having Berkshire directly buy businesses where the main benefits were come… would come from increasing productivity by actually having fewer workers.

But I think it’s pro-social to think in terms of improving productivity. And I think that people at 3G do a very good job at that.

Charlie?

Charlie Munger:

Well, I agree. I don’t see anything wrong with increasing productivity. On the other hand, there’s a lot of counterproductive publicity to doing it. Just because you’re right doesn’t mean you should always do it.

Warren Buffett:

Yeah. I’d agree with that.

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