Trust and Consequences: A Survey of Berkshire Hathaway Operating Managers

6 Pages Posted: 23 Oct 2015

See all articles by David F. Larcker

David F. Larcker

Stanford University - Graduate School of Business

Brian Tayan

Stanford University - Graduate School of Business

Date Written: October 20, 2015

Abstract

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?

The Stanford Closer Look series is a collection of short case studies through which we explore topics, issues, and controversies in corporate governance and executive leadership. In each study, we take a targeted look at a specific issue that is relevant to the current debate on governance and explain why it is so important. Larcker and Tayan are co-authors of the books Corporate Governance Matters and A Real Look at Real World Corporate Governance.

Keywords: Trust, decentralization, autonomy, ethics, corporate governance

JEL Classification: G3, G30, G34, M1, M10

Suggested Citation

Larcker, David F. and Tayan, Brian, Trust and Consequences: A Survey of Berkshire Hathaway Operating Managers (October 20, 2015). Rock Center for Corporate Governance at Stanford University Closer Look Series: Topics, Issues and Controversies in Corporate Governance No. CGRP-52; Stanford University Graduate School of Business Research Paper No. 15-53. Available at SSRN: https://ssrn.com/abstract=2678556

David F. Larcker (Contact Author)

Stanford University - Graduate School of Business ( email )

Graduate School of Business
518 Memorial Way
Stanford, CA 94305-5015
United States
650-725-6159 (Phone)

Brian Tayan

Stanford University - Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

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