Wednesday, April 08, 2009

Kremlinology, the Berkshire Way…and Some Good Questions for the Oracle


Here’s something you don’t see every day—and by “every day” we mean, “almost never”:

Marvin Beasley, Chairman and Chief Executive Officer of Helzberg Diamond Shops, Inc., an indirect wholly owned subsidiary of Berkshire Hathaway Inc. has advised Berkshire Hathaway Inc. that he has decided to resign effective today.
—Berkshire Hathaway, April 6, 2009


The last time the CEO of one of Berkshire Hathaway’s dozens of stand-alone subsidiaries resigned was twelve months ago, almost to the day.

That’s when Joe Brandon, CEO of General Reinsurance, Berkshire’s large and sometimes-troubled reinsurance unit, stepped aside for Tad Montross.


And before the Brandon resignation, you have to go all the way back to September 2001, when Gen Re’s previous CEO, Ron Ferguson, “retired”—around the time, coincidentally or not—investigators had begun looking into an earnings-manipulation insurance deal with AIG that subsequently sent Ferguson to prison.

The Helzberg press release is even more out-of-character for Berkshire, because Buffett is bringing in an outsider to run Helzberg—from J.C. Penney, no less:

Beryl Raff will replace Mr. Beasley as Chairman and Chief Executive Officer of Helzberg Diamond Shops, Inc. Ms. Raff has spent over 25 years in the retail jewelry industry. Most recently, Ms. Raff was Executive Vice President and General Merchandise Manager of fine jewelry for J. C. Penney Company, Inc.

We can’t recall Buffett ever bringing in an outsider to run a stand-alone company, at least since Buffett himself took over at Salomon Brothers in 1991.

And the third intriguing thing about Monday night’s press release is the absence of any mention of Mr. Beasley by Buffett, only the new CEO of Helzberg:

Warren E. Buffett, Berkshire’s Chairman and CEO said of Ms. Raff: “Beryl is widely recognized throughout the retail industry as an outstanding merchant and strong multi-store retail executive. She will bring a finely balanced blend of merchandising instinct and analytical sharpness to her new position.”

If there’s one thing you learn on a visit to Omaha—and the next annual meeting is coming up in a few short weeks—it’s that Buffett likes a happy family. That means everyone, from Berkshire shareholders to Berkshire managers.

So when Joe Brandon resigned from Gen Re last year, Buffett praised him effusively, saying “the luster” of Gen Re had been “restored.” And when Ron Ferguson resigned as CEO of Gen Re in 2001, Buffett did likewise for Ferguson, saying he possessed the “the very same qualities that I would want to see in a man who was going to marry my daughter.”

All of which causes us to wonder why Buffett said nothing in Monday night’s press release regarding Beasley, who seemed a decent enough replacement for a very tough act to follow—Jeffrey Comment, the well-liked former CEO of Helzberg who died suddenly in 2004.

Now, this bit of Kremlinology doesn’t mean much in the grand scheme of things. Helzberg is a relatively small piece of the Berkshire retail empire, with 270 stores and an estimated annual sales of a mere half billion dollars.


That's chump change in the Berkshire cash register.

Far more important will be the upcoming annual meeting, particularly the question-and-answer session which should, finally, offer some good, tough questions about the Berkshire businesses—something Buffett hasn’t had in years, since he was elevated by the public to the status of a sort of Zen Master/life teacher.

And we’re looking forward to hearing not just the questions, but Buffett’s responses.

After all, Buffett just had his worst year in 2008—and only his second down year since he started managing other people’s money in 1956 (try getting your mind around that: two down years in 53).
And based on the questions we’ve received for our Top Ten List of Questions we’re going to submit to the New York Times’ Andrew Ross Sorkin, there could be some good ones.

By “good” we don’t mean irrelevant, obnoxious or disrespectful (save one, and it's a doozy, but it's neither irrelevant nor obnoxious). We mean good.

So be sure to cast your votes for the Top Ten—and remember to vote up to ten times, but no ballot-stuffing for a single question.


Thus far we have several very clear winners, but the virtual ballot box is open until tax day, April 15.

Our bet is Buffett himself is going to enjoy the opportunity to answer them, instead of, say, the one he got last year about whether he believes in God and has “a personal relationship with Jesus Christ.” If you want to read how he answered that one last year, it’s in “Pilgrimage to Warren Buffett’s Omaha.”

And if you want to read how he answers this years’ batch, stay tuned to these virtual pages…and the sequel to “Pilgrimage.”

It is coming soon, courtesy of McGraw-Hill. We are not making that up.


Jeff Matthews
I Am Not Making This Up


© 2009 NotMakingThisUp, LLC

The content contained in this blog represents the opinions of Mr. Matthews.
Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice. It should never be relied on in making an investment decision, ever. Nor are these comments meant to be a solicitation of business in any way: such inquiries will not be responded to. This content is intended solely for the entertainment of the reader, and the author.

2 comments:

Anonymous said...

Jeff - it seems you can't vote for ten questions. Its one and done given the cookies.

Anonymous said...

Jeff,

You mentioned that some people watch the proceedings via satellite. Do you or any readers know any of the details regarding options for watching the annual meeting remotely? I am a Berkshire shareholder, but won't be able to attend the meeting. I'm surprised that Berkshire doesn't offer a webcast option for shareholders (or other interested parties).

Thanks, Jeff. Please keep up the consistently terrific work.