Category: Culture

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Buffett’s Evolution: From Stock-Picking Disciple of Ben Graham to Business-Building Devotee of Tom Murphy

While everyone knows that Warren Buffett modeled himself after Ben Graham for the stock picking that made Buffett famous in the latter 20th century, virtually no one knows a more important point for the 21st century: he has modeled himself after Tom Murphy in assembling a mighty conglomerate.   Murphy, a legendary executive with great skills in the field of acquisitions that resulted in the Capital Cities communications empire, engineered the 1985 $3.5 billion takeover by Capital Cities of ABC before selling it all to to Disney a decade later for $19 billion.  You did not hear that explicitly at Saturday’s Berkshire Hathaway annual meeting, but Warren mentioned it to me at brunch on Sunday and, when you think about it, it’s a point implicit deep in the meeting’s themes and many questions.

In fact, Berkshire mBBB COvereetings are wonderful for their predictability.   Few questions surprise informed participants and most seasoned observers can give the correct outlines of answers before hearing Buffett or vice chairman Charlie Munger speak. While exact issues vary year to year and the company and its leaders evolve, the core principles are few, simple, and unwavering.  The meetings reinforce the venerability and durability of Berkshire’s bedrock principles even as they drive important underlying shifts that accumulate over many years.  Three examples and their upshot illustrate, all of which I expand on in a new book due out later this year (pictured; pre-order here).

Permanence versus Size/Break Up. People since the 1980s have argued that as Berkshire grows, it gets more difficult to outperform. Buffett has always agreed that scale is an anchor. And it’s true that these critics have always been right that it gets harder but always wrong that it is impossible to outperform.   People for at least a decade have wondered whether it might be desirable to divide Berkshire’s 50+ direct subsidiaries into multiple corporations or spin-off some businesses.  The answer has always been and remains no.  Berkshire’s most fundamental principle is permanence, always has been, always will be. Divisions and divestitures are antithetical to that proposition.

Trust and Autonomy versus Internal Control. Every time there is a problem at a given subsidiary or with a given person—spotlighted at 2011’s meeting by subsidiary CEO David Sokol’s buying stock in Lubrizol before pitching it as an acquisition target—people want to know whether Berkshire gives its personnel too much autonomy. The answer is Berkshire is totally decentralized and always will be-another distinctive bedrock principle. The rationale has always been the same: yes, tight leashes and controls might help avoid this or that costly embarrassment but the gains from a trust-based culture of autonomy, while less visible, dwarf those costs.

Capital Allocation: Berkshire has always adopted the doubled-barreled approach to capital allocation, buying minority stakes in common stocks as well as entire subsidiaries (and subs of subs).  The significant change at Berkshire in the past two decades is moving from a mix of 80% stocks with 20% subsidiaries to the opposite, now 80% subsidiaries with 20% stocks.  That underscores the unnoticed change: in addition to Munger, Buffett’s most important model is not only Graham but Murphy, who built Capital Cities/ABC in the way that Buffett has consciously emulated in the recent building of Berkshire.

For me, this year’s meeting was a particularly joy because I’ve just completed the manuscript of my next book, Berkshire Beyond Buffett: The Enduring Value of Values (Columbia University Press, available October 2014). It articulates and consolidates these themes through a close and delightful look at its fifty-plus subsidiaries, based in part on interviews and surveys of many subsidiary CEOs and other Berkshire insiders and shareholders.   The draft jacket copy follows. Read More

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Self-Defense and the Fourteenth Amendment

negroes_with_guns-01

Dance and sing you black creatures

of Mother Africa.

Move to the sound of the drums

of your forefathers.

Hold on to your drums and beat

them in defiance of the slavemaster and

let their thundering sound awaken those who sleep.

–Mabel Robinson Williams, Transition (1966)

 

Mabel Robinson Williams passed away last week.  Williams may have been most famous for being married to Robert F. Williams, the controversial former head of the NAACP in Monroe County, NC, but she was an intriguing theorist and fierce activist in her own right.  She recalled that her father slept every night with a pearl-handled pistol under his pillow in case the Klan’s night riders attacked.  As an adult, she served as Secretary of the local NAACP, co-founded a newsletter called The Crusader, organized a mutual aid society called CARE, and helped run Radio Free Dixie.  Mabel called herself a “co-warrior” and “helpmate” to Robert, even as she served as a nurse’s aid and later operated a day care.  When her sons joined a picket against a segregated swimming pool, she sat in the car with guns, keeping one eye out for armed whites.  She and other female members of a rifle club trained to protect their families against the Klan.  Once, Mabel came out of her house with a shotgun and chased off deputies trying to arrest her husband.

Husband and wife worked together on Negroes With Guns (1962), which articulated a theory of self-defense of constitutional rights.  The Williamses “did not advocate violence for its own sake,” nor did they urge “reprisals against whites.”  Instead, they argued that armed self-reliance was compatible with the tactics of peaceful protest promoted by Martin Luther King, Jr. to promote legal change (but they blamed proponents of non-violence for inflexibility in demanding that blacks renounce their right to self-protection).  In their view, armed self-defense was justified because of a “breakdown of the law” in failing to protect black families from armed whites.  As they tell it, Brown v. Board of Education unleashed not only generalized racial unrest in the South, but also a wave of violence directly against NAACP members and their allies.  “[T]here was no such thing as a 14th Amendment to the Constitution in Monroe, NC,” because local officials refused to enforce the law and protect the life, liberty, and property of black families.  Federal and state officials, too, were nowhere to be found.  In fact, many in the community believed that state and local officials were conspiring to deprive black Americans of their constitutional rights. Black self-defense filled this gap in the constitutional order.

Any limited theory of armed self-defense became greatly complicated by the pair’s embrace of Marxist revolutionary ideas about the worldwide liberation of the oppressed.  Negroes With Guns predicted a day when racial violence in the United States became so pervasive that “non-violence will be suicidal in itself.”  It cited with approval the legacy of John Brown favoring the “righteous use” of weapons to “destroy those things that block [the American Negro’s] path to a greater happiness in life.”  Linking armed tactics with revolutionary ends blurred the lines between constitutional preservation and constitutional usurpation–a recurring problem that faced all black power groups during this period.  In theory and practice, it became difficult to draw clear lines between self-defense and the armed instigation of foundational change.

After a protest turned unruly and Robert Williams was charged with kidnapping a white family (he claimed to be protecting the family from a mob), the pair fled.  While in exile in China, Robert briefly held the Presidency of the Republic of New Afrika, founded by the followers of Malcolm X after his assassination.  Professor Pero Gaglo Dagbovie recounts that in later years, Mabel became a community historian and keeper of an oral tradition of the Black Power period.  This tradition includes not only the major events that transpired during a tumultuous period of American history, but also popular interpretations of the law.

Now you can insist on control of your material. You can insist on veto power over everything; down to casting and choice of directors and script approval, you can insist on all those things. J.K. Rowling insisted on all those things. And J.K. Rowling got all those things because there were enough people interested in that. Now if you’re not J.K. Rowling, and you insist on all those things, the studios are not going to be very interested or less studios will be interested in it so you’ll get less money or none at all. Or alternatively, you can not insist on everything and you can just sell them the book and what they do with it is what they do with it and you have to live with it. You no longer have approval over anything, you no longer have…you know what I mean? And those are the two extremes. In between of course there’s a vast area of shades of gray.

— George R. R Martin

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George R. R. Martin on Copyright, Inheritance, and Creative Control

He cares much more about French dynastic history than you do.

He cares much more about French dynastic history than you do.

This is Part 3 of the interview I did with George R. R. Martin in  2007.  For background and part 1, click here.  For Part 2, click here. For the audio file, click here.

HOFFMAN: Yeah, but you just generally right. The trope something that really speaks to folks. I guess maybe that raises a question about your fans generally. You’ve obviously got a huge fan base and I’ve been reading a little bit about them. One question that comes up a bunch of different times is fan fiction and what do you think about fan fiction?

MARTIN: I’m opposed to fan fiction.

HOFFMAN: Why?

MARTIN: Well number one, its copyright infringement and it can potentially endanger my copyrights and my trademarks if I were to allow it. Also, yes maybe it’s a gesture of love that they love your characters and they love your world and all that but it’s not the kind of gesture of love that I really want. And for aspiring writers and some of these people, sure it’s a wide range of fan fiction writers, some who are terrible. Some of them are actually talented writers. I think for the talented writers it’s particularly tragic because they should be doing their own material.

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Infinite Punishment

Can a society that pours ever more resources into “guard labor” be truly innovative? It turns out that yes, we can:

Philosopher Rebecca Roache is in charge of a team of scholars focused upon the ways futuristic technologies might transform punishment. Dr Roache claims the prison sentence of serious criminals could be made worse by extending their lives. Speaking to Aeon magazine, Dr. Roache said drugs could be developed to distort prisoners’ minds into thinking time was passing more slowly. “There are a number of psychoactive drugs that distort people’s sense of time, so you could imagine developing a pill or a liquid that made someone feel like they were serving a 1,000-year sentence,” she said.

Manipulating the subjective experience of punishment used to depend primarily on external factors, like cell size, terms of socialization, or lighting. An emerging pharma-prison complex could bring a whole new level of efficiency to the guard labor sector. Would our courts recognize such a drug as “cruel and unusual?” Considering the terms of confinement now routinely accepted in the American prison system, that’s anyone’s guess.

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Bottlenecks and copyright

Yes, you read that headline correctly. This post explores how Joseph Fishkin’s new theory of equal opportunity applies to… copyright law. As I hinted earlier, this is seemingly an unlikely connection. It is thus a connection that uniquely demonstrates the generativity of Bottlenecks.

Other posts in this symposium by Wendy Greene and Jessica Roberts have explored how Bottlenecks applies in the context of workplace anti-discrimination rules. Brishen Rogers extends the workplace focus by exploring how labor unions fit into the theory. And my own earlier post connects Bottlenecks to legal education reform.

Copyright scholarship, however, is not where we expect to encounter a new theory of equal opportunity. Yet that is where I found myself applying Fishkin’s framework, which finally provided the language and conceptual clarity to express what struck me as so profoundly problematic within my own field.

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Does Apple Reject That Education Has To Train Skills?

Apple’s Your Verse ad campaign poses an odd and maybe cynical offer to us. Don’t pay attention to the call of law, business, or medicine. Be a poet. Be a creator. Contribute your verse. What are we on American Idol? Or as Monty Python put it maybe all we want to do is sing. Apple panders to the look at me right now world. The film is about free thinkers. Maybe that is the same as being a poet. And as Kevin J.H Dettmar argues at The Atlantic, the film is “a terrible defense of the humanities.” He points out that the film celebrates enthusiasm over any critical thought” “Keating doesn’t finally give his students anything in its place besides a kind of vague enthusiasm.”

Having gone to a prep school, I am less upset by the film than Dettmar. But then I may project my experience onto the film’s gaps. Even before prep school I went to a grade school where the boring “Latin—Agricolam, Agricola, Agricolae, Agricolarum, Agricolis, Agricolas, Agrilcolis” was part of the curriculum in eighth grade. That teacher happened to have done his own translation of Caesar’s Road to Gaul. He’d re-enact charges of legions and evoke swords. In high school we had many inspiring teachers. They kicked our butts for fake enthusiasm. Larry McMillin once asked me a question about Shaw’s Man and Superman. I came up with some ramble. He said “That’s not Shaw. That’s just Desai,” in his Southern gentlemen’s voice that somehow had scorn yet support. Support. For what? He called me out but made me see that I could do more. How?

Rigor. To the waste bin with brownie points for showing up. Be gone empty claims of it’s good, because I said it. Learn the fundamentals. Master the material. As Phillipe Nonet said to my class in college when someone started a sentence with “I think”, “That you think it, does not matter. It matters what it says.”

It turns out that free thinking is much more difficult than Keating realizes. The rigor of learning the fundamentals allows us to be liberated. Liberal arts are about freedom and how we are unmoored from habit. But knowing the foundations is how you might see where they may not operate anymore. So sure contribute your verse. But if you want it to be a good one, let alone a great one, let alone one that might allow you to eat, put in the work. Grab everything you can from college and post-graduate schools. Contrary to recent pushes from big law (note that with 30-505 margins the big firms can absorb training costs), law schools training people to think in sharp and critical ways are providing an education that connects to the law and much more. But that requires diligence, drudgery, and didactic moments. Those happen to turn into gifts of knowledge, skill, and the ability to learn on your own. At that point, your verse might be worth something.

Latour on Agnotology

Bruno Latour reminds us of a rather important development in modern times: the ascent of an “unlearning” industry. He sheds new light on the “marketplace of ideas” metaphor:

[I]n the United States alone something like a billion dollars . . . is being spent to generate ignorance about the anthropic origin of climate mutations. In earlier periods, scientists and intellectuals lamented the little money spent on learning, but they never had to witness floods of money spent on unlearning what was already known. While in times past thinking critically was associated with looking ahead and extracting oneself from an older obscurantist past, today money is being spent to become even more obscurantist than yesterday! “Agnotology”, Robert Proctor’s science of generating ignorance, has become the most important discipline of the day.

Doubt can be a profitable product.

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The 80/20 Principle

ParetoPareto originated the so-called 80/20 principle in the early 1900s after observing that 80% of the wealth in Italy was owned by 20% of the population.  For a century, innumerable observers have found that the 80/20 pattern, also dubbed the “vital few/trivial many rule,” recurs across many distributions.

Businesses tend to generate 80% of sales from 20% of their products and 80% of their profits from 20% of their customers.  Managers can use the tool to think about operations and allocating resources.  In book publishing, eighty percent of promotional resources are dedicated to twenty percent of the list.

The principle applies among law firms, where twenty percent of clients contribute eighty percent of billings. Firms can use the insight to improve in many ways. For example, it can help partners decide which clients to nurture or fire  or how paralegals should allocate their time.

The concept can be refined for any number of time management tasks, as popularized by Richard Koch’s 1998 book, and in The Four Hour Work Week by Tim Ferris (some notable tips from which Jeff Yates collected a few years ago at The Faculty Lounge).

The concept is not a precise measure nor a universal constant. For example, in America today, 20 percent of the population owns something more like 95% of the wealth. And the insight does not yield to prescriptive policy manuals. It is instead a way of thinking about resource allocation that can improve one’s effectiveness.

I wonder, among law professors, in what ways does the 80/20 rule manifest?  Here are some alluring candidates:

Eighty percent of law professors were trained at twenty percent of the nation’s law schools.

Do eighty percent of a prawf’s citations come from twenty percent of their articles?

Are eighty percent of your downloads on SSRN from twenty percent of your posted pieces?

Are twenty percent of law professors responsible for eighty percent of legal academic blogging, as Eric Goldman once forecast?

Do eighty percent of valuable classroom contributions come from only twenty percent of your students?

What other questions might this apply to for law professors? And what are the implications?

For one, being aware of the phenomenon can help define the activities that matter the most and allocate scarce productive resources on those.  Reflect upon what is special about the twenty percent of your scholarship yielding the vast majority of its influence.   Is it subject matter, methodology, orientation, clarity?  If twenty students in your 100-person classroom pull most of the weight, what should you do about that? Is it necessary to draw the rest in or capitalize on the phenomenon in some other way?

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Great Interview with Rod Serling Before Twilight Zone Aired

The video below is well worth the 21 minutes. Serling goes into sponsors as censors, consumerism, the potential for great television, and much more. He had experience with trying to engage race issues on T.V. and finding that his story was gutted. He talks about precensorship – themes writers avoid. He explains the way the system converges to make that so. There is a great story about Lassie having puppies and some crazy controversy about that being a sex show. Want associational harm? A line was cut about gas chambers from Judgment at Nuremberg because a sponsor that sold gas stoves for kitchens did not want that connection. As I recall another story was set in the British navy and so asked for tea. A sponsor sold coffee. The compromise. A tray of unspecified drinks was served.

Behold a man. Smart. Dedicated. Passionate. Turned to science fiction from drama. The reason? To avoid that place he created, The Twilight Zone.

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Driverless Irony and Maybe Car Drone Drivers Coming Soon

Assumptions can break models and render rules incoherent. Some states such as California have required that a driverless or autonomous vehicle still have a licensed driver at the wheel in case the systems fail. A friend noted that this idea is useful in the rare case the vehicle encounters a situation it cannot handle. The idea may work today. It won’t work in the future.

What happens when the next generation is raised on driverless cars? Today we can assume that drivers have enough hours behind the wheel so that they might be able to take over if need be. But in five or ten years, what exactly will driver’s ed look like? Would we require youthful drivers, somewhat dangerous based on lack of experience, to drive more? That seems to defeat the upside to the technology. Yet if a generation of drivers never really drives, how can we expect them to take over for a sophisticated system pressed beyond its capabilities? As with pilots we might use simulators and such. Yet how many hours of that will be needed? Would it test the moments when the car cannot handle the situation? These points remind of the early days of Westlaw and Lexis. When I was in school, we were required to use analog research to start. The idea was that we may be without a terminal or access to legal databases. This problem would arise in courthouses. It was true at the time, but a few years later, the Internet and web based access negated that idea. There may still be some training on the old ways, but how much anyone needs or uses them is unclear. With cars, there will be a gap period when some will have the systems and some won’t. But at some point, I’d guess that most cars will have the system, and/or fewer people will own cars at all. Many may subscribe to services instead of owning a vehicle. Driving by hand will be a special art for the rich and old schoolers as they head to stores that sell LPs.

So what may be the supercool solution? Like Onstar, a car maker may have a group of drone operators for the outlier problems. If a car fails, a signal is sent. A video game junkie, err drone expert, takes over to handle the vehicle by remote. That person is training on cars and drone operation of them all the time. They have the expertise to take over when needed. Yes, you may cue the creepy music at this point.