Mr. Buffett Joins a Board
Mr. Graham contributed this post to the symposium featuring L. Cunningham’s third edition of The Essays of Warren Buffett: Lessons for Corporate America (2013).
In September 1974, I joined the board of The Washington Post Company. Two other directors were elected at roughly the same time: George J. Gillespie III, a partner at Cravath, Swaine and Moore; and Warren E. Buffett, ceo of Berkshire Hathaway. Adding Warren to the board was one of the best decisions (in a life full of great ones) for Katharine Graham, the ceo of The Washington Post Company, and my mother. (George’s contributions are a story for another day).
I’m pretty certain that Kay was, at the time, the only woman ceo in the Fortune 1,000. Her autobiography, Personal History, won the Pulitzer Prize for biography in 1998 and was a number one bestseller. Her book emphasized how utterly uncertain she was at all times, how unsure of her own judgment, how modest. If conceit normally enters the bloodstream when one takes on the title ceo, Kay was an exception.
There were two people she worked with who gave my mother the belief that she could do the job: Ben Bradlee, the executive editor of the Post, and Warren Buffett (later Meg Greenfield, the Post’s editorial page editor, would be added to the group).
Kay Graham, who had never heard of Mr. Buffett before he bought stock in her company, quickly figured out after meeting Buffett and Charlie Munger, Berkshire vice chairman, that they were the two smartest business people she’d ever met. Many advisers told her not to put Warren on the board; she ignored their advice and in effect made him her lead director.
Warren was an active, smart director from the first meeting. He had more time then than now; he advised her on basic corporate matters; on management choices; and on acquisitions (the story of his input on acquisitions for The Washington Post Company is told in wonderful detail in Personal History).
The story I want to tell in this blog post has to do with Mr. Buffett’s first two interventions in our company’s business life. Warren extensively advised Kay Graham (in writing, in both cases) to change major corporate policies. Neither involved reversing policies she herself had been involved in.
The first had to do with the management of our corporate pension fund. When our company went public, our corporate pension fund was invested by a large bank which (per Warren) then invested 40% of US pension funds! Obviously they had been very successful in earlier years; he pointed out that their success had attracted so much money that their results could now be no better than average.
Instead, he recommended that the Post Company place its pension funds in the hands of a couple of smaller investors who followed a Graham-and-Dodd philosophy. The ceo approved his suggestion. Sandy Gottesman of First Manhattan (still a Berkshire director) and the firm of Ruane, Cunniff were chosen to share the investing responsibility. The results can be read in Warren’s essay “The Superinvestors of Graham and Doddsville,” (the one essay I’d include fully in the next edition of Professor Cunningham’s book, The Essays of Warren Buffett).
Today, I sit looking at a company pension-plan surplus of more than half a billion dollars at a time when most companies are scraping to fulfill their pension obligations, all thanks to that late-1970’s decision (for pension-accounting mavens, our assumed return on plan assets is 6.5%). Our retirees can be unusually certain of their pension payments, not an everyday state in corporate America.
Warren moved on to another then-obscure topic. He advised Kay Graham to consider repurchasing our own company’s stock. Today this is an everyday occurrence; Warren has written in his annual reports praising companies who repurchase shares in ways he approves of and criticizing those who repurchase to boost their own share price. Berkshire itself has even repurchased a few shares.
In the late 1970s, only a few companies, led by Teledyne, had aggressively repurchased stock. Once Kay Graham understood and approved Warren’s recommendation—again, a slow-motion process she describes in Personal History–we were definitely aggressive. Having gone public in 1971 with 20 million shares outstanding, we have fewer than 7.5 million shares outstanding today.
It was an easy recommendation for Warren—he referred to the Post Company in conversation at the time as “the cheapest stock I ever saw.” For Kay to accept it, however, flew in the face of conventional wisdom, pre-1980. Thank goodness she did.
I thought readers of Larry Cunningham’s book, with its generous sampling of Buffett advice, would be interested in these old stories. What Warren’s advice as a director has in common with the advice he distributes annually in shareholder letters is pretty obvious:
(1). His advice is almost never conventional. In every aspect of corporate governance, Warren thinks for himself and tries to find the right conclusion for Berkshire, or for the company whose board he sits on.
(2). His advice can be hard to follow and there’s rarely a halfway house. Adding a pension adviser while keeping most of the funds at the bank would not have achieved the same result; neither would a limited buy-back.
Donald Graham is CEO and chairman of The Washington Post Company, where he began as a reporter in 1971, becoming a director in 1974, and serving in between in various news and business roles, including executive vice president and general manager, president (1991-1993), publisher (1979-2000) and chairman of the newspaper (2000-2008). He has also held news and business positions at Newsweek and has served as a member of the Pulitzer Prize Board. He is a trustee of the Federal City Council, a director of Facebook, The Summit Fund of Washington, the College Success Foundation and KIPP-DC.