The Warren And Charlie Show

Warren Buffett and Charlie Munger’s marathon banter at the 2017 Berkshire Hathaway Annual Meeting prompted a shareholder to remark that they have iron bladders. Excerpts of their wit and wisdom as they answered questions from the press, analysts and shareholders.

THE WELLS FARGO SCANDAL

A major part of the problem was the decentralized structure which gave too much autonomy to the bank’s leadership. How do you satisfy yourself Berkshire is not subject to the same risk?

Warren Buffett: We count very heavily on principles of behavior rather than rules. Charlie and I believe if you establish the right sort of culture, and that culture to some extent self-selects who you hire as directors and managers, that you will get better results that way in terms of behavior than a thousand-page guidebook. You’re going to have problems regardless. The real question is whether the managers are thinking about finding and correcting any bad behavior, and whether if they fail in that, whether the message gets to Omaha and whether we do something about it.

Clearly, at Wells Fargo there was an incentive system built around the idea of cross-selling a number of services per customer, and the company in every quarterly investor presentation highlighted how many services per customer. It was the focus of the organization – a major focus – and undoubtedly people got paid and promoted based on that number, at least partly based on that number. It turned out that was incentivizing the wrong kind of behavior. Bad behavior has to stop when the CEO learns about it. The main problem is they didn’t act when they learned about it. It’s bad enough having a bad system, but they didn’t act.

Charlie Munger: It doesn’t mean everyone should solve their problems by having more compliance. We’ve had less trouble over the years by being careful of whom we picked to have power and having a culture of trust. I think we have less trouble, not more.

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