Warren Buffett on Business: Principles from the Sage of Omaha by Richard J. Connors

Author:Richard J. Connors
Language: eng
Format: mobi, pdf
ISBN: 9780470570685
Publisher: Wiley
Published: 2009-12-16T14:00:00+00:00

Our after-tax overhead costs are under 1% of our reported operating earnings and less than 1/2 of 1% of our look-through earnings. We have no legal, personnel, public relations, investor relations, or strategic planning departments. In turn this means we don’t need support personnel such as guards, drivers, messengers, etc. Finally, except for Verne, we employ no consultants. Professor Parkinson would like our operation—though Charlie, I must say, still finds it outrageously fat.

At some companies, corporate expense runs 10% or more of operating earnings. The tithing that operations thus makes to headquarters not only hurts earnings, but more importantly slashes capital values. If the business that spends 10% on headquarters’ costs achieves earnings at its operating levels identical to those achieved by the business that incurs costs of only 1%, shareholders of the first enterprise suffer a 9% loss in the value of their holdings simply because of corporate overhead. Charlie and I have observed no correlation between high corporate costs and good corporate performance. In fact, we see the simpler, low-cost operation as more likely to operate effectively than its bureaucratic brethren. We’ re admirers of the Wal-Mart, Nucor, Dover, GEICO, Golden West Financial and Price Co. models.53

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