Corporate Governance Concerns at Berkshire Hathaway|Business Ethics|Case Study|Case Studies

Corporate Governance Concerns at Berkshire Hathaway

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Case Details:

Case Code : BECG123
Case Length : 17 Pages
Period : 2010-2012
Organization : Berkshire Hathaway
Pub Date : 2012
Teaching Note : Not Available
Countries : US; Global
Industry : Conglomerate

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Background Note

Berkshire Hathaway was started in 1889 as a textile manufacturer. In 1965, Buffett took control of the company which was facing difficult times financially. He started purchasing undervalued stocks and also acquiring stakes in companies but he seldom operated them directly. Berkshire Hathaway expanded by acquiring holdings in companies such as Coca-Cola and McDonald's. Berkshire Hathaway Inc. (Berkshire) morphed into a holding company possessing subsidiaries operating in several different businesses. As of March 2011, it had around 80 subsidiary companies operating in businesses as diverse as insurance, railroad transportation, energy, ice creams, and garments.

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As of April 2011, it had one of the biggest reinsurance businesses globally. For the year ended December 31, 2011, Berkshire generated total revenues of US$143.688 billion and net earnings attributable to Berkshire Hathaway of US$10.254 billion.

Buffett and Berkshire - Cult Figures

Buffett's stature as an astute investor, donor, and ethical individual had been meticulously nurtured for decades. He was instrumental in Berkshire producing huge gains for investors, having expanded the company in excess of 490,000%, starting from 1965. From the close of 1987 to the end of 2010, the 10% annualized total return generated by the Standard & Poor's 500 index (S&P 5001) was dwarfed in comparison to Berkshire’s 17%. Explaining how Buffett would go to great lengths to build his own image, Jeffrey Sonnenfeld, wrote, "No one has graced Fortune magazine's cover as often. No one gets more airtime on CNBC." Several nuggets of information were circulated over the years, especially by the media, which resulted in Buffett being idolized: Buffett's investment decisions had increased Berkshire's share price from US$18 in 1965 to US$122,000 as of April 2011; his salary at Berkshire had never exceeded US$100,000 per annum and he had not disposed of even a single Berkshire share; But, according to experts, the distinct aspect of Buffett's image was the folksy image associated with it. It was reported that Buffett drove his car himself and would occasionally go to McDonald's, en route home, after work. Further, as he was based out of Omaha, Nebraska, his personality was considered alien to the Wall Street culture...

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1] S&P 500 is an index of 500 US company stocks selected chiefly on the basis of market capitalization, liquidity, and industry categorization.


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