Harvard Business Review Reports on Rittenhouse Rankings

Go to HBR.org to find L.J.’s blog on Warren Buffett’s 2010 Shareholder Letter: What to Expect.  It was posted today on their Conversation Blog: “a home for inspired insights and observations.”  To view the article, click here.  Tell us please if you were inspired.

On the Money! NPR Interview with LJ Rittenhouse

Today, Warren Buffett tapped hedge fund manager Todd Combs to be Berkshire Hathaway’s Chief Investment Officer. How will Todd Combs fit into Berkshire? Tune into NPR‘s On the Money interview last week with L.J. (Laura) Rittenhouse, author of Buffett’s Bites to learn what’s important about the Berkshire culture. Host Steve Pomeranz calls Buffett’s Bites his “favorite new book” and asks L.J. how she got Buffett’s attention: the Omaha oracle posed for the book jacket and signed his photograph inside. Learn the answer to this and other questions like: What is Buffett’s greatest investment tip? Click here.

The Five Top NPR On the Money Interview Questions

1. What is the Warren Buffett investment tip that most investors ignore?

2. How difficult is it to find companies that are trustworthy and transparent?

3. Where can you get a sneak preview of some of the most informative, engaging and candid shareholder letters from 2009?

4. What do most folks miss when they read Warren Buffett’s shareholder letter?

5. What well-known rule makes Berkshire Hathaway one of the most respected companies in the world?

The Buffett/Drucker Project

Why Buffett and Drucker?  Both men champion legacy building and service leadership.

LEGACY BUILDING: LOOKING OUT FOR TOMORROW
As Warren Buffett celebrates his 80th birthday, we don’t want the media frenzy to obscure his legacy.  As revealed in Buffett’s Bites his legacy is both tangible and intangible.  The intangibles are his well-tested principles of long-term capital allocation and stewardship.  His tangible legacy is the creation of Berkshire Hathaway, a wealth-creating company shaped according to these principles.

Peter Drucker’s legacy is also intangible and tangible. His intangible contribution was his passion for examining business challenges as a renaissance thinker.  For instance, his knowledge of Japanese art allowed him to penetrate Japanese culture, win the trust of clients and become the most successful business consultant to Japanese corporations in the ‘50s and ‘60s. Drucker wrote about all he learned and experienced and published over 30 books.  They are the tangible part of his legacy.  He offered a perspective we need today:  the best leaders respect history and practice principles-based management.

SERVICE LEADERSHIP:  BEYOND THE DAILY CRISIS
Buffett praises the extraordinary efforts of the ordinary people running the Berkshire business.  Their collective actions result in the long-term economic growth of his enterprise.  Many of his managers are entrepreneurs who work because they love what they do – money is a secondary consideration. They focus on serving their customers and taking care of the people who work hard to create business success.  Buffett calls them artists of business masterpieces.

Buffett would like to see more servant leadership among boards of directors and CEOs today, particularly when it comes to offering out-sized executive compensation packages that include stock options not reported as compensation.  He tells his board never to pay him a salary greater than $100,000 a year – and never to grant stock options.  This leaves more money to invest in Berkshire’s future growth.  It says to Berkshire’s investors:  I will make money with you – not at your expense.

Drucker similarly links service leadership with caring for the future.  In his foreword to The Frontiers of Management, he praises the “ordinary people running everyday businesses and organizations” who take responsibility for building for tomorrow.  “Tomorrow,” he writes. “depends heavily on the knowledge, insight, foresight and competence of today’s decision makers…especially executives…”

At the same time, Drucker recognizes that executives are busy people.  “Every one of them is fully occupied with the daily crisis, the one predictable event in the executives’ working day.  To enable them to see and understand the long-range implications and impacts of their immediate, urgent actions and decisions is the purpose of these essays…”

Such thinking in today’s world seems foolhardy, even frivolous.  How can we expect today’s leaders and investors to consider the “long-range implications of their immediate, urgent actions” when CEOs are in one year and out the next, and investors care little beyond the next quarter’s earnings? Yet this is precisely what I propose to do each week, from now until Warren’s birthday on August 30, 2010.  In a series of blogs, I will showcase Drucker’s seminal ideas and apply them to Buffett’s principles of capital allocation to remind us all to get beyond the daily crisis.

Help me celebrate Warren’s birthday.  Join in the blog and send them to your colleagues and friends.

Almost a decade ago I visited Warren Buffett in Omaha just weeks before the 9/11 attacks.  He has not forgotten the lesson learned from that event. It is as vital today as it was then:  we are all interconnected.  We are all responsible for creating the future by serving those in the present.

Both Drucker and Buffett’s examples offer us the gift of hope and a belief that the future can be better.

Choose Wise Not Dumb Capitalism.

Memorandum

June 7, 2010

To: Congressional Committee on Writing Financial Reform Legislation

From: L.J. Rittenhouse, author, Buffett’s Bites

Never forget our children and our children’s children as you prepare to write historic financial reforms.  Write legislation to avoid the dumb mistakes of the past.  What are these?

  • Advocating policies that promote capital allocation decisions based on accounting fictions and not fundamental economics.
  • Instituting tax policies that favor short-term gambling over long-term investing.
  • Tolerating corporate reporting in financial statements that is unintelligible, uninformed and provides worthless disclosure.
  • Failing to execute policies that draw clear lines between speculation and investing.
  • Choosing to promote legal standards of business over moral standards.

You have a rare opportunity to correct these past mistakes and avoid them in the future.  Use this checklist to guide your deliberations.  Avoiding these mistakes is crucial to get us out of our current economic crisis and build a prosperous and sustainable economy.

My ancestor, David Rittenhouse, patriot, financier, and scientist made General George Washington’s first pair of bifocals.  In this family tradition, I aim to focus and realign your vision.  Choose wisely so we can leave a better world for our children and children’s children.  Here is today’s recommended action:

Action 1:   In all your deliberations, choose wisely.

Win a copy of Buffett’s Bites

Happy Friday! My publishers are currently running a contest for my book. Sign up here to win a free copy of my book Buffett’s Bites. If you are from Canada click here.

Buffett and Munger are from Venus; (most of) Wall Street is from Mars: Corporate Culture and Equity Valuation

Here is the second installment of Buffett and Munger “nuggets.” Remember these are culled from our Berkshire Hathaway 2010 Meeting notes and those of the Inoculated Investor. Two more nuggets from Buffett are:

“It’s much easier to build a corporate culture from scratch than try to change an existing culture.”

“I could not determine what Harley Davidson’s equity is worth, but I do like a business where people tattoo the name of it on their chests. I knew enough to lend the company money in the credit crisis, but not to buy the equity.”

Buffett and Munger are from Venus. Most of Wall Street is from Mars.

I have attended many shareholder meetings in my career but never do I hear the kind of exchange like I heard at last Saturday’s Berkshire Hathaway meeting. The five and half hour Berkshire Q & A session offered plenty of evidence that if Buffett and Munger are from Venus, then most of Wall Street is from Mars.

What is Venus like? Buffett summed it up at the beginning of the meeting:
“As a rule, Berkshire does not show quarterly earnings per share because undue focus on quarterly earnings is bad for managers and even worse for investors.”

On Mars, investors expect to benefit from quarterly earnings management.

Here are some of the Buffett and Munger “nuggets” culled from our meeting notes, a transcript posted by The Inoculated Investor and notes from other colleagues. We’ll parcel out a few every day for the next month. Here are two for today:

“People have to distinguish between countries that borrow in their own currencies and those that borrow in other currencies [like the Euro.] If you borrow in your own currency, then all you need is a printing press – you don’t default.”

“The biggest threat to the U.S. economy is a major chemical or nuclear attack.”