Warren Buffett On The Future Of AI, Self-Driving Cars & Mankind | May 5, 2014

TL;DR

Berkshire’s future depends on an internal successor who fully embraces its established culture while managing in an individual way. Warren Buffett said the company would remain in Omaha, rejected moving its incorporation overseas for tax advantages, and argued that America had treated Berkshire well as it grew from a textile mill into a company valued above $300 billion.

Transcript

well it is our seventh year in a row where mr buffett has been kind enough to grant us that most important first hour of trade interview so all of the weekend festivities for the shareholder meeting have been passing and now people get to trade on what he has to say first of all we want to welcome you warren we're sitting here in your keyword plaza... Read More

Key Insights

• Berkshire’s shareholder meeting is an international gathering, with tickets sent to about 50 countries as well as every state in the United States. Buffett describes the attendees as friendly Berkshire shareholders, many of whom travel long distances and enjoy participating in the company’s annual festivities.
• The 2014 shareholder gathering drew an estimated 38,000 to 40,000 people, setting an attendance record according to Buffett. The exact count was unavailable because participants arrived and departed throughout the event, but attendance was several thousand higher than the previous record.
• Berkshire’s annual meeting also creates significant commercial activity for its operating businesses. Buffett says Nebraska Furniture Mart would generate more than $40 million during the weeks surrounding the gathering, an amount he characterizes as greater than what most stores produce in an entire year.
• Omaha is central to Berkshire’s corporate identity, and Buffett refuses to move the shareholder meeting to Dallas even though Dallas could accommodate it more easily. He says Berkshire will find a way to continue holding the event in Omaha rather than abandoning the company’s home city.
• Berkshire’s successor is expected to come from inside the company. Buffett says the current candidates are internal and male, while acknowledging that a woman could hold the position in the future. He considers continued selection of an insider a virtual certainty.
• Berkshire’s culture is defined through economic principles that have remained virtually unchanged for 30 years. Buffett expects his successor to be fully committed to that culture while still doing things in an individual way, preserving the company’s identity without requiring identical management methods.
• Berkshire rejects overseas incorporation as a strategy for obtaining a lower tax rate. Buffett says America treated the company well as it developed from a textile mill into a business with a market value exceeding $300 billion, despite earlier periods with higher United States tax rates.
• Corporate taxes have declined substantially as a share of the United States economy, according to Buffett. He says they were about 4 percent of gross domestic product 50 years earlier and later fell to 1.2 percent, while the corporate sector performed exceptionally well.

Questions & Answers

Q: How does Warren Buffett plan to preserve Berkshire’s culture?

Warren Buffett expects Berkshire’s next chief executive to be an internal candidate who is fully committed to the company’s existing culture. He says Berkshire’s economic principles appear in the back of its annual report and have remained virtually unchanged for 30 years. A successor should manage in an individual way, but Buffett cannot imagine that person materially changing Berkshire’s established character.

Q: Will Berkshire Hathaway move its headquarters from Omaha?

Buffett indicates that Berkshire is highly unlikely to leave Omaha. He says the probability is almost 100 percent that his successor would remain there, reflecting Omaha’s importance to the company’s corporate identity. When asked whether tax considerations might prompt a move or overseas incorporation, he rejects that possibility and emphasizes that America has treated Berkshire very well throughout its development.

Q: Why did Buffett reject moving the shareholder meeting to Dallas?

Buffett acknowledges that Dallas could physically handle Berkshire’s shareholder meeting better than Omaha, particularly given the gathering’s size. Nevertheless, he firmly rejects moving the event, even for one year, and says Berkshire will find a way to continue holding it in Omaha. His response reflects a strong commitment to the company’s home city and its local shareholder tradition.

Q: How many people attended Berkshire’s 2014 shareholder meeting?

Buffett estimates that attendance was between roughly 38,000 and 40,000 people. Berkshire could not establish an exact number because visitors came and went throughout the event. He nevertheless says attendance was several thousand above the previous record and confirms that the gathering reached an all-time high, with shareholders traveling from across the United States and numerous other countries.

Q: How international is Berkshire Hathaway’s shareholder meeting?

The meeting attracts shareholders from well beyond Omaha and the United States. Buffett says Berkshire sent tickets to about 50 countries in addition to every state in the nation. He describes the participants as friendly shareholders who often travel long distances, and he says their presence makes the event enjoyable rather than intimidating despite its exceptionally large attendance.

Q: How does Berkshire’s annual meeting benefit its businesses?

The gathering functions as both a shareholder event and a major commercial occasion for Berkshire’s operating companies. Buffett says Nebraska Furniture Mart would conduct more than $40 million in business during the weeks surrounding the meeting, exceeding what most stores generate in a year. The exhibition floor also features Berkshire companies such as Dairy Queen and See’s Candies selling products to attendees.

Q: What does Buffett say about Berkshire incorporating overseas?

Buffett says he does not foresee Berkshire incorporating overseas to obtain a more favorable tax rate. He argues that the company has performed very well under United States tax conditions. Berkshire grew from a textile mill into a company with more than $300 billion in market value in America, including during periods when domestic tax rates were higher than those existing at the interview date.

Q: What is Buffett’s view of corporate taxes in the United States?

Buffett acknowledges that businesses prefer lower taxes and that some regulations irritate him, but he emphasizes that the country still has a substantial deficit requiring revenue from someone. He says corporate taxes declined from about 4 percent of gross domestic product 50 years earlier to 1.2 percent, while the corporate sector, including Berkshire, performed extremely well in the United States.

Summary

Warren Buffett gives an interview where he discusses various topics such as his annual shareholder meeting, business schools, questions from Twitter, the number of attendees at the shareholder meeting, Berkshire Hathaway's exhibition floor, his successor, corporate taxes, executive compensation, Coca-Cola, Microsoft, Alibaba, bitcoin, print media, and the situation in Ukraine.

Questions & Answers

Q: How many business schools were present at the shareholder meeting?

About 40 business schools were present at the shareholder meeting.

Q: Why did Warren Buffett bring in business schools to the shareholder meeting?

Buffett believes it is important to engage with business schools and values their focused questions.

Q: Did Warren Buffett receive a lot of questions from Twitter?

Yes, Buffett received thousands of emails from Twitter, including some brilliant questions and some not-so-brilliant ones.

Q: How many attendees were there at the shareholder meeting?

The exact number is not known, but it was definitely higher than the previous record which was around 38,000. It may have been around 38,000-40,000.

Q: What is it like for Warren Buffett to be on the exhibition floor?

Buffett enjoys being on the exhibition floor and interacting with Berkshire shareholders. He has a good time and sees familiar faces.

Q: Does Warren Buffett ever get nervous during the shareholder meeting?

No, Buffett does not get nervous as the crowd is friendly and he enjoys the interaction. He does, however, bring an extra suit in case of any mishaps.

Q: How does Warren Buffett select companies to add to the exhibition floor?

Buffett looks for companies to add to the exhibition floor every year, but there is limited space. He wants to add companies that fit with Berkshire's culture.

Q: Does Warren Buffett believe they will hold the shareholder meeting in Dallas next year?

No, Buffett does not believe they will hold the shareholder meeting in Dallas. He values the connection to Omaha and does not want to leave it behind.

Q: Would Warren Buffett require his successor to live in Omaha?

It is highly probable that Omaha would remain the headquarters and the successor would live in Omaha. Corporate citizenship and tax reasons make it unlikely that the headquarters would be moved.

Q: Would Warren Buffett consider incorporating Berkshire overseas to get better tax rates?

No, Buffett does not see Berkshire ever incorporating overseas for tax reasons. He believes that the current tax rates in the United States are sufficient.

Q: Who are the likely successors to Warren Buffett?

The likely successors to Warren Buffett are internal candidates, and at present, they are all male. However, that does not mean the situation won't change in the future.

Q: Would Warren Buffett require his successor to follow the Berkshire way?

While Buffett cannot require anything since he won't be there, he believes that his successor will be someone who is deeply ingrained in the Berkshire culture. They may do things their own way, but the core principles of Berkshire will remain unchanged.

Q: Does Warren Buffett pay all his taxes?

Yes, Buffett pays all his taxes and believes it is important for individuals and corporations to pay their fair share.

Q: Is high corporate tax rate a negative for businesses in the United States?

While high corporate tax rates and onerous business regulations can be frustrating, it is important to consider the overall context. Corporate taxes as a percentage of GDP have decreased over the years, and the corporate sector has done well in the United States.

Q: Why did Warren Buffett abstain from voting on Coca-Cola's compensation packages?

Buffett abstained from voting on Coca-Cola's compensation packages because he disagreed with them. However, he did not want to go to war with the management and still holds the company and its directors in high regard.

Q: What would Coca-Cola's compensation packages look like if Berkshire fully owned the company?

If Berkshire fully owned Coca-Cola, the compensation packages would likely be structured differently. Berkshire believes in tying compensation with performance and would align it with the control of the person being paid.

Q: What was the attendance at the shareholder meeting this year?

The exact attendance numbers are not known, but it was an all-time high, likely between 38,000 and 40,000 attendees.

Q: Does Warren Buffett invest in Bitcoin or Blackberry?

No, Warren Buffett does not invest in either Bitcoin or Blackberry. He is not interested in investing in IPOs and believes it is rare to find a bargain price in an IPO. As for Bitcoin and Blackberry, he would probably short both.

Q: What does Warren Buffett think of the situation in Ukraine?

Warren Buffett is concerned about the situation in Ukraine and believes it is dangerous when boundaries start getting changed. He prefers stable and predictable situations and does not like uncertainties.

Q: Will the situation in Ukraine lead to a dark outcome like in Weimar Germany?

Charlie Munger, vice chair of Berkshire Hathaway, believes that the memory of Weimar Germany's inflation and the rise of Hitler is unsettling. He does not like to be reminded of Hitler or countries trying to change borders.

Q: How is the United States handling the situation with Vladimir Putin?

Warren Buffett does not have insight into the behind-the-scenes actions but believes it is important to handle the situation carefully and not escalate the problem.

Q: Does Warren Buffett believe the U.S. dollar will eventually disappear?

Warren Buffett believes that the U.S. dollar will remain the world's reserve currency for a long time. He does not see it going away in the foreseeable future.

Summary & Key Takeaways

• Warren Buffett describes Berkshire Hathaway’s shareholder gathering as a friendly international event that attracted roughly 38,000 to 40,000 people. Shareholders came from every state and about 50 countries, while Berkshire businesses used the occasion to sell products, strengthen shareholder connections, and demonstrate the character of the company.

• Buffett firmly rejects moving Berkshire’s shareholder meeting or headquarters away from Omaha. Although Dallas could physically accommodate the gathering more easily, he says Berkshire will find a way to keep it in Omaha. He also indicates that the probability of a future chief executive remaining in Omaha is almost 100 percent.

• Berkshire expects its next chief executive to be an internal candidate who is completely committed to the company’s culture. Buffett says the successor should manage in an individual way without materially changing Berkshire’s enduring economic principles. He also rejects overseas incorporation and argues that American conditions supported Berkshire’s extraordinary development.