Morningstar has named Warren Buffett its 2008 CEO of the Year. Listed below are excerpts from the article.
Beyond creating a company that treats common shareholders with the utmost fairness and respect, one needs only to look at the long-term value created at Berkshire Hathaway to see why Buffett deserves the award. Since taking the helm of the sleepy textile business 44 years ago and turning it into arguably the strongest conglomerate on the planet, Buffett and his managers have grown the book value per A share from $19 to just over $77,500, as of Sept. 30. This translates to a 20.7% annualized increase in book value since 1965, versus a mere 9.6% annualized return in the S&P 500 (including dividends) over the same time period.
Investors can learn a lot from studying Buffett’s actions, but his decisions to stay on the sidelines are also notable. Indeed, he steered Berkshire Hathaway from many of the temptations that have caused competitors to crash and burn this past year. For instance, Buffett warned back in 2003 that derivatives were “financial weapons of mass destruction” that are “time bombs, both for the parties that deal in them and the economic system.” Given all that has transpired in 2008, these statements–and Berkshire’s actions–look especially prescient. While AIG and other competitors now wallow in bankruptcy or near-bankruptcy, Berkshire is as financially healthy as ever.
Beyond derivatives, Berkshire also avoided excessive leverage back when credit was flowing a little too easy and asset prices were too high. In mid-2007, the opening salvos of the credit crisis were being shot across the subprime mortgage market, and many financial firms were levered to the hilt. Yet Berkshire had $47 billion–over one third of its equity at the time–in cash and cash equivalents, most of it unencumbered. By practicing prudence and patience earlier in the decade, Berkshire was in a position to put large amounts of capital to work in 2008. In other words, rather than blowing its ammunition hunting squirrels a few years ago, Berkshire has been able to shoot the proverbial elephants now walking by.
Of course, we’ve always preferred managers who do not view the companies they run as their personal piggy banks. I think we as owners are getting one heck of a deal by paying Buffett a $100,000 salary. (He earns less than $200,000 in total compensation annually.) Buffett allows his significant ownership stake in Berkshire to act as motivation enough to perform well as a manager, which nearly perfectly aligns his interests with those of common shareholders.
While many corporate managers may say they are positive and careful stewards of owner capital, few overtly view common shareholders for what they really are–partners. For being a successful managing partner, both in principle as well as in practice, Warren Buffett is our 2008 CEO of the Year.