This season’s annual reporting may be flotsam and jetsam from a shipwrecked year, but this week I enjoyed reading one chairman’s letter: that of the world’s richest man, Berkshire Hathaway’s Warren Buffet. BH may have lost $11.5 billion last year, but it remains one of only seven AAA-rated corporations in the United States. Success confers credibility but that’s not why we read Buffett’s letter. If you’re interested in business, the US economy and business communication, it’s a letter worth reading.
Writing an annual report that satisfies corporate and regulatory constraints is expected, but not easy. Writing a report that shareholders will read is less common. Writing one that’s a good read and creates good will, especially when news is B-A-D, is as rare as snakes in New Zealand. My observations about what works:
1. Explains important points in detail. Today’s typical 500 to 600 word chairman’s letter overviews are so high-level as to be almost meaningless. Buffet’s letter runs to 12,000 words (not including charts) and a quarter of BH’s hundred page annual report (or ‘recital’ as Buffet calls it). That’s 15 to 30 times longer than most blue chip chair letters. Rule makers may say that’s bad, but Buffet makes it work. At 250 to 300 words-a-minute average reading pace, it takes an hour to read, but it’s an hour of entertaining learning.
2. Less legal mumbo jumbo. In another current company report, a 1000 word chairman’s letter is footnoted with 1289 words of “Important Notes”. Without a lawyer handy, I paraphrased those Notes by paragraph, as best as I could:
- We tried to make this report accurate (they took 68 words to say that).
- But we can’t guarantee this, so don’t rely on it, and don’t sue us. Stuff about the big company we’re trying to take over could be wrong (134 wds).
- Don’t take this as investment advice
- Our past costs and revenue aren’t a basis for predicting future earnings
- Our forecasts might be wrong (140 wds)
- Things might change (168 wds).
Is this really necessary? Does it need to be front inside cover?
3. Feels like a letter from a person, not a committee. Corporate managements want people to like, if not agree with them, but so many don’t seem to know how to achieve that goal. Managements insist on corporate-styled rather than personal communication and reap the consequences. For fear of saying something stupid or wrong, language becomes too safe, turbid and passive (in the spirit of Reagan’s “mistakes were made.”). People don’t buy it. Buffet offers real and personal opinions.
4. Unexpected candour. Buffet is staggeringly open about his own personal mistakes: “…the company had serious problems (which I totally failed to detect when we purchased it in late 1998)” and “I made a major mistake of commission…I bought a large amount of…moreover, the terrible timing of my purchase has cost Berkshire several billion dollars.” He doesn’t try to justify himself or to blame anyone or anything, but says, “The tennis crowd would call my mistakes ‘unforced errors.’” WB’s willingness to fess up is not a sign of his unassailable stake in the company, but a sign of good character.
5. Praise for staff seems real. Rather than clichés, WB adds personal detail: “Ajit [Jain] came to Berkshire in 1986. Very quickly, I realized that we had acquired an extraordinary talent. So I did the logical thing: I wrote his parents in New Delhi and asked if they had another one like him at home. Of course, I knew the answer before writing. There isn’t anyone like Ajit.” He didn’t copy that from another company’s report.
6. Includes useful and interesting supporting information. Those who think they know, present information, sometimes lots of it. Those who really do know, say what is. Those who have wisdom show us a situation in context and leave us feeling informed and oriented. Buffet judiciously sprinkles relevant facts and business and social aphorisms throughout:
- “during the 1900s…the the Dow Jones Industrials rose from 66 to 11,497”
- “Derivatives are dangerous. They have dramatically increased the leverage and risks in our financial system.” His further comments on this topic offer insight into Fannie Mae, Freddie Mac and Bear Stearns and why regulators failed to prevent the implosions.
- “Beware the investment activity that produces applause; the great moves are usually greeted by yawns.
- “We like buying underpriced securities, but we like buying fairly-priced operating businesses even more.
- “When investing, pessimism is your friend, euphoria the enemy.
- “We never want to count on the kindness of strangers in order to meet tomorrow’s obligations. When forced to choose, I will not trade even a night’s sleep for the chance of extra profits.
- “It’s often useful in testing a theory to push it to extremes.
7. Humour. Even, or possibly especially in the current environment. Reading his whole letter, you’ll certainly smirk, you’ll probably smile and you might even laugh:
- In the second par he describes this year’s investors as “bloodied and confused, much as if they were small birds that had strayed into a badminton game.”
- On insurer GEICO’s opportunities: “Tony [the CEO] and I feel like two hungry mosquitoes in a nudist camp. There are juicy targets everywhere.”
- On acquiring PacifiCorp in 2006 and expanding its wind generation business, Buffett refers to finding “wind of a different sort” and to cutting PacifiCorp’s 98 committees to 28.
- On trouble experienced by tax-exempt bond insurance companies: “The cause of their problems was captured long ago by Mae West: “I was Snow White, but I drifted.”
- On the annual meeting: “If you decide to leave during the day’s question periods, please do so while Charlie is talking.
Okay, he’s not Jim Carrey or Ben Stiller: he’s 78 and he’s not in entertainment. Humour is risky (if it isn’t funny), but it doesn’t have to diminish a topic. Funny is therapeutic and likeable. (Argue that if you like.)
BH’s annual general meeting notes are also worthy of comment. Most companies seem to view their AGMs as necessary humiliations. Buffett calls his event “Woodstock for Capitalists” and the metaphor seems apt, given the shareholder bonding at a western cookout, main gala, shopping marathons, and side show activities including a blindfolded former U.S. chess champion to take on challengers and bridge playing experts. Isn’t Buffett fazed about grillings from Fortune, CNBC and The New York Times? He says, “We know the journalists will pick some tough ones [questions] and that’s the way we like it.”
Buffett doesn’t do pretty front cover pictures, but he ticks other annual reporting award criteria like: coherent, accessible, presented well, accurate, engaging. After reading Buffett’s letter, other chairmen look sadly like Bob Sugar giving a fake hug to Jerry Maguire’s ex-client at the end of the movie. As communicators, we ought to try and help ’em out.
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PS. I don’t agree with everything Buffett says (e.g. I reckon you can teach a new dog old tricks).




