  | Book Details Title: Margin of Trust: The Berkshire Business Model (Columbia Business School Publishing) |
Book DescriptionReview “Berkshire’s directors – your guardians – are constantly focused on both the welfare of owners and the nurturing of a culture that is rare among giant corporations. The value of this culture is explored in Margin of Trust, a new book by Larry Cunningham and Stephanie Cuba that will be available at our annual meeting.” —Warren Buffett *****”An important must-read.” –Robert Hagstrom, author, The Warren Buffett Way *****”Compelling.” –Todd Henderson, professor, U. Chicago *****”Every shareholder should read Margin of Trust.” —Robert Miles, executive in residence, U. Nebraska *****”An in-depth look at the unique management philosophy that has made Berkshire so successful.” —The Rational Walk *****”Cunningham is a perspicacious chronicler of Warren Buffett, America’s cuddliest capitalist.”–Stephen Foley, The Financial Times Read more From the Author Q: What inspired you to write Margin of Trust?LC: About a year ago, while working on another book project, I pulled together everything I’d written about Buffett and Berkshire over the past five years since my last book on the subject–law review articles, magazine essays, op-eds, blog posts–and a single theme leapt out: trust. I saw that Berkshire has built a culture where supervisors trust workers by granting them wide autonomy and workers vindicate that trust by exercising their autonomy productively.As I reflected on this virtuous circle, I noticed how rare such a trust-based culture is in corporate America today. In fact, trust is a precious social good that seems to be in ever-shorter supply of late. Forces that impair trust come from many sides–abusers undermining it and reformers imposing controls that dilute it. Recounting the central role and value of trust is one way to help restore its standing and increase its supply.Q: You have expert knowledge of Warren Buffett and Berkshire Hathaway, having written numerous books on his business method. What is one thing you’ve learned from him?LC: Buffett is known among investors for advising only to buy stocks when the price you pay is way lower than the value you get–called the margin of safety. He deserves equal renown among the general public for this more profound advice: only do business with people when you trust them so much that you can grant them complete autonomy. This book mints the phrase margin of trust to capture that tenet. Of the hundreds of lessons Berkshire and Buffett offer, the most important one is the infinite value of trust in business and life.Q: In the book, you write that trust is the key to the Berkshire Method’s success. Could you briefly unpack that statement?LC: People thrive best when they are trusted most. Human beings crave autonomy. The predominant culture in corporate America today stresses internal controls and compliance. That puts more trust in process than people. Berkshire has outperformed rivals for a half-century because it values people over processes. Its culture of trust helps employees succeed, which helps the company and all other constituencies prosper, achieving a corporation’s ultimate purpose.Q: What do you hope readers will gain from reading Margin of Trust?LC: For all readers, to regain faith in trust in the workplace and the market; for regulators, general counsels, and compliance offers, to widen the space for trust when crafting corporate codes and rulebooks; and for employees, supervisors and other constituents, to realize how valuable autonomy is, and how being trustworthy helps to earn it. Read more About the Author Lawrence Cunningham is the Henry St. George Tucker III Research Professor of Law at George Washington University. He is the author of 20 corporate governance and investing books, including Berkshire Beyond Buffett: The Enduring Value of Values (Columbia University Press, 2014) and international best seller, The Essays of Warren Buffett: Lessons for Corporate America. Stephanie Cuba is a consultant in the fields of real estate investment and development. The two are married and previously jointly produced The Warren Buffett Shareholder. They live in New York City with their two daughters. Read more Customers Review: Lawrence Cunningham does it again – all of his books exhibit a clarity of thought and purposefulness that make reading them so enjoyable, whether the reader is an investor, operator/manager, a board member, or the casual reader. Margin of Trust is no different in this respect and Cunningham highlights the importance of Buffett/Munger’s trust-based model as a key component to the success of Berkshire. Yes, capital allocation and key investment decisions in public and private companies have generated substantial gains for shareholders over time, but those investments are typically enabled by a supporting framework of trust-based relationships.The real nuggets of insight here are in the details – evidence of trust-based relationships that aren’t as well known. The fact that Berkshire’s board members get paid a token $1,000 per meeting rather than standard $250k at most corporations is both well known and says less than the fact that Berkshire’s directors aren’t covered by liability insurance. I won’t share more than that – you’ll have to read the book to find out more, but there a plenty of examples.I also enjoyed the short but important section contrasting Berkshire with private equity firms in today’s market, as I spend more than 50% of my professional work focus investing in private equity funds of various sorts. I do wish Cunningham spent more time discussing the issues related to stakeholder prioritization (e.g. PE firms prioritize their investors over all other constituents whereas Berkshire is more willing to consider the interests of employees, customers, suppliers, and retirees). It’s mentioned briefly, but I believe critical in the way Berkshire’s operating units are run and serves as a competitive advantage when it comes to businesses ‘opting in’ to Berkshire’s model regarding acquisitions. Peter Kaufman is a long-time friend of Berkshire’s, having written The Poor Charlie’s Almanack, and writes/speaks extensively on the issue of ‘meeting the needs’ of your various constituencies as a business.At the end of the day though, this is an outstanding book and any reader must set it aside after reading to ask oneself how the broad concepts in Margin of Trust may be applied in their own lives and work. The big question is, to the extent one serves as an agent in some capacity, how can one move closer to a principal-oriented approach? Given the very few examples of companies that have successfully accomplished this for shareholders beyond Berkshire Hathaway (e.g. Constellation Software, Danaher, and a few others), we can surmise the answer is not simply attributable to one or two tactics executed well. It can only be accomplished with an overall strategy where the structure of the organization, the tactics used, the people involved are all aligned toward the same objective.Readers will take so much away from this book. Let’s hope more professors at business schools around the company make Cunningham’s works required reading. I’m looking forward to future reads about Quality Shareholders in the future too! He alludes to the concept in Margin of Trust and I really enjoyed seeing the curated list of shareholders who have been Berkshire holders (in size!) for 1-4 decades – an impressive list!
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5 reviews