Keyword: annual report

Warren Buffet

As I noted in this post, it’s annual report season again.  I just opened my Berkshire Hathaway annual report and once again was not the least bit disappointed.

The Berkshire report confirms, as it does every year, why I am a card-carrying, stock-owning, unabashed member of the Cult of Warren Buffet.

The report, most of which can be found here, is such a wonderful read.  Warren crafts his usual narrative about the state of the company, and it is with out a doubt the most readable annual report I’ve ever seen.  Even though his note is long, at over 20 pages, there’s almost no business jargon, there’s no filler, and not a smidge of the spin so many reports are drowning in.  I read every word — and every word of all the accompanying documents.  All in one sitting on the airplane.

The report confirms again what a really great manager and leader he is.  He simply does just about everything right, and does it with such frankness, charm, and sincerity, that I can’t help but gush over the guy.

It’s not that he’s perfect, and not that he’s magic.  He’s made mistakes, and rubs a number of people the wrong way.  But I think most of those people need to untwist their underwear and take some deep breathes (or a couple Valium).

Just like Warren, I’ll be straight with you: I’m a shareholder in Berkshire, and it’s just hard not to like the guy when the returns are so great.  But in reality, that’s just a small part about what I think makes the guy so special.

Berkshire Hathaway Home Page

Reading his report, or even looking at the Berkshire web site (seen at left), the first thing you notice is how upfront and frank the whole operation is.  Who else has their link to their SEC filings as the fourth item on their home page, or includes the last 30 years of Chairman’s letters right in plain sight, or has their answer to the most controversial of their shareholder motions posted on the home page?

With most companies, this kind of stuff is buried in the filings, if it is available at all.  Nothing is ever said that some spin doctor hasn’t crafted beyond intelligibility.  And acknowledging mistakes?  Well that just isn’t done, doncha know.

But with Warren, it’s all right there.  In plain sight, in plain english, and it’s just the plain truth.  After plowing through miles of other poop in other glossy annual reports, this one is like a cool ocean breeze.  And there’s not a glossy picture of the CEO, or the Board, or the remarkably (intentionally?) diverse workforce in sight.

So stop reading me, go read Warren’s letter.  Here’s the PDF file:

Warren Buffet’s 2006 Chairman’s Letter

Then come back here, and tell me what you think.

It’s annual report season again, and with it comes the flood of plastic wrapped envelopes to our mailbox that carry the once-a-year bounty of glossy, over-polished, and saccharin manifestos from publicly traded firms.  This is “the art of the annual report”.

I look forward to this flood, it offers insights that are hard to get any other way.  Inside these envelopes, you get an unmodified view of the company.  Certainly it is not an objective view, yet that is what makes it such a clear view.

You can tell volumes about companies and their culture by what they choose to portray in their annual report.  Once a year, companies get a chance to tell the world who they are, what they stand for, and what they are trying to accomplish.  And they can do it in a forum that is completely unadulterated by outside forces like the media or their critics.

Yes, of course, the government and tradition mandate that some information be included.  And since most companies include their proxy information in the same mailing, included are some required documents to support their voting process.  But if you take the time to look carefully at the whole package, the insights are many.

First and foremost, the report itself is a gold mine of company culture information.  Because most companies try so hard to make the report a show piece, it is quite telling to see how they present it.  There are some very interesting things to look at:

• Is it a very polished, glossy document (over-polished)?  Or a businesslike and direct report (not professional enough)?
• Does it feature pictures of just the CEO (are they an egotist)?  Or the executive staff (diverse)?  Or the products (hiding the leadership team)?  Or the employees (trying too hard to appear egalitarian)?
• Does it overflow with flowery language about “the world today” and “XYZ Corp.’s place in it” (taking themselves a little too seriously)?  Does it have a sense of humor (or even too much) Or is it just a dry recounting of economics (oh, lighten up)?
• Is it written in the form of a letter from the leader(s) or with the polish of a marketing piece?
• Who is that target audience?  Shareholders?  Employees?  Competitors?
• How much did it cost to produce?  Those are your shareholder dollars you’re holding…
• Most importantly, what does it say about the vision for the company?  What are they trying to accomplish?  Is it clear, obvious, obtainable and yet still a stretch?

These are all interesting questions, and they tell you a great deal about the culture.  I like to read it wearing several hats.  What would this mean to me if I worked there?  Is this company just a vehicle to express the ego of the CEO?  What would I think if I were their competition?

And then there are the wonderful proxy materials.  Here’s where you get a lot of interesting stuff.  In here are all the gory details of executive compensation, perks, and other dark secrets they try to bury in pages of dense text on toilet-paper-thin paper.  It’s a gold mine of information about the company and its leadership.

The proxy materials are where I (and most of the world) found out about Robert Nardelli (formerly CEO of Home Depot) and his truly absurd contract and pay package.  I wrote about it here, and since they were required to quote essentially the whole contract, it was great fun to read.  This info proved to be a key part of Nardelli’s downfall.  But you had to read the annual report to see it.

So I encourage you to welcome this bounty of “annual report art”.  Next, I’ll talk about my favorite one of them, but in the meantime, don’t just toss them in the recycle bin.  Plumb each and every one for the hidden gems that lay within.