A Weekend In Omaha 2014

"Traditional projects driven by western thinking is a mistake"

Howard Graham Buffett on his real passion and his future role at Berkshire Hathaway

Published 10 years ago on Jun 07, 2014 25 minutes Read

He wears many caps, literally and has inherited his father’s sense of humour and integrity. Howard Graham Buffett is a farmer at heart and by occupation. Left to himself, he would rather photograph wildlife, implement and evangelise sustainable farming practices for the rest of his life. The Howard G Buffett Foundation set up by him is tirelessly working to ensure food security for the poorest in Latin America and Africa. The lessons that he has learnt over the years were succinctly summarized in “Forty Chances”, a book co-authored with his son Howard Warren Buffett. It seemed a strange coincidence that on our way to interview a passionate farmer, we meet a taxi-driver who goes home and farms part time. Driving us down to Tekamah, where our meeting with HGB is to take place is Hamid, who divides time between taxi-driving in Omaha and farming in his home country Morocco

Could you share some of your most memorable moments with your father?

When he gave us a billion dollars! (laughs aloud). At Christmas time in 1999, our parents told us they were setting up a foundation for all three of us. At that time, it was $30 million. That was a big deal for us. In 2006, when my dad said he was going to put $1.4 billion into the foundation, and again when he said a year ago that he was going to double the amount to the foundation, those were big moments. Thinking about why he is doing it and why he thinks we can do a good job — those are all important moments. I think backing up, I had hundreds of experiences where I got to observe my dad in many different circumstances, which was fascinating. Little did I know that Berkshire would turn out to be the company that it is today and he would be the world’s greatest investor.

He was a very unique character. We had the opportunity to sit or go along on a trip or just listen to what he was talking about. You don’t remember everything but it influences you a lot. One of the greatest things about my dad is his sense of humour. I think all three of us had a lot of fun because we grew up in a household where we joked around and had a good time. I could take the most serious things that happened in my life and usually find something funny about it or some humorous part of it. That is a real gift to give somebody because you are not walking around mad all the time. Life is what it is and you can’t control a lot of things. You have got to see the funny part of it and my dad is like that. He has an amazing sense of humour. The Susie and Warren show was like the Charlie and Warren show.

The other thing was that my parents were supportive of us just going and doing what we want to do. I know in the Indian culture there is that pressure to become a doctor, lawyer or engineer. You can’t predict when you are five, 10 or 15 years old where you fit the best. You would be lucky if your second or third job is where you do fit the best because you have to experiment a little bit. When our parents saw us being good at something, they encouraged that. I still remember going with Peter (Howard’s younger brother) for his first competition at a park in Omaha. I was 7 or 8 at the time. He was this little kid up there with all these older kids playing the piano and he was better than them. So when my parents saw something we liked, they always found us a way to do better at that. 

Can you recall a few interesting episodes from your growing up years?

Everybody asks me that and I never have a good answer. But I recollect one. My father is a fairly tough business guy. He is very fair but tough. When I told him I wanted to buy a farm, he got around and said, “Go ahead, buy, but you have got to give me the cash flow and I have got to make at least 5%”. And I am thinking…this is tough. I got thrown out talking to some farmers about it — they were mad at me. They thought their farms were worth 10 times more than the cash I was willing to pay. Ultimately, I bought this farm. But it was through quite an evolved process. This was owned by the FDIC and was put into receivership. It took me two years to buy. But that was a real learning lesson for me — just that if you stick with something long enough you will probably get it. Also, if you get emotionally attached to something, you lose all your negotiating power.

That process taught me I can’t get emotionally involved because I have got this hard criteria and he is not changing his criteria. So I don’t have a choice. I have to find something that works. I bought that farm because I wanted to farm, but he probably bought it to teach me a lesson. It worked. I learnt a lot from that. 

And then, when I was on the Douglas County Board from 1989-1992, there would be tough decisions to be taken. I used to have lunch with my dad every Tuesday after the County Board meeting. We did that regularly unless he was out of town. I didn’t travel much then. 90% of the time we had lunch together. I would sit down with him and ask him what do you think about this. He would tell me what he thought and half the time I knew what he was going to tell me. 

But then it was funny because I would think now that he has told me what he thinks I should do, I have to go do it. In politics, making difficult decisions is not fun because there are consequences. I really learnt that you need to pick your fights. I gave up some fights because the consequences were too great. 

That apart, I think one of the greatest things he did was to make it clear that with his money we should go out and hit a home run instead of a few base runs. I think it is pretty amazing because most people would not give their kids a $100, let alone $2-3 billion and say, “go do what you think you need to do”. 

He will ask me about things sometimes, but he will never do it in a way that challenges the decision I have made. The ability to completely let go, I think, is really amazing and there are very few people in the world who can do that. 

If you were to recount your top three learnings from your parents, what would they be?

One is to communicate clearly, because my parents were that way. Be honest. Have integrity. That comes in a lot of different ways. You don’t go to bed feeling like you didn’t do the right things. If you go to bed feeling that way, get up the next day and fix it. The longer it goes on, the worse it gets. You need to remember that you are not any different, any better or any worse than anybody else. Who I am today has so much to do with circumstances I had nothing to do with. There are a lot of people who don’t have the same opportunity or start at the same place or can even get to that place. Just be aware that you didn’t earn everything you got. Since you didn’t earn everything you got, there is even more reason you should treat other people fairly. If everybody did that, the world would be so simple. But it is not that simple. But that is what I grew up around and that is what I taught my kids.

The Berkshire Annual Meetings are legendary. Anything that stands out for you?

The best part is that the two guys at this age, having built what they have, are having fun and they get along so well. Their banter back and forth in a funny way is amazing. It’s funny but also informative. When they are up there, they are serious about the business part of it but they are having fun. I have been to a lot of annual meetings and there is nothing like this one. 

Mr Buffett’s stance on Coca-Cola’s executive compensation plan was discussed yesterday at the annual meeting. You are on the board. Would you have answered it any differently?

No. The only thing I would add is that of a board with 16 people, a few might fall into my dad’s camp. My dad’s camp is not that hugely different. The philosophical difference is that my dad relies on cash and a company like Coke has always relied on stock options. 

When you have 16 people on board, you get 16 different opinions. The compensation committee’s job is to strike a balance and get to a consensus. My dad would say that most companies try to stack the compensation committee so that you get those who think the way you want them to think. I think that is what Corporate America has done. Those criticising my father do not understand what he is doing. What he is saying is that I would have liked a slightly different compensation plan. But he would never want to vote against it because people would then say that he doesn’t have confidence in the company’s management, he doesn’t think Muhtar (Coca-Cola chairman and CEO Muhtar A Kent) is doing a good job. He loves what Muhtar is doing. He doesn’t think there is a better CEO. The other issue that people aren’t thinking about is that Coke has a business to run. If you are their largest shareholder and you start causing distractions and disruptions for them, they can’t run the business as well. 

It is very unproductive for somebody to side with something that is going to start a war and start it publicly before you ever sit down with the management of a company and say I am not happy with this. That is the poorest way you can approach something. If I have a fight with my wife I don’t put it on the front page of newspapers. Chances are, if I do that it will end up in a divorce. We are not going to side with someone who makes absurd calculations that are completely false and is disrespectful of people and unfair.

I have been on two other boards where there have been activists who have been engaged. I have seen one where five years later the guy caused damage to the company.

One thing that stands out about your father is his clarity. Along with his sense of humour, you seem to have inherited that too. 

He needs more clarity in his will! (Laughs heartily), I think clarity is what helps solve problems. I think one of his successes is how he communicates. There is no room for misinterpretation and that just makes everything work better. I tend to communicate that way too.  

You are absolutely hands-on with your Foundation but you have a bigger role awaiting you at Berkshire Hathaway. How are you going to straddle the two? 

The truth is I don’t do anything differently in my life because of some future thing that could happen. It would be a mistake to do that. My dad doesn’t treat it that way either. Between now and then, all I need is to ensure that if I spent a little less time on the foundation, I have the process and the people in place that do what needs to be done. I have Ann, who is very focused on the foundation and now with my son on the foundation as well, it’s quite helpful. But the truth is it won’t be a huge amount of time. A non-executive chairman really doesn’t do a whole lot until something goes wrong. Something like that has happened earlier where it consumed nine months of my time, along with another director’s. You got to deal with it when that happens.  

On His Foundation 

You have been involved with many projects in different places. Has the traditional approach served us well?  

I think the old models have failed — they have failed because otherwise you will not have a billion hungry people. Foundations have to provide risk capital, and be catalytic because at the end of the day, it is either going to be the private sector or the government that has to take it over. Even in what we are working on — water, food, conflict — there is huge public investment involved. The problems are way beyond our ability to solve. But they are not way beyond our ability to influence from time to time in certain places. To do that, we have to focus. 

Another mistake is that traditional projects are driven by western thinking. You bring in outside resources, outside thinking and outside people and try things that don’t work for them. They don’t have the same resources, the same infrastructure, even the culture is different. In terms of addressing issues, our western thinking is at conflict with cultures around the world, so it is necessary for us to listen. But western countries don’t listen well. 

How has your own strategy evolved?

It’s continuously evolving. It’s only after years of learning and seeing how things work on the ground that we are today comfortable doing what we are doing. Spending $40-50 million a year for a few years in a row in the middle of conflict is not something I would have been comfortable with five years ago. We made the largest single contribution to anti-poaching in February this year. We started realising a few years ago how much natural resources fuel conflict. Living in conflict is just like being hungry or not having water — you live in fear every day, you don’t know when your daughter is going to get raped, you don’t know when your husband or wife is going to get killed. You live in this constant fear. Your progress is set back in everything you do. And it happens not just to poor people in a neglected community in Africa, but all across. 

Looking at some of the conflict areas, we learnt that rebel groups really survived on poaching. They poached elephants and rhinos to sell so they could buy arms and ammunitions. We did something that we never made public — we initiated commitment from the government by giving a couple of million dollars to a rapid response team that they wanted to build up regionally. We did something in DRC and Rwanda, and then in South Africa we really stretched because I was familiar with South Africa and that gave me a different level of comfort. They have a retired general who has got a five-year contract to stop poaching. I had dinner with him and I committed $10 million. Later, that number became $24 million, because I thought we had missed some pieces that were expensive.

Half of Africa’s rhino population is in one area of Kruger National Park. I thought here is a place that has the infrastructure and the legal system, so you can accelerate the idea. If we put in everything from intelligence networks to inter-governmental agency agreements to helicopters, to rapid response units to canine units to new electrified fencing using the best technology to sensor technology and aerostats balloons that we use on the border with Mexico, all this will help to arrest poaching. It was expensive but we went ahead. 

Now, it has opened the flood gates for everybody in the world for anti-poaching. Everybody wants to meet with us! When I set up the press council, I had the picture of the rhino horns. I said this is not why we are here; we are here because of the 60,000 people in a refugee camp somewhere because of the conflict. We are here because of all the women that have been raped in the past five years in the DRC because of the conflict. That is why we are standing here, not because of this rhino. People stared in disbelief. 

Some months ago, this was nowhere on our radar, yet we made the single biggest contribution we have ever made in a single shot. Some people would say that that’s crazy, but I see it as being innovative, flexible, spontaneous and willing to change. That is what defines us as a foundation. 

Tell us about a project that has you really excited.

One of our biggest investments is a hydroelectric plant that we started in the middle of conflict in eastern DRC. We have committed $24 million to this and it has really increased my enthusiasm for big projects because you can see that the community is really excited. It is going to bring electricity to 130,000 people. It is going to bring sustainable income to the wildlife park in the area and it will be catalytic in providing opportunity to build small businesses. That project is an investment and we are using this project for advocacy against something and for something. We are advocating against oil exploration in the park and saying there are healthy alternatives. In Africa, the problem is natural resource extraction has never really benefitted communities. So we are saying embrace these alternatives because they bind communities together, rather than create conflict. They will last forever. We also continue to do road and water projects. We employ a couple of hundred rangers so that they can protect the park against rebels. 

You have a fairly lean structure compared with traditional foundations. How do you manage?

We have great partners. These individuals are agents of change and are not constrained by institutions or the problems that come from them. We have people who are totally irreplaceable. If they are gone, we are gone. It is a very high stakes approach. But it also has huge rewards and sometimes quick rewards. That is a trade-off we are willing to make.

Berkshire buys people more that it buys businesses. You can say Coke is a little different, Wells Fargo and American Express are a little different, but those investments would have never been made if the right people had not been there. If you have a bad process in a bad business, you’re going to lose no matter who you put in. For me, it is not much different than what my dad has done in all the companies he has bought. In Berkshire, you look at every one of those and it is because he believes in the person running it. He believes in the people who build it and want to sell it. It is always about people. 

You talk about lesser known names like Joe DeVries and Carrie Osborne in your book, Forty Chances. Are they the real heroes?

You know, we instituted the National Geographic Society/Buffett Awards for Leadership in Conservation in Latin America and Africa. One of the criteria I look at is that this has to be a person who, for the most part, no one has heard of. These are people that make it happen on the ground, make personal sacrifices. We want to recognise those people. You would have read about DeVries, who I have mentioned in the book — early on in his career, he used to fly into conflict zones and get shot at trying to deliver seeds to farmers. I don’t know anybody else who does that. I was jealous that I couldn’t go around and be with him. People like Joe are heroes. 

I had heroes growing up. I had Lone Ranger and Zorro and Superman. But real-life heroes don’t have capes, masks and swords. We all think about heroes in a certain way. But, to us, heroes are people whom we can invest in a big way because we know it is going to pay off. It will pay off in terms of their commitment and their ability to transform our money into something that really makes a difference.  

On Sustainable Farming  

Can you articulate on the critical constituents of an ideal ecosystem, where agriculture can really thrive?

Well, there is this balance you have to reach between not undermining your national resource base to the degree that it is non-functional and not producing food. The two are in a certain level of conflict with each other, but that doesn’t mean that food production has to destroy the other. For any country in the world, food self-sufficiency is very important, but you have to see what is best overall.

The greatest example that we have is hypoxia, which has destroyed fish and the surrounding ecosystem in the Gulf of Mexico. It is clearly a result of the nitrogen that comes from farm fields in the Midwest and goes down to the Mississippi river. Satellite images show how in certain months when heavy nitrogen fertilisers are used, it takes the oxygen away from water and kills everything. That’s a really large-scale problem we have created for farmers there. But we don’t have any accountability. 

If you look at Chesapeake Bay in the US, that water goes through five or six states and farmers have really had to change how they farm. One of the things they have done is turn to heavy use of cover crops — 80% of farmers use cover crops there because they have incentives from the government. We don’t tend to do this on a voluntary basis, and that’s why government is key.

You are advocating a Brown Revolution. How are governments and agriculturists responding?

Firstly, people need to understand why this needs to happen. That is a big challenge. You have to translate that into policies and practices that will allow it to happen. What they have done in Brazil and Argentina is encouraging. We have met some young people in leadership positions within the USDA who really believe in this. Another encouraging thing is that our work on this is paying off. I meet farmers and I hear them talking about cover crops. But in Africa, the biggest challenge is you don’t have the institutions in place to deal with this. You need to educate farmers and support them. Also, Africa is in such a bad position in terms of food production that they are going to look for the easy fast solution — synthetic fertilsers and chemicals — which is not going to serve them in the long term. When you talk about food, it always comes back to the government. No government ever says, ‘let’s give up our food sovereignty’. No one wants to be in that position. 

In your book Forty Chances, Clay Mitchell expresses concern about consolidation in agriculture — too much power with a few firms. He is worried because they could favour yield over soil stewardship. Do you share that concern?

I don’t think it is the companies that are the problem. There are also plenty of farmers who farm 40,000-50,000 acres in different places. You get into a broader discussion about society when you talk about large farms, but I think there is a point where being big works against certain sections of society generally. 

Being big in agriculture production makes it more difficult to try something different or new. You have so much money, land and machinery invested that you are under a lot of pressure to stick with the status quo. But the flip side is that those guys can also be leaders in change. If they change, people will really watch that. 

The other side is that there are a lot of small farms in the world who need to get more efficient and they will get more efficient by getting bigger. Government policy has to steer this balance. All small farmers can’t stay small forever. That won’t be a good solution because small farmers are part of the solution to world hunger; they are not part of the problem. 

Can you tell us how India is placed in terms of agricultural sustainability? You have a favourable view of Brazil — how does India compare? 

There is a big difference between what Brazil and India did. They took very different approaches but they happened at different times. Because there was such an initial success with Green Revolution in India, which is great, it seemed like more is better. More fertiliser is better, more irrigation is better and so on. India is yet to adjust its policies towards a more sustainable approach. On the contrary, Brazil did it differently — it was more focused on soil and sustainability. The Brazilian model is about protecting resources and developing an agricultural system that incorporates this. They are one of the world leaders in no-till and other conservation-based farming practices. And they have done this with not just large-scale farms but even with small-scale farmers. At the time the Green Revolution came to India, there were not many good examples to follow. Now there are, so India can learn and re-orient policies. The highest priority for India now should not be what subsidies you give out or how much fertiliser farmers use because that is going to be driven by politics. The primary policy consideration should be what is best overall. It takes real muscle to start changing policy. And equally important is that you need to educate the farmers about why they need to change.

We need to do the same in America — we are behind Brazil and Argentina in terms of how we farm. A lot of my friends don’t like it when we say this (laughs) but it is very true. We have all the technology, equipment and knowledge — but, for example, we still have tens of thousands of acres that are using flood irrigation, which is incredibly inefficient and wasteful. We don’t even have 50% of our acres in no-till. But only government policy will influence that. Normally, farmers tend to focus more on immediate results and not as much on the long term. But that is understandable because they are trying to make a living. Changing your farming practices is a risk and most farmers can’t afford to do that. If the government doesn’t help you mitigate that, then it is very unlikely that you are going to take a big risk.

90% of the people who are trying to tell farmers how to solve their problems have no clue about farming. They do great disservice to everyone by jumping into this debate. To all these ideas, I say when was the last time you went into a hospital and told a surgeon how to operate? So why do you feel that is acceptable to do that for farmers?

On His India Experience 

You are doing a lot of work in Central America and Africa — have you considered any projects in India, given that it is big on agriculture? 

Mexico is like my second home because I have lived there with my friends. Africa developed because it got on my radar 20 years back. It is a huge continent with 54 different countries and it is a pretty amazing place. India could have 25 countries within India but it doesn’t — it’s overwhelming. 

Africa, too, has some pretty overwhelming challenges but there are a lot of opportunities. Initially, I focused on agriculture but now we have moved to broader issues like conflict mitigation. We have picked the toughest places in Africa — Sierra Leone, Liberia, South Sudan, Congo, Burundi. These are not vacation spots. I have spent 15 years in Africa and am now a permanent resident of South Africa. Compared with Africa, India’s advantage is that it is one country — if you get government policy right, you can have a huge impact, but if you get it wrong, you have a huge problem. In a lot of ways it is similar to Central America in the sense that there is a sense of community and a sense of family. Those are things that you can’t replace but there are things that hold the country back. It is not a criticism but just an observation. 

Can you tell us about your experience in India? You did serve as a director on the board of AgroTech Foods.

I had a very bad experience in India. Actually, two bad experiences. Both are related to corruption. India is the only place where I was forced to pay a bribe. My first experience was when I was forced by a customs officer at Mumbai airport to pay a bribe. I was stuck at the airport for five hours. I said to the officer, “I am not going to pay you for something I don’t owe you, so tell me how to get to the departure and I will leave your country.” That flummoxed him. He said, “No, you can come in but not depart.” Five hours later, I was tired; I paid a certain legal amount, and an illegal amount he forced out of me. My people had waited for me and gone back. Later, I got an apology from the Indian government. When I came in the next time, they had someone meet me and made sure I got through okay. But that wasn’t the best resolution. 

I had another experience in Kanha National Park. They had a great park director, he was doing great work, trying to stop poaching and, along the way, fighting bureaucracy. They had a 1962 radio system that didn’t really work. A good radio system would have helped them tremendously, so I said I’ll buy them one. They gave me the proposal, they wanted Motorola equipment, and when I spoke to the person from Motorola India, he said we will face a problem doing this because there were a couple of chaps in the bureaucracy who would not let this move without getting paid. But I caused such a problem that in the end, it got done. 

There is lot of corruption in Africa, but in India I was dealing with institutionalised corruption — at the airport and at the park. You just can’t get past it. You have to give in. Also, in Africa, it is easy to get to see a President or a minister; in India, the bureaucracy is too much to handle. I don’t have the patience for that.

Given the large inequity in the country, India has brought in a law that says companies have to spend 2% of their profits towards corporate social responsibility. Do you think it is a good idea? Also, what do you think of the triple bottomline approach, where they say that the priority for companies is not the shareholders but all three stakeholders — shareholders, employees and the society? 

I think rules like that can be good and bad. It is not about spending 2% of your profits on charity; you can waste 2% of your profits on something and make a situation worse. It is pretty hard to regulate smart thinking or smart giving. The best examples I can use if I understand what you are saying is that of Coca-Cola India, which is going to be the first country where they are water neutral. There are a couple of good examples from that country. One is 5by20, where they are going to support 5 million women to become entrepreneurs by 2020. They are already at 650,000. That is bigger than anybody in the world has ever done. 

They brought over one of the women to the US to talk. She was absolutely scared to death. She was trying to sell some things but couldn’t make money. She was racking up debt and couldn’t send her kids to school. Then through the Coke project, she learnt proper accounting and the basics of keeping personal and business separate. Now, Coke pays to educate 5 million women and everybody wins because she is selling Coke, although that is not all she does.

Water conservation is another great example. Twenty years from now, Coke will still need a lot of water, so it is in their interest to preserve that resource. But it is in the communities’ interest too. Coke has set a goal of becoming water neutral everywhere by 2020. Another good example is Lindsay Manufacturing Corporation, which makes centre pivots that use water more efficiently. If more people buy their product, more water gets conserved. Government policies that allow conversion from flood irrigation to pivot irrigation is an enabler and helps them sell more, which again leads to a lot of resource conservation. I think we are in a very different era than we were 20 years ago as to how people see corporations and what they can do. 

When the company is in a business that naturally lends itself to conservation or sustainability, it works very well. But a majority of businesses aren’t like that. The conflict arises when any move towards sustainability or social consciousness comes at the cost of profitability, which has to be borne by shareholders. 

The excuse that certain things good for society come at a cost to shareholders is a poor excuse. I think we all live in the world where we all have to worry about how our kids grow up, how clean our air is, how clean our water is, what has the next generation got. There are greedy people everywhere. You can be a greedy shareholder but then I don’t want you as a shareholder. I want to think more long term and be more responsible. American Indians used to have what they called the seventh generation decision-making, where they would sit down and calculate the cost benefits for seven generations, or what impact the decision will have far down the road, 80 years from now. Imagine, how policies would be if we thought like that. Then you would never even ask that question because people won’t think that way.

There are a huge group of people who think quarter to quarter, year to year. And the reason why Berkshire is such a successful company is because my dad said I am not thinking that way. I am not going to behave that way. If you don’t like it, don’t buy Berkshire.  

Of your 40 chances, say you used ten and you are left with 30. What do you intend to do with those 30 chances?

The one thing that I want to do is select a few legacy projects that will help influence the way people act with their financial resources. When the time comes for me to do something at Berkshire, I want to carry out my dad’s instructions as best I can, so that there is a good transition for shareholders who have a lot of confidence in the company. I want to ensure they are treated fairly and that there are no big surprises for them. I don’t think about how long I am going to live or what life is going to be in 20 years. All I worry about is what I am doing now.