2014 Berkshire Hathaway Annual Meeting (Full Version)

Thank you. Good morning. Uh, before we start, there are two very special guests that I'd like to introduce. Have them stand up. Uh, the first, uh, even though he was on tour, he, uh, took a quick, uh, detour to Omaha to be here today, and will my friend Paul Anka please stand up? Paul! [Applause]

With all the talk that had been around about my succession, I thought it was probably a good idea to try and hook up with someone famous that might give me a shot at a second career here at the, uh, so we were available for weddings and funerals and bar mitzvahs, and we actually had one offer the other day. I thought it was kind of insulting and they got offered a thousand dollars. And I mean for me and Paul, that really seemed a little ridiculous. I told the people that, and they said, okay, we'll make it ten thousand if just Paul comes.

Now we have one other very special guest. This affair does not just happen by itself, and there's a young woman who had a baby, a young boy named Brady in September, and she has marshaled together 400-plus of the people from our various companies and put on the show you’re witnessing today. And I just want to say a special thanks to the woman we all love, and especially me, Carrie Silva. Kerry! There she is! [Applause]

Okay, now we get down to the minor players, and we'll introduce the board of directors. The, uh, we're going to have the, well, we'll have the board meeting, uh, or the shareholders meeting, I should say, after the, uh, Q&A, which will end at 3:30, and then we'll recess for 15 minutes and at 3:45 reinstitute the, uh, or begin the shareholders meeting. But for those of you who won’t be around at 3:45, I’d like to have a chance to meet the directors now, so I will introduce them one at a time and ask them to stand.

Uh, hard as it may be, withhold your applause until they're all finished standing and then you can go crazy! Uh, so doing it alphabetically, and if you'll stand as I give your name: Howard Buffett, Steve Burke, Sue Decker, Bill Gates, Sandy Goddessman, Charlotte Guyman, Don Keow, my partner Charlie Munger, Tom Murphy, Ron Olson, Walter Scott, and Merrill Whitmer. And that is the board of directors of Berkshire. [Applause]

We have just a couple of slides, and then we'll move right into the questioning, which will go on until roughly noon, take a break at noon, and come back about one o'clock and then we'll continue until 3:30, at which point we'll adjourn and then have the annual meeting at 3:45. But there are just a couple slides. The we released our earnings yesterday, and I've always emphasized we try to release our earnings always after the markets closed and preferably after the markets closed on a Friday so that people will have a full weekend to digest the information.

Because there's a lot of information about Berkshire every quarter and it's contained primarily in a 10-Q that we make available for you to read over the full weekend. So we always urge you not to just look at the summary figures, but take a look at the 10-Q. It's great reading and absorb all that by Monday morning. But here we have the summary for the first quarter. As you can see our operating earnings were down a bit, and in that was more than accounted for in insurance underwriting.

And you should understand that insurance underwriting from quarter to quarter really doesn't mean that much. For one thing, it can be quite affected by changes in foreign exchange, which really don't have anything to do with our insurance business, but, or at least in the reality of interim results. Our insurance business now has a float of 77 billion dollars, and that 77 billion dollars is ours to invest. And whether it costs us anything or not is determined by whether we have an underwriting profit.

So even though our underwriting profit in the first quarter was quite satisfactory, but nevertheless down from the first quarter of last year, the insurance business is marvelous for us. And, uh, if we even break even, that's 77 billion dollars, which is subtracted from net worth. I mean, it's a liability on the balance sheet, but if it's cost-free, it really does about as much good as net worth itself does. So it's a very remarkable business, and, uh, frankly, if we average an underwriting profit over the years, I'll be very happy and you should be very happy with what our insurance business, uh, does for us.

Uh, but it was down in the first quarter and like I said that more than accounted for the decline in earnings. We always advise you to pay little attention, pay no attention really to quarterly or even annual realized gains or losses in securities because we make no attempt to time the sales of securities to produce earnings in or in any given quarter. We just try to manage the money as well as we can and we let the chips fall where they may in terms of whether those actions produce gains or losses in the short term.

We hope that they produce a lot of gains over the longer term, and they have. But they should be ignored and attempting to interpret, uh, our shorter term earnings. Uh, with that, I would like to, uh, uh, give you a little preview, uh, of a vote that has taken place and which we'll talk more about when we get to the shareholders meeting, but it's so remarkable, uh, that I wanted to, uh, put it up for all of you to look at now.

As you know, uh, we had a shareholder resolution, yes, up there. We had a shareholder resolution rather elegantly stated, uh, that suggested that we pay a dividend and with the sort of subliminal suggestion that we weren't paying it because I was so rich that I could live in this grand style to which I've become accustomed, uh, without a dividend, but that the shareholders were out there essentially bereft of the necessities of life because we were holding all the money here in Omaha.

So this gentleman put this on the ballot, and if we'll go to the next slide, you'll see some remarkable figures. Um, bear in mind that, you know, you people get these proxies at your home at your office and you can mark anything you want. We hire no proxy solicitation firm, so we are making no calls, we make no attempt to influence how anybody votes. Uh, we just count them as they come in and as you'll see at the top among the class A shares, the vote was roughly 90 plus to one against the dividend.

But you might suspect that I stuffed the ballot box, which I did, and so I took my vote out and you'll see down below the vote was a little, a little less than 40 to one among the untainted shareholders of, uh, against receiving a dividend. And then you may say to yourself, well, you know, those are such friends, all the plutocrats, and uh, easy for them to say. So let's go on to the next slide and you will see there than among the B shareholders and we believe we may have as many as a million B shareholders.

We, we don't know the exact number, we don't even know an approximate number very well, but it's not a bad guess that we have a million or so shareholders, and remarkably, by a vote of 45 to one, these are people we're not, we're not making any phone calls to get their vote or anything, by 45 to one our shareholders said don't pay us a dividend.

I'm not sure that there's any company in the world that would would get quite that vote. And now they go to one more slide and that'll be the end, but this is the rather disturbing part of that vote. Uh, if you go to the next page, you'll see again among the B shareholders that I've got that same vote up there.

And if you look down below, you will notice that almost the same number of people voted against or withheld their vote for me as voted for having a dividend. So from that you can only deduce that the shareholders are ever forced with the choice or I should say if the directors are forced with the choice of paying a dividend or getting rid of me, it's a close vote.

So you can see why I'm rather reluctant to bring up the dividend question with the directors. Um, I, uh, the vote actually up until two days earlier before these final figures, the boat was actually just virtually a dead heat in the number of number of people that wanted to have a dividend and the number of people that wanted me to get out of the place were running neck and neck.

So again, that's a rather unusual voting arrangement. Well, with that, uh, we're going to do the questioning as we always do. We have journalists on this side, we have financial analysts on this side, and we've got a wonderful group of shareholders in the audience. So we're going to alternate among these groups and we will keep doing that until noon, and then we'll pick up where we left off at one o'clock and continue doing it.

And we will start off with Carol Loomis of Fortune magazine.

Um, good morning. I'll make my two or three sentence introductory remarks first. Becky and Andrew and I get hundreds, if not thousands of questions and we can only ask a few, so if we didn't get to your question, uh, please, uh, excuse us. Secondly, uh, Warren and Charlie got no hint of what we were going to ask, though they read the news like we do and that may explain, uh, that they would sometimes get a thought about what they were going to get asked.

And that will explain my first question. The question is from Will Eldridge of New York City, and he says, Mr. Buffett, this is a question about Berkshire's holdings in Coca-Cola. This spring Coke asked shareholders to approve a magnanimous stock option program for its executives. Asked about it by the press after the vote, you said the program was excessive, yet you did not tell the world prior to the Koch shareholders meeting that you believed the program to be excess in a disclosure that had been made earlier might have made shareholders vote against it.

And in fact, you did not vote Berkshire's shares against the plan, you only abstained. I guess you had your reasons. I must say I don't expect to agree with them and I cannot see how they can stand up under examination, but I still would like to know why you engaged in this very strange un-Buffett-like behavior.

So why did you abstain rather than voting no against a corporate action that deserved to be shouted down?

Yeah, well, some people incidentally think that strange and un-Buffett and Buffett-like are really not quite right. That's it. Strangers frequently Buffett-like. The proposal, uh, was made by a shareholder who owned shares for a long time and was opposed to the option program. His calculations, and on probably, but his calculations as a dilution were wildly off.

And we did not care to get into a discussion of that or anything else, but we did talk, or I did talk to Muhtar Kent and I informed him that we were going to abstain. I told him that we admired enormously the Coca-Cola company, we admired the management, and we thought the compensation plan, although it was very similar to a great many plants, uh, was excessive.

And Muhtar and I had a very good discussion right here at Omaha, as a matter of fact, as well as a couple of telephone discussions. And then immediately after the vote, I announced that we had abstained and gave the reasons that we thought the plan was excessive.

And I think that in terms of having an effect on the Coca-Cola compensation practices, as well as maybe having an effect on some other compensation practices, that that is the most effective...was the most effective way of behaving for Berkshire. We made a very clear statement about the excessiveness of the plan and at the same time we in no way went to war with Coca-Cola.

We have no desire to go to war with Coca-Cola and we did not endorse, uh, some calculations that were wildly inaccurate and joined forces with someone that I had really no contact with. I mean, I received several letters in the mail after they'd first been given to the press.

So I, I think you have to be...I don't think going to war is a very good idea in most situations, and I think if you're going to join forces and going to war with somebody, you better be very sure about what that alliance might mean. So I think the best result for the Coca-Cola company was achieved by our abstention.

And we will see what happens in terms of compensation between now and the next meeting of Coke. Charlie, I think you handled the whole situation very well.

And Charlie remains vice chairman. Charlie incidentally was the only one with whom I talked over the vote, uh, before or the abstention before I did it. I called Charlie and told him about the plan and, um, and we agreed on the course of action at...uh, I should point out one thing and, and in fairness to David Winters, who may, who led the war, um, he took figures from the Coca-Cola proxy statement, so it's hard to fault him for that.

But for those of you who would really like to know how to think about calculating dilution, Coca-Cola has regularly repurchased the shares that are issued through options, uh, and the share count has thereby come down just a small bit at Coca-Cola, not anywhere near as much as if they hadn't issued as many shares that would have repurchased shares.

But Coca-Cola has a plan that involves 500 million shares and they say in the annual report that they expect to issue these over approximately four years, and then they have a further calculation between performance shares and option shares, but I'll leave that out.

Um, make this a little simpler, um, and that's a lot of shares. Let's assume for the moment that Coca-Cola is selling around 40 dollars a share, now to which it is, and that when this, and that all the options are issued at 40, and that when they're exercised, we'll say the stock is 60 dollars, now at that point there has been a 10 billion dollar transfer of value, 20 a share times 500 million shares, a 10 billion dollar transfer of value.

Now the company, when that is done, gets a tax deduction and at present tax rates that would result in 3.5 billion or less tax. So if you take 20 billion of proceeds from the exercise of the options and you add 3.5 billion of tax savings, the Coca-Cola company receives 23.5 billion.

And if they should buy in the stock at 60 dollars a share, uh, which it would be selling for, then they would be able to buy, um, 391 million 666, 666 shares, so uh, in effect the Coca-Cola company net would be out a little over 108 million shares.

And that's on a base of 4 billion. So the dilution, assuming all the, all the proceeds from the option exercise and the tax refund were used up, would be 108 million shares on 4.4 billion or about two and a half percent.

And I don't like dilution and I don't like two and a half percent dilution, uh, but it's a far cry from the number that we're getting tossed around. It's a long explanation but I've never seen the math ex-written about. I mean I've seen people throwing out claims and all of that, and you can change my supposition from 55 to 60 to 55 or 65. It doesn't change things very much.

John Brown, hi Warren. Thanks again for having me back.

My first question is as follows: Berkshire has a track record of buying successful companies and leaving them alone. 3G has a more hands-on strategy with its acquisition. Zero-based budgeting would seem to offer the potential to improve margins at any non-insurance business.

Is there a way for Berkshire to use 3G's methods to boost profits without violating promises made to selling shareholders or breaking faith with Berkshire's decentralized culture? Would it be consistent with Berkshire's culture to hire a 3G alumnus to run a Berkshire subsidiary after an existing manager retired? Or alternatively, how hard would it be for a non-3G alumnus to learn and implement their management process? Thank you.

Yeah, I don't think the two blend very well, but I do think that we, I think 3G does a magnificent job of running a business, running businesses, and I've watched them in the past from afar, and I've watched them more recently up close, and there's no question that it's a different style than Berkshire, and I don't think it—we don't think it would pay to try and blend the two.

But I certainly think that we will see more opportunities to partner with 3G, and we're very likely to jump at those opportunities because I think they're as able as anybody I've seen in the management of businesses, and to get a chance to join with them.

And in addition to that, they're marvelous partners. They're more than fair in everything they do with us.

So we will, as I've put in the past, I think we're very likely to partner with them, perhaps in things that are very large, but I do not think a blending of the two would work very well. We've got a system that works very well for us, and managers, when they join Berkshire, are joining into a large business that's unlike virtually any large business that's around.

They really can't find a home exactly like Berkshire, and that's a huge corporate asset. It's one that's grown over time, it'll continue to grow, and we want to maintain that with a very clear message that it goes well beyond my lifetime, but we welcome the chance to join with 3G.

Charlie, I don't think we've ever had a policy that loved overstaffing.

Well, I would only slightly disagree with that. We certainly have never had a policy that allows for overstaffing at the home office.

We only feel happy when people are sitting in other people's laps. I mean, you have to understand this.

But we have not enforced or attempted to enforce, nor would wish to enforce a strong discipline on every—whether they have a few too many people or not. Many, a great many don't. In fact, I mean most of them are overwhelmingly—they're managed on a lean basis, but that's not true of everyone we've been involved in over the years, and it probably won't be true of everyone in the future.

We encourage—I mean we encourage just by example, but we do not encourage it by edict particularly.

Charlie, when I think a lot of great small businesses fail just because they don't want to be fanatic, and that's all right. I don't think you have to have the last nickel out of the staffing costs.

Okay, we'll go to the shareholder at station one up on my far right.

Yes, hello, my name is Doug Merrill, I'm from Denver, Colorado, the home of Peyton Manning. Awesome! The president's approval rating is at 40 percent. Steve Nguyen said Obama is the biggest wet blanket to the economy. Other countries are lowering taxes and reducing debt.

You have Obama, here. Um, the train's going in the wrong direction. Can you conduct Obama to change the train's direction?

Well, Doug, I think I'll let you communicate with him directly.

I don't agree with a number of things you've said there. American businesses are doing extraordinarily well.

[Applause]

Many of the American people are not. And, you know, I think Obamacare is more about uh doing something for them than many other people would, but we're going to have a difference of opinion on politics and I'm not going to convince you and you're not going to convince me.

But I will say that that anybody that thinks American business is doing—not doing well should just look at corporate profits.

Anybody thinks our corporate taxes are too high should look at a chart of tax corporate taxes as the percentage of GDP since uh World War II, and it's come down from four percent of GDP to two percent of GDP while many other forms of taxes have obviously increased.

And uh, American business earnings on net tangible assets, which is the way to measure profitability overall, uh, you know, it's basically the envy of the world.

I mean we have extraordinary returns on tangible assets, uh, net tangible assets in this country, and, and, uh, our tax rates now for corporations are far lower than when uh Charlie and I were operating, and American business actually was doing pretty good then.

But for much of our life taxes were corporate taxes and corporate sales taxes were 52 or 48. But I don't want to try and convince you because I don't want you to try and convince me, so we'll call a truce on that.

And I'll let Shirley come in.

I'm going to avoid this one as people complain about me abstaining.

Okay, Becky Quick, this question is from Manolo Salceda, and I'll preface it by saying he says that he is a true admirer of Buffett and what he stands for.

So please don't confuse my bluntness and straightforwardness with the lack of admiration or empathy with this amazing person and his master creation.

With that disclaimer, but [Laughter] his question is you've stated several times in the past that if management isn't capable of delivering a better return than the index, then management wasn't doing the job.

Then you said that the yardstick should be any five-year period. You've just missed your five-year period comparison. How come you didn't tackle the issue in your annual shareholder letter? Are you changing the yardstick? And what's next?

No, we're not changing the yardstick, but I would point out that we said actually in the, in the 2012 report, and it's in the upper half of the first page, we pointed out how we do worse in very strong years and better in four years, and I said then if the market continues to advance in 2013, our streak of five-year wins will end.

I didn't say it might end, you know, or could end or anything— it was obvious that if you have five strong years in a row, uh, we will not beat the S&P and that will be true in the future for sure.

And of course, last year was, I think, there were two years in the last 40 or so that the market was up more than it was last year.

So despite the things mentioned about President Obama, the stock market things have done quite well.

Uh, we will underperform in, in very strong up years. We'll, we'll probably more or less match in moderate up years. We'll do better than average in even-numbered years or down years, and I have said and I'll continue to say, and it's been true that over any cycle we will, I think we will overperform, but that's—there's no guarantee on that.

But it was—it was clearly said, like I said on the first page of the 2012 report that if the market went up we would have a five-year streak of underperformance, and uh, that's exactly what happened. Charlie?

Well, we should remember that Warren's standard talks about net worth of Berkshire increasing after full corporate taxes at roughly 35 percent, and the indexes aren't paying any taxes, and so Warren has set a ridiculously tough standard and has so far met it over a long period of time.

In the last couple of years the net worth of Berkshire after full preparation for income taxes went up, what, 60, something like that?

Yeah, 60 billion.
Yeah, probably 90 billion.

Yeah, and so if this is failure, I want more of it!

[Applause]

Okay, Jay Gelb. Warren, this question is on Berkshire's intrinsic value. In the annual letter you appear to strongly signal that Berkshire shares are undervalued, especially relative to intrinsic value.

Aside from share buybacks, what actions can Berkshire take to narrow the discount between the current share price and intrinsic value? For example, would you ever consider an IPO of Berkshire's individual operating units?

The answer to the last part is no. But, uh, I think we try to explain—I don't, my guess is I've never seen an annual report that uses the term intrinsic value or even talks about the intrinsic value of its units or business as much as Berkshire does.

So Charlie and I really devote considerable effort to explaining which of our businesses where there's really a significant discrepancy between what carrying value is or book value, call it carrying value, and the true value or the intrinsic value of the business.

And I got very specific in the case of Geico in the past year, for example, and I said that Geico, which is carried at about 1 billion over tangible assets, may be worth as much as 20 billion over tangible assets.

And I wouldn't be surprised if five years or ten years from now that that figure itself will be a lot larger. So we've talked about it. We said we are willing to buy—not only willing but eager to buy stock at 120% of book value.

Well, with book value being close to 230 billion now, that obviously means we think that at 45 billion dollars roughly over that figure, uh, we are getting a bargain in relation to intrinsic value.

But we're never going to try and put out an exact number because we don't know an exact number and it's a—it changes from day to day, although not a lot day to day, but it certainly changes, you know, over the quarters and over the years.

And the second reason is if you ask Charlie and me to write down a figure as we sit here as to the intrinsic value of Berkshire we'd probably be within five percent of each other, uh, but we might very—we probably would not be within one percent of each other.

So we will continue to try to give shareholders, uh, information about them, the importante units.

Uh, it isn't the small ones are not unimportant to us, but they are—they do not have a big impact on the overall intrinsic value. We’ve got a few businesses. I mean we’ll have some businesses that maybe carried it a few hundred million, that might be worth a billion or maybe two billion even, but that isn't where the big undisclosed by the balance sheet values are.

Uh, you know, they’re in the railroad, they’re in the insurance business, they're in our utility business. They're—and they add up to some pretty big numbers.

We try to tell you exactly the numbers and really and use the words that we use when we're thinking about those businesses ourselves in terms of estimating their value, uh, but we don't want to go further than that.

The 120 obviously is a loud shout out as to a figure that we think is very significantly below intrinsic value, or we wouldn't use it to repurchase shares.

We only believe in repurchasing shares when we can do so at a significant discount from intrinsic value. Some companies talk about—Coca-Cola does—they talk about buying in shares to cover options.

That actually isn't the best reason to buy in shares. I mean, the stock could be overpriced and you should— even though you issued it on options you shouldn't be buying it in.

But that's become sort of a mantra throughout corporate America that if you buy shares to cover the option exercises, that you've negated the dilution to shareholders.

But again, if you buy shares, if you buy a dollar bill for 90 cents, you're doing your shareholders a favor. And if you buy it for a dollar ten, you are doing them no favor at all.

Charlie?
Well, I don't believe we've ever wanted to get the stock way over intrinsic value so that we can issue it to other people and get an advantage for ourselves and a disadvantage for them.

And I think the people want the stock up very close to intrinsic value or higher really want egg in their beer. It's okay if it's a little below, and we're not in the game of ballooning our stock up as high as we can get it so we can issue it more of it as a pro profit to ourselves.

I think over the long term our system will work pretty well and I think the stock will eventually go above intrinsic value whether we like it or not.

But we have—we really watched a lot over the years of certain managers attempting to get their stock to suffer way more than it was worth so they could use it to trade for other companies.

I mean that was all the rage in the late sixties. Uh, one of the reasons I wound up my partnership was that that activity was going on so much and it affected all other values and it was really a game, and it was a game that some people played sort of halfway honestly and other people really cheated like crazy.

Because if you're trying to get your stock to be overpriced, you're very likely to cheat on your earnings and cheat on projections, cheat on everything.

It works, incidentally. It doesn't work indefinitely, but it works. Some companies whose names you know, uh, we're to some extent built on that principle.

That's a game that we not only don't want to play, we found it very distasteful because we saw a lot of these people in action.

It comes in waves, uh, and we just—we don't want to come close to playing it.

Unless I'm careful, Charlie will name names, so we better move on to shareholders.

Well, let's go to station number two. Hi Mr. Buffett and Mr. Munger. My name is Masato Musso, and I'm from Los Angeles, California. Berkshire is known to buy and hold companies for many, many years, but earlier in your careers that was not the case.

And typically, acquisitions of other companies is very disruptive. Employees fear losing their jobs instead of redundancy, and managers really have to think twice and be diligent about it.

So my question is, what do you do to gain the trust of founders or owners of the companies you have bought out in the past?

Well, we've kept our word to them and now we have to be very careful about what we promise because we can't promise, for example, never to have a layoff in a business we buy because who knows what the world holds.

But we can promise that we won't sell their business, for example, uh, if it turns out to be disappointing as long as it doesn't run into the prospect of continuing losses or having significant labor problems.

But we keep—we are keeping certain businesses that you would not get a passing grade at business school on if you wrote down our reasons for keeping them, but the reason is we made a promise.

And we put that—we now make the promise, we put it in the back of the annual report. Now we’ve done it for 30 years or so where we list the economic principles and we put it there because we believe it, but we put it there also so that the managers who sell us their business, the owners who sell us their business, know they can count on it.

And if we behave differently, uh, you know, the word would get around, and it should get around. Uh, so we can—we can make problems; we can't make promises we'll never change employment.

We can't even make a promise that we'll keep a business forever, but we can promise what we do promise, which is that if it turns out to be somewhat disappointing on earnings but does not promise, uh, sort of unending losses or if we don't, or if we have labor problems, uh, we can keep that promise.

And we have kept that promise. We've only had to get rid of a few businesses, including our original textile business.

We promised the managers, you know, that they were going to continue to run their businesses, and believe me, if we didn't do it, the word would get around on that very quickly.

But we've been doing it now for 49 years and we've put ourselves in a class that is hard for other people to compete with. If that's important to the seller of a business, a private equity firm is going to be totally unimpressed by what's in the back of our annual report. They don't care, and that's—there's nothing wrong with that; that's their business.

But for somebody that's built up their company over 20 or 30 or 40 years, and maybe their father or grandfather built it up, but even before that, some of those people care about where their businesses go.

They're very rich, they've accomplished all kinds of things in life, and they don't want to build up something which somebody else tears apart very quickly because they're handing it over to a few MBAs who want to show their stuff.

So we do have a unique, or close to a unique asset at Berkshire, and as long as we behave properly, we will maintain that asset, and really no one else will have much luck in competing with us.

But it doesn't solve all problems. But frankly, it's the way we want to operate anyway, so it's—uh, we're comfortable with it.

Uh, the sellers that do come to us that care about their businesses are comfortable with it, and I think it'll continue to work well.

Charlie?

Well, obviously, we behave the way we do because we like doing it. At number two, it's worked pretty well, and we're unlikely to stop.

Okay, you can tell he doesn't get paid by the word.

Andrew? A tough corporate governance question; I probably received about a dozen of them this week, some polite and some less polite.

This is one of the polite ones. This is probably one of the more polite ones. Your son Howard serves on the board of Coke and voted to support its co-pay package proposal, which you have said was excessive and you were against.

You have said Howard will become non-executive chairman of Berkshire after you step down as its protector of culture to uphold the morals that you and we all hold so dear.

Given his role in the Coke vote, how can we count on Howard to defend the culture of Berkshire and ensure that the future management of Berkshire does not benefit at the expense of its shareholders?

Yeah, well, I think as I mentioned in at least one interview, I voted for—not referring to Coke there necessarily, but I not only voted for comp plans that were far from what I would have come up myself, but I voted for acquisitions that I didn't think made much sense.

I voted against a few, uh, and they attracted a lot of attention, but they were big ones where I really think, or I thought it really made a difference.

But the nature—and this is something worth exploring generally—because the nature of boards is such that they're part business organizations and part social organizations.

And people behave, uh, in some ways, uh, with their business brain and they behave to some extent with their social brain.

And I would say—and I've said this—that in 55 years of being on corporate boards and 19 companies aside from Berkshire, I don't think I've ever seen a comp committee report come in and get a dissenting vote.

And the social reason for that is that the board organizes itself in a way whereby certain activities are delegated to a smaller portion of the board, one being a compensation committee, and that committee presumably meets for a few hours or the day before the meeting, or maybe the morning of the meeting.

And then they go into a board meeting, and the comp committee reports on its activities, and you've delegated that activity as a board member to that group.

It's almost—it’s almost unheard of to question that. I'm not saying that maybe it shouldn't be questioned, but I'm just saying that that is the way it works.

Now bear in mind that the so-called independent directors on such a board are probably receiving maybe two hundred thousand dollars a year, maybe three hundred thousand dollars a year. Believe me, they are not independent.

They're independent as measured by some standards, perhaps of the SEC, but they—you know, how would you feel about having a job that required you to go to work four or six times a year, pleasant company, you know, certain amount of prestige attached with it and on top of it you get paid, maybe three hundred thousand dollars a year, and you kind of hope to get another job like that? That is not independence.

So you get a group coming in like that from the comp committee and in those 19 boards I was put on the comp committee exactly once.

Charlie might be able to tell you exactly what the result was that time. They do not look for Dobermans; they look for congenial people, and then they make sure that the tails are wagging.

And but that is—don't condemn it too much because you and I are doing similar things in other parts of our lives.

You know, the social dynamics are important in board actions. My son Howard, in fact, my other two children as well, if they were involved, you know, they would have a dedication, and do have a dedication to the culture of Berkshire, which is clearly defined.

It's one of the reasons I want it clearly defined, and it's reinforced by the behavior and it's reinforced by results and incidentally their job would not be to set the compensation.

I mean the non-executive board chairman is not there to select the compensation of the CEO or others.

He's not there to select the CEO; he is there to facilitate a change if the board of directors decides a change is needed. And that can be important, very, very, very unlikely to be important in the case of Berkshire, but it's a nice little extra safety valve.

And now he is the perfect guy to carry that out. And like I say, I voted for comp plans at various places including way back, you know, Coke that were far from what I would have designed myself.

And the ones I designed myself would have worked, but that is the way boards work. I was made chairman of one comp committee, and Charlie can tell you a little bit about that.

Warren was totally voted down at Solomon Inc.

In fact, people acted like, what the hell is he doing? How could he be disapproving compensation on Wall Street?

And I think the general idea that that person should just shout disapproval all day long of everything he disapproves of is very suspect in the world in which we inhabit.

People accomplish more if they pick their spots.

And knowing both Howard and Warren Buffett, I don't think you have to worry that they're going to go crazy or be soft and foolish just because they don't shout all the time about everything that is approved of. If we all did that, we wouldn't be able to hear each other.

[Applause]

Yeah, if you're in any social organization, you keep belching at the dinner table, you'll be eating in the kitchen before very long, and people won't pay any attention to you.

I mean, you really have to pick your spots. You have to pick how you do it.

I mean, that could even be—I mean sure, Charlie gives the marital advice around here, as you noticed in the movie, but it's not even a bad thought to keep in mind in marriage.

I mean, in terms of attempting to change the behavior of others, which is you'll have a very limited ability to do in any event, it's not helped by shouting a lot.

I offend more people than you do, and I'm quite satisfied with your level of disapproval.

Okay, Greg Warren. The Morning Star. Greg, welcome. Thank you.

Warren and Charlie, on behalf of Morningstar, I want to thank you for having us on the panel this year.

I may not be an accredited bear, but hopefully, I ask probing questions that add value for shareholders.

My first question relates to the measurement of management performance. For Morningstar, the ultimate measure of success is not just whether or not a firm can earn more than its cost of capital but whether or not it can do so for an extended period of time.

Berkshire has historically done a good job of generating outside returns, but as you've noted in the past, the sheer size of the firm's operations which continue to grow will ultimately limit the returns that Berkley would generate.

With that in mind, what do you believe Berkshire's cost of capital is? How much do you think that this hurdle rate has increased as you've acquired more capital intensive, debt heavy firms? And how much confidence do you have that future capital allocators at Berkshire will be able to generate returns in excess of the firm's cost of capital, acknowledging, of course, the fact that Berkshire's days of outsized returns are most likely behind it?

Yeah, well there's no question that size is an anchor to performance and we intend to prove that up to the point where it starts really biting.

But we cannot earn the returns on capital with well over 200—well, with a market cap of 300-plus billion.

Uh, it's just, it just isn't doable. Archimedes, he said he could move the world if he had a long enough lever, didn't he? Or something like that. Well, I wish I had his lever because we don't have that lever at Berkshire.

Um, so, uh, we...well, I'll answer two questions there in terms of cost of capital. Charlie and I always figure that our cost of capital is what can be produced by our second best idea.

And then that our best idea has to exceed that. We think I've listened to so many nonsensical cost of capital discussions that I've never heard of an intelligent one.

Yeah, yeah it's really true. I mean, and there's—that's another thing I bet on boards and the CFO comes in and explains why we're doing this, and it always gets down to, you know, it exceeds our cost of capital.

I don't know what the hell it's costing capitalism, I don't know, but I don't embarrass him.

Yeah, so I just sit there and listen to the stuff and apply my own thing and then still end up voting for it probably if I don't like it, although there have been a few exceptions to that.

Um, the real test over time is whether what the capital we retain produces more than a dollar of market value as we go along.

And if we keep putting billions in and those billions in effect are worth in terms of present value, in terms of what they add to the value of the business, more than what we're putting in, we'll keep doing it.

We bought a company the day before yesterday, I guess it was, and we are spending close to 3 billion U.S. It's a Canadian company, and we think we will be better off financially because we did that, and we thought it was the best thing that we could do with the 3 billion dollars on that day.

And those are the yardsticks that we have. And what I do know is that I've never seen a CEO who wanted to do a deal where the CFO didn't come in and say it exceeded the cost of capital.

You know, it's just—it’s a game as far as we're concerned and we think we can evaluate businesses and we know the capital we have available.

And we have things that we can sell to buy not businesses but marketable securities. We can sell them, buy businesses if we like.

And we we are constantly measuring that opportunity cost that Charlie talked about in the movie. It's an important subject and one that I think has had more nonsense written about it than about anything.

But I'll turn it over to Charlie to go further.

A phrase like cost of capital which means different things to different people and often means silly things to people who teach in business schools, we just don't use it.

Warren's definition of behaving in a corporation so that every dollar retained tends to create more than a dollar of market value for the shareholders is probably the best way of describing cost of capital.

That is not what they mean in business schools.

The answer is perfectly simple, we're right and they're wrong.

I look good compared to him, don't I? Okay, station three.

Good morning, my name is Jonathan Fine and I'm from Denton, Texas, just up the road from the new Nebraska furniture mart that's going to be located in the colony.

My question relates to your original acquisition of that business from the Bunker family in 1983.

Based on the data you provided in this year's annual report, it appears you were able to purchase this business for roughly 85 percent of book value or roughly two times earnings.

Can you comment on the factors or the environment in Omaha that enabled you to purchase this wonderful business for such a wonderful price?

Well, I wish we had bought at that cheap, Jonathan but uh, now the, we paid at the time, uh, as I remember, probably 11 or 12 times after-tax earnings.

Um, it was not a discount from book value. I'm not sure where those numbers got recorded. We bought 80 percent of the company.

It was bought on the basis, as I remember, uh, of a hundred of 60 million dollars of purchase price. So we actually, there was a second transaction involved in it but 60 million was 100 value.

Uh, we ended up with 80 percent, uh, the 60 million would have been more than bulk at the time, uh, not way more but more than book and it would have been a multiple of 11 or 12 times sales for about 100 million pre-tax margins, uh, were in this seven percent range.

So it was about seven million pre-tax and, you know, four and a half probably after tax—that's ballpark.

Um, but, uh, so it was not, it was not a bargain purchase; it was a great business. It was a wonderful opportunity to join as fine a family as I've ever met.

But it was—and incidentally, there was a there was another company I believe from Germany that was trying to buy it at the time.

And, uh, believe it or not, Erskine Bowles—or Simpson Bowles was representing them, my friend Erskine. I didn't know this at the time.

And then I went out on my birthday, August 30th, 1983, and had that contract which is in the annual report, and I gave it to Mrs. B.

And she didn't read it, but Louis, her son, told her what was in it, and I never asked her for an audit. I just asked her if she owed any money, and I asked her if she owned the building. She said yes, and we made the deal.

But it was not a bargain purchase. Now if you want to talk about bargain purchases, we should talk about going out to the Nebraska furniture mart that, um, uh—so far in the three that we—in the days of this annual meeting, our sales, which were a record 40 million for the week last year are up about—I think they're up about seven percent now.

And last year, of course, it was a record, and on Tuesday, which was the first day, we did 7.8 million, and Berkshire owns the largest home furnishing store in Sacramento, California.

We own the largest one in Boise, Idaho. We own the largest one in Salt Lake City. We own the largest one in Las Vegas, largest one in Reno.

Our sales at the furniture mart on Tuesday were larger than the monthly sales of any one of those stores I've just named, being the largest ones in places like Sacramento.

So it is a remarkable organization! [Applause]

And the good news is there's still time for you to avail yourself of those prices.

I would like to put in a plug for the Dallas store where I was down there a week ago, and it's a plot of land like you wouldn't believe. It's a store like you wouldn't believe.

It's a—it is a million eight hundred thousand square feet under one roof, over 40 acres. It will do more volume, I predict, than any other home furnishing store in the world.

And I wouldn't be surprised if I could add to that by a factor of at least two. It's a remarkable story and store, and I toured around it, and we're putting in—we're putting in streets, we're site preparation, utilities, racking, all these things.

This wonderful woman, Michelle, who showed me around, and then the Blobkins later told me that she'd started work for Nebraska Furniture Mart as a cashier, and she is in charge of this, you know, many hundreds of millions of dollar project.

It's really, it's a good thing about America. And at the end of the tournament, she had this number two person working, walking around with us, so she was explaining some things to us too, and I learned at the end of the tour that number two was Michelle's husband.

The interesting pillow talk—you know, how many cubic yards did you move today, honey? You know.

Okay, Carol, this question comes from Jason Rothman of Oklahoma City, who was the first shareholder to ask a question that subsequently was framed by a number of other shareholders as well in my mailbox.

This was the most popular question asked, Mr. Buffett. You state in your annual letter to shareholders that in your will you have given instructions to the trustee who will be acting for your wife's benefit to put 10 percent of the cash given her in short-term government bonds and 90 in a very low-cost S&P 500 index fund.

My question is, why are you advising the trustee to put 90 percent of the cash into an S&P 500 index fund instead of into Berkshire shares?

This might imply that you expect the index fund to outperform Berkshire in the first future when the company is run by a new CEO and chairman. Please clarify.

Yeah, I'll be glad to clarify that. That letter didn't come from Vanguard by any chance? They, uh, when I die, incidentally, then all the virtual shares I have at that point will go to five different foundations. Every single share.

I mean there are no shares that have not been designated mentally to charity. Many have been designated specifically to in numbers and all that, but they will be distributed over the 10 years after my estate is closed.

So figure over 12 years, and I tell my trustees that we'll be holding these shares. You know, don't sell any Berkshire shares until they have to be sold.

So my views on Berkshire at least through 12 years after my death are as bullish as anybody could possibly come up with.

And incidentally, without those kind of instructions, anybody would say, you know, you're crazy to keep many, many billions of dollars all in one stock.

I can't think of anything better to do it over those 12 years in terms of my wife's situation.

You know, that is not a question of maximizing capital; it's just a question of total 100 peace of mind on something that cannot get a bad result.

And, uh, like I said, there's way more money for than she'll ever use. As a matter of fact, those of you who know, or you know, may feel that I've added about three zeros too many, uh, but it is not designed for her to get even larger amounts of capital, and there'll be capital left over on that part of it.

Uh, on the part that I care about maximizing, I have instructed the three trustees to not sell a single share until it has to be sold. So that's good for 12 years after I die.

As to my best advice as to what I want them to hold. Charlie?

Well, Warren is a little peculiar in the way he distributes money in the family, and I think he's entitled to do what he damn pleases. [Applause]

Do I hear my children applauding? And, uh, I've never had this feeling I had to starve the family to get down to a few trifles.

And Warren really, and Susie when she was alive was the same way. He really is a meritocrat. He's really quite extreme in wanting to let most of his money go back to the civilization in which it was earned.

I like being associated with it.

[Music]

Jonathan, the BNSF has done very well since Berkshire acquired it in 2010, but its western competitor, the Union Pacific, has actually grown its earnings more and at the moment the UP seems to be operating more smoothly for its customers.

Could you shed some light on the service challenges Burlington has experienced recently, and perhaps discuss any differences between the two railroads in end markets, geography, and strategy that may have led to the divergent result?

Would it be fair to say that in trying to aggressively sign up new business volume last year that the railroad did not allow for a sufficient margin of safety in terms of what its capacity could handle should there be a harsher than normal winter or other adverse circumstances?

Yeah, and we've handled more volume actually than in the past. I mean in 2006 we had a peak of 219,000 carloads, that was in the late fall.

But there's no question that we've had a lot of service problems, particularly on our northern route.

We have been spending more money than Union Pacific and they spend a lot in terms of attempting to anticipate the kind of problems that can occur when you get a big increase in volume on that one route particularly, from the boom in the particularly the Bakken shale.

I mean we've got a lot of unit trains that are running over those lines that weren't running five years ago.

Uh, I think I've got, uh, Matt Rose here, right? I think somewhere in the front and he might address some of the problems of cold weather.

I mean, again, there were a lot of days where it was 15 below or worse, and in terms of sending people out to work on problems under those circumstances, it can be really, it can be life-threatening.

But Matt, you have a—there he is. Okay, could you shine a light down on him please too so he's right here in the front, in the front, Lauren? Um, so last year the industry grew at about 820,000 units.

BNSF handled 53 percent of all those units, and it's not what we wanted to take or what we didn't want to take quite frankly.

It's the geographic nature of our franchise, and the oil came a lot faster than we were expecting and we've been spending money at a rapid clip to try and build into it.

The second issue was, you know, I had previously, prior to this past year, been in the CEO role for 13 years and I have never seen a weather—a winter weather like that we had.

We had 83 inches of snow in Chicago, we had multiple days, over 30 days where it didn't get to zero in the Minnesota area.

So, you know, we know this is an outdoor sport; we get it on the weather. But quite frankly when we get to about zero to ten, ten degrees below, things just don't work.

The weather is getting better. Last week we handled 206,000 units. No other railroad has ever handled 205,000 units.

So the railroad is coming back and we're making the significant investments to be able to handle all the businesses out there. Thanks, Matt.

[Applause]

We will spend 5 billion on the railroad this year. No railroad has ever spent that kind of money or even very close to it.

But I got a call—I got a letter from a fellow in North Dakota and they were having a problem getting fertilizer and I called and talked to him, but I sent it down to Matt.

But we've now put on, I think we're going to have 52 unit trains of fertilizer and they will get there in time for the planting, uh, and that's important.

I mean, we take it seriously, but, uh, cold in winter or floods in the summer, I mean, we're now really functioning a lot better, and our earnings will be, in my view, are very likely to be a lot better.

But the thing that could disrupt that is that for some reason you had incredible floods and that you're dealing with 22,000 miles of track, and if you get weak links, one of which always for all four big railroads is Chicago because that's where things get interchanged and that's where a lot of bottlenecks have been this year, and that's where weather was tough as well.

But you're right, John, in the comparative financials. Uh, in recent months, and believe me, Matt's paying a lot of attention to them and Carl's paying a lot of attention and I even pay a little attention to them, so that I have a feeling that they will be getting better over the remainder of the year.

Okay, station four.

Roselle Kirkov, I'm from Omaha, Nebraska. My question relates to our company's use of natural gas to generate electricity. This past winter, natural gas and storage has declined substantially in the future.

How do our companies assure that they have an adequate supply of natural gas to generate electricity? And if the price of natural gas increases in multiples, how do our companies assure that they can sell the electricity at a satisfactory return on investment?

Thank you.

Yeah, we have, I'm going to ask Greg Abel to be more specific on this, but we are the largest alternative, the generator of using alternative sources, I think, in the country.

I think by the end of 2015 we will be capable of producing 40 percent of our needs in Iowa through wind, which will be unlike any other company you can find in the country.

But I think I'll have Greg answer the specifics of any natural gas-dependent generating units we have.

I'm not worried about that thing, but about what you raised. But, but Greg would know a lot more about the mix on natural gas and the opportunity to shift to coal and exactly the profile of the generating capacity.

Craig, now let's get a light down on, if you can.

I think it's okay. There it is. Sorry.

So like Matt touched on, obviously we had a very cold winter in the Midwest, so our systems for the first time were challenged in a significant way, but very proud of how the resources were managed.

So if you look at the question around natural gas and specifically the gas availability, there was substantial gas available to be utilized both to heat homes and produce the energy because ultimately we're worried about both keeping the furnaces on and equally keeping the lights on.

So when you looked at the balance of supply, there was a gas there, but clearly we have to continue to look at the unique situation as we continue to move more gas in the United States.

Warren touched on an important point this past year, as he highlighted 2015, but if you look at just what we produced on the renewable side in Iowa, that was 39 percent renewable i.e., wind, and that will only get larger.

So as we continue to manage these multiple resources, there's clearly a way to meet the needs of our customers and we're meeting it in an extremely cost-effective fashion.

I'd also highlight that when you think through the cost recovery side of it, we've got very unique mechanisms within our utilities when the underlying cost of gas goes up where we have to purchase more than we had anticipated.

We've got clear passages back to our customers and we've negotiated those across each of our states, so we're well-positioned to service our customers long-term and equally protect the fundamental financials of the underlying businesses.

The company that Greg runs has many subsidiaries in our gas pipelines. Subsidiaries move about eight percent of the gas in the United States, and I think you said you were from Omaha, and the gas that comes into this area comes through a pipeline that we own.

And we just renamed the company to Berkshire Hathaway Energy from Mid-American Energy.

We changed it to Berkshire Hathaway Energy, but it's a point of some pride to us that that company, Northern Natural Gas, which originally came from Omaha when we bought that from Enron a decade or so ago, actually Dynasty had it in between, but its origin was then was Enron.

You know, they'd skimped on maintenance and done all kinds of things and it was ranked number 42 out of the 42 ranked pipelines in the United States at that time.

And last year, it was ranked number one. So it went from last to first under Greg's management, and I tip my hat to him. [Applause]

And number two was our other pipeline—current pipeline. So we're running one, two at the moment.

Becky, this question comes from Fred Ireman in Richmond, Virginia, and it's addressed to you Warren. He says that during the past several years, much has been written and many have speculated about your successor.

I shall not even go down that path as it would cause you to repeat yourself. However, has there been any discussion at your board meetings about a replacement for your partner, long-time friend and co-chairman, Charlie Munger?

Has it been determined that Berkshire will continue to be led by a similar dynamic duo, two magnificent investor minds, each providing a unique point of view, have been a major reason the business has performed magnificently over the decades and has delighted the shareholders?

Well, Charlie is my canary in the coal mine. Charlie turned 90, and I find it very encouraging how well he's handling middle age.

So I hope to be able to do the same thing myself.

No, and it's—you raised a point which I'm—and thought about, but I'm a little sensitive now that you raised it.

They always talk about replacing me, but they never talk about replacing Charlie. I do think, I think it's very likely, incidentally, that whoever replaces me as CEO, probably has over the years, certainly develops—I’ll never be able to develop another Charlie, but they'll develop somebody that they work with very closely.

It's a great way to operate. Berkshire is better off because the two of us have worked together than if either one of us had been working individually.

There's no question about that.

But I do think, you know, we saw it with Roberto Zweda and Don Keow at Coke. We saw it with Tom Murphy and Dan Burke at Cap Cities.

I mean these were magnificent companies, and I think that in both cases that I just named, I think that they accomplished far more because they had two incredible people running them who admired and worked well with the other and they were complementary in terms of the talents they brought in many ways.

They—it's a great way to operate. You can't will it to somebody, but I would be very surprised if a few years after my successor takes over, maybe sooner, that there isn't some relationship—a partnership that enhances the CEOs' achievements but the fun they have.

And, uh, but so far, nobody's brought up in the meeting any successor to Charlie, and frankly, I have a lot of trouble thinking of anybody that could be a successor to Charlie.

Charlie, you want to come? I got to give you a chance. I don't think the world has much to worry about—and most 90 year old men are gone soon enough.

The canary has spoken.

Okay, yay. I have a question on succession planning as well. Matt Rose recently shifted his role from CEO of the Burlington Northern unit to executive chairman of Burlington.

Does this change affect who will be the next CEO of Berkshire, and what is the succession plan for Ajit Jain at Berkshire's reinsurance unit?

The only succession for Ajit would be reincarnation. I mean we will not get another Ajit, but fortunately we won't have to for a very, very long time.

Um, the situation with Matt, which was at Matt's suggestion, was designed to fit specifically the succession situation that BNSF and the wishes of certain people.

Uh, it doesn't have any implications for Berkshire. I have letters from every one of our managers telling me what I should—I keep these are private; I don't share these with the board even—telling me what I should do if something happens to them tonight.

So I have their ideas. In some cases, they talk about more than one person. In some cases, they tell me the strengths and weaknesses of the people.

But the succession, I would not try to make any judgments about the succession plans at the parent company from what is done in terms of succession planning at any of the subsidiaries.

Charlie?
Well, I always say I'm not the least bit worried about it. If I wish my main problem in life was that fear about succession and problems at Berkshire, I think we're in very good shape.

Okay, station five.

I am Bill Melby from Northfield, Minnesota. At the 2009 annual meeting, Mr. Buffett, you said that if you were required to invest your total net worth in one company, that that company would be Wells Fargo. So in 2014, I asked the same company or the same question: If you were required to invest your total net worth in one company, what would that be?

When the question was asked in 2009, did you exclude Berkshire? Because I think I would have answered Berkshire.

But I wouldn’t quarrel with Wells Fargo’s marketable security outside of Berkshire at that time.

Well, I guess he’s checking his notes on the—uh, Bob, the question is other than Berkshire, oh, other than Berkshire, what would you invest in today?

Yeah, well, it's a great question, but it's not going to get an answer. [Laughter]

Charlie, do you want to answer?

No, no, I think you’re given exactly the right answer.

Yeah, well, I'm sorry to disappoint you, but we've disappointed others when they've asked that question.

Okay, Andrew. Thank you, Warren. This question comes from Dave Hichy from Auburn.

Um, it's a long question. He says, as a shareholder for about a dozen corporations in addition to Berkshire, I always see a number of proxy statements each year in all except Berkshire.

The summary compensation table has the compensation listed for at least five or more of the highest paid executives. Berkshire lists three: Warren, Charlie, and Mark.

I assume that since Berkshire is a holding company structure, that's the way it is. I think it would be instructive to include at least two of the highest paid executives from the wholly owned subsidiaries in the summary table.

Ajit, Tony for, or Greg, or Matt to give the shareholders, your partners, a sense of how Berkshire compensates its strongest and highest paid leaders as other companies do.

This would be particularly valuable since two-thirds of the current listings, Warren and Charlie, only receive nominal salaries of a hundred thousand dollars per year, a figure that is vastly below the value they bring to the company.

Would you in the spirit of transparency be willing to add at least two of the highest paid subsidiary officers in the table in future years? And how much do you think the next CEO of Berkshire should be paid?

Well, the answer to the last is you certainly will be entitled to pay—get paid a lot, but their decision as to how much they accept is another question. But, uh, I'm going to write about that, that very end question next year in the annual report because it has a lot of interesting ramifications.

Um, we obviously are following the SEC rules, which I can't recite in terms of the officers required to be in the proxy statement as to their pay.

But, you know, Andrew, in my sporting mood, I would say that Comcast probably has, uh, some people in the employee that make a lot more money.

I'm not at CNBC, we're nothing but.

Uh, but that would exceed the salaries of the people that they list in the proxy statement as well.

And, uh, there's a real question as to whether it's in the interests of the shareholders of the company to start listing, you know, how much the person who's the anchor, the nightly news or whomever it might be, gets paid because it might have a very negative effect on negotiating salaries with other people within the organization.

I would say that the shareholders of Comcast would be hurt, actually, if you published the five highest salaries paid at, uh, the subsidiaries or at Comcast itself.

And certainly if you carried it to every subsidiary there was, I mean, if you were to publish the five highest salaries at CNBC, I don't think the salaries overall would go down the following year.

So I think that is a—I think that's a good reason for us not publishing the salaries of, uh, you know, say our top ten managers of the, of the company.

At Solomon, we mentioned that a little earlier, everybody virtually everybody was dissatisfied with what they were getting paid, and they were getting paid enormous amounts of money, but they were they were disappointed not because of the absolute amount, they were disappointed because they looked at somebody else in the place and it drove them crazy.

And as a matter of fact, the first big crisis we had in compensation was when the management made a what was regarded as a secret deal with the armed group, as I remember, whereby John Meriwether and his crew got paid a lot of money, which I would argue they earned.

I mean I think they deserved it, but as soon as that happened, it made compensation, which had always been a terrible problem, an even greater problem because of the jealousy that broke out among the people that weren't in John Meriwether's group.

But, uh, very—I think it's been very seldom that publishing compensation accomplishes much for the shareholders.

In fact, you can argue that much of what's going on in corporate America, uh, well, I would put it this way: Corporate CEOs as a group would be being paid a lot less money if proxy statements hadn't revealed how much other people were getting paid.

It's only human to look at a whole bunch of proxy statements and say, "Well, I'm worth more than that guy," and negotiate that way, and a comp committee is going to respond to that.

So sure, American shareholders are paying a significant price for the fact that they get to look at that proxy statement every year and see how much those top five officers are earning.

Charlie?

In a spirit of transparency, you're asking for something that wouldn't be good for the shareholders, and it's not going to happen unless the SEC makes it happen.

It's we're way better off without adding to the culture of envy in America.

Yeah, there's no one that looks at there's no CEO that looks at other proxy statements and comes away thinking, "I should get paid less."

I mean you know we haven't seen—have we ever seen that?

No. No, no. Well, we're not old enough.

I would say that envy is doing the country a lot of harm.

And our practices are envy dampeners.

Okay, Craig.

[Applause]

Thank you. As you know, Berkshire's cash balances are an issue for some investors, especially with excess cash being in the 25 to 30 billion dollar range the last couple of years which are having a more difficult time, that has had historically reinvested in capital as quickly as it comes in; although Berkshire did provide 3.5 billion dollars of the 3.6 billion dollars of cash that was used to acquire NV Energy last year with Mid-American funding the remainder with debt.

Was there something that kept Berkshire from providing all the capital for the acquisition, perhaps via intercompany debt? And on a separate note, can you provide us with some insight into the decision to allow Mid-American to retain all of its earnings while Burlington Northern, which spent three billion dollars on capital expenditures last year and is on pace to spend five billion dollars this year, continues to pay a distribution to Berkshire all while it takes on additional debt to help fund capital spending?

Yeah, Mid-America, now renamed Berkshire Hathaway Energy—we’ll call it BH Energy—will have multiple opportunities, I hope, and we’ve seen two of them in the last 12 months to buy other businesses.

Uh, and as you noted, we spent a substantial amount of money on NV Energy, and then two days ago we agreed to buy transmission lines in Alberta, so we will—we hope we will—and so far, we’ve been able to come up with really large businesses to buy at BH Energy that will not at BNSF.

We will spend a lot of money to have the best railroad possible, but we're not going to be buying other businesses, so