Berkshire Hathaway: The Role of Trust in Governance

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Title:
Berkshire Hathaway: The Role of Trust in Governance
Year: 
2010
Publication: 
Stanford Closer Look Series
Volume: 
CGRP02
Issue: 
May 20, 2010
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End Page: 
Publisher: 
Language: 
English
URL: 
http://www.gsb.stanford.edu/sites/default/files/documents/CGRP02-BerkshireHathaway_0.pdf
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No License (All right reserved)
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Abstract:

Closer Look Series – Friday, May 28th, 2010

Closer Look Series: Topics, Issues and Controversies in Corporate Governance, No. CGRP-02 (Professor David F. Larcker and Brian Tayan, MBA ’03, Date: 5-28-2010)

  • Despite being one of the largest corporations in the world, Berkshire Hathaway receives relatively little public attention for its management and governance structure. Berkshire Hathaway is built on a model that involves extreme centralization of capital allocation decisions within corporate headquarters and extreme decentralization of operating decisions within individual business units.

While many public corporations implement strict controls and oversight mechanisms to ensure management performance and regulatory compliance, Berkshire has moved in the opposite direction. Managers receive practically no supervision for their actions and are given complete autonomy to run their businesses.

We explore how this system works and why it is an important exception to the best practices advocated by governance experts.

Related Teaching Case:
The Management of Berkshire Hathaway; Case Number: CG-16; Publication Year: 2009 (SSRN)

 

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