Ethical Issues at Berkshire Hathaway: Controversy Following the Lubrizol Acquisition Deal

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Case Details:

Case Code : BECG127
Case Length : 16 Pages
Period : 2010-2013
Organization : Berkshire Hathaway Inc.
Pub Date : 2013
Teaching Note :Not available
Countries : US; Global
Industry : Diversified

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Background Note

Berkshire began as a small textile firm based out of Massachusetts in 1889. In 1965, Buffett bought out Berkshire. He expanded Berkshire through the purchase of undervalued insurance and retail businesses and investments in companies like Coca-Cola and McDonald's. As of April 2011, Berkshire was one of the biggest reinsurers globally, owned the biggest American rail business, and was scouting for even larger takeovers in the emerging markets. It was also one among the five largest American companies in the US equity market. , As of April 2011, Berkshire comprised 78 companies and had an employee strength of roughly 257,000.

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Buffett had produced mammoth returns for shareholders, having expanded his company by over 490,000 percent from 1965 till March 2011. From the close of 1987 till April 2011, the annual return on Berkshire shares had been 17% - during the same period, the Standard & Poor's 500 index delivered an annualized overall return of 10%. , Since its inception till April 2012, the return on Berkshire shares exceeded 1000%. The products/ services that the Berkshire subsidiaries dealt with ranged from insurance to railroad shipping to ice cream and underwear.

According to experts, Buffett’s reputation as a discerning investor, philanthropist, and a man of principles had been meticulously nurtured over decades. A business consultant once wrote, “The genius of Warren Buffett is his rare combination of mental and moral discipline, and it is that combination — the business acumen wrapped around an ethical core — that is the source of his competitive edge as an investor…” (Refer to Exhibit II for excerpts from Berkshire’s Code of Business Conduct and Ethics). According to experts, the distinctive aspect of Buffett’s image was the folksy image associated with it. It was reported that Buffett drove his car himself and would occasionally go to McDonald’s en route home from work. According to observers, Buffett’s cult status had also been cemented through the annual shareholders’ meetings of Berkshire held at the company’s head office in Omaha, Nebraska. Nearly 40,000 people attended the meeting every year. Several were Buffett admirers who came just to get nuggets of wisdom from him about how to, for instance, lead life. “You can ask him how to raise your children,” remarked a longtime Berkshire shareholder...

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