The following is the unofficial transcript of CNBC's exclusive interview with Berkshire Hathaway Chairman and CEO Warren Buffett on CNBC's "Morning Call" conducted by "Morning Call" anchor Liz Claman.
During the CNBC EXCLUSIVE INTERVIEW live from Georgetown University, Warren Buffett discusses executive compensation and the economy. The entire interview can be seen on demand on CNBC.com.
Please see unofficial transcript below. All references must be sourced to CNBC.
DATE: March 13, 2006
NETWORK: CNBC
PROGRAM: "Morning Call"
TIME: 10:00 am ET
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LIZ CLAMAN: WE ARE JUST OUTSIDE GEORGETOWN UNIVERSITY AND WE HAVE AN EXCLUSIVE INTERVIEW WITH ONE OF THE TREASURY SECRETARY HANK PAULSON'S PANEL MEMBERS, MR. WARREN BUFFETT, CHAIRMAN AND CEO OF BERKSHIRE HATHAWAY. THANK YOU VERY MUCH FOR JOINING US LIVE HERE ON "MORNING CALL."
WARREN BUFFETT: THANKS FOR INVITING ME.
LIZ CLAMAN: ALL RIGHT. YOU'RE FRESH FROM UP THERE. WE WERE TALKING A LOT UP THERE ABOUT REGULATION AND WHETHER THE CAPITAL MARKETS ARE COMPETITIVE ENOUGH. WHAT IS THE NUGGET THAT YOU WALKED AWAY FROM UP THERE?
WARREN BUFFETT: WELL, THE BASIC NUGGET IS THAT AMERICAN BUSINESS IS WORKING PRETTY DARN WELL. JOHN THAIN, HEAD OF THE NYSE, MADE THE POINT THAT NORMALLY ONE OUT OF 25 OR SO OF THE LARGEST IPOs WAS MADE IN THE UNITED STATES IN 2005 AND MAYBE TWO OUT OF 25 IN 2006. SO THEY'RE MISSING OUT ON A LOT OF THAT BUSINESS, AND THE QUESTION IS WHY. AND THAT MAY TIE IN WITH REGULATION SARB-OX AND SO ON.
LIZ CLAMAN: DO YOU THINK IT DOES?
WARREN BUFFETT: WELL, I'M NOT AN EXPERT ON IPOs, BUT SOMETHING IS KEEPING THEM FROM WANTING TO HAVE THEIR IPOs THERE. MY GUESS IS IT IS A FACTOR.
LIZ CLAMAN: REGULATION IS TOUGH ON EVERYONE, SAYS SMALL COMPANIES. HOW HAS SARBANES-OXLEY AFFECTED YOU? WHAT IS THE COST BASIS FOR YOU?
WARREN BUFFETT: IT'S COST US A GOOD MANY MILLIONS OF DOLLARS LAST YEAR. OUR AUDIT WAS 24 MILLION. ABSENT THAT, IF I HAD TO GUESS WHAT IT WOULD BE, WE'VE ACQUIRED A NUMBER OF COMPANIES. MAYBE IT WOULD HAVE BEEN 10 MILLION. THERE ARE A LOT OF INTERNAL COSTS IN ADDITION. THERE ARE REAL DOLLARS INVOLVED.
LIZ CLAMAN: BUT IS THERE A DANGER OF TOO MUCH REGULATION, OR IS THERE A DANGER OF SLOUGHING OFF SOME OF THE REGULATION? WHICH IS GREATER?
WARREN BUFFETT: WELL, I THINK THAT THE AMERICAN PUBLIC GOT QUITE DISILLUSIONED WITH CORPORATE AMERICA AFTER THE LATE 1990s. I THINK THERE WAS A QUESTION OF RESTORING TRUST, AND SOME OF IT MAY BE ALMOST COSMETIC. BUT COSMETICS HAVE THEIR VALUE IN TERMS OF MILLIONS OF PEOPLE MAKING DECISIONS TO INVEST. SO I THINK THE FACT THAT THE AMERICAN INVESTOR THINKS THINGS HAVE BEEN TIGHTENED UP IS A GOOD THING.
LIZ CLAMAN: PROBABLY A GOOD THING. IF YOU WERE TO GET RID OF SOME OF SARBANES-OXLEY, IF THEY WERE TO KIND OF TWEAK IT AND MAKE SURE AS MAYOR MICHAEL BLOOMBERG SAID AS HE WAS WALKING IN, WE NEEDS RATIONAL REGULATION. INSINUATING WE DON'T HAVE RATIONAL REGULATION NOW. DO YOU RISK BEING A MILE WIDE, AN INCH DEEP? WHAT ABOUT THE QUALITY OF THOSE LISTED COMPANIES?
WARREN BUFFETT: IT'S INTERESTING. MICHAEL KORDAKOFSKY TALKED TO ME AT A CONFERENCE THREE YEARS AGO. HE SAID IS IT TOO DANGEROUS TO LIST IN THE UNITED STATES? YOU KNOW THREE OR FOUR MONTHS LATER, HE WAS IN A PRISON IN RUSSIA. SO THERE ARE OTHER DANGERS BESIDES SECURITIES REGULATION IN THIS WORLD.
LIZ CLAMAN: YOU'RE CONFIDENT ABOUT THE HEALTH OF OUR CAPITAL MARKETS?
WARREN BUFFETT: OH, SURE. WE'VE GOT GREAT CAPITAL MARKETS IN THE UNITED STATES. THAT DOESN'T MEAN THEY CAN'T BE IMPROVED IN SOME WAY, BUT WE HAVE TERRIFIC CAPITAL MARKETS.
LIZ CLAMAN: ONE OF THE THEMES THAT STARTED TO EMERGE, PEOPLE WERE VIRILANT ABOUT IT, LEGAL COSTS, THAT HAS BECOME ONEROUS FOR COMPANIES AND THEY TALK A LOT ABOUT TORT REFORM AS WELL. IF YOU'RE NOT A LAWYER, YOU FEEL THERE IS TOO MUCH LITIGATION, I CAN ASSURE YOU OF THAT. AND THERE IS A LOT -- THERE'S A LOT OF GAME PLAYING IN LITIGATION. IF YOU BRING A DIRECTORS AND OFFICERS AGAINST A MAJOR CORPORATION AND THEY CAN SETTLE IT FOR A FEW MILLION DOLLARS, THEY'RE GOING TO DO IT BECAUSE THE COST OF DEFENSE IS HIGHER AND IT'S A LOTTERY WHEN YOU GET TO A JURY.
LIZ CLAMAN: DO YOU THINK THAT THE REGULATION WE CURRENTLY HAVE IS SLOWING INNOVATION HERE IN THE U.S.?
WARREN BUFFETT: I DON'T THINK SO. NOT IN ANY IMPORTANT WAY. THIS IS AN ECONOMY -- CORPORATE PROFITS ARE VIRTUALLY AN ALL-TIME HIGH AS A PERCENTAGE OF GDP. RETURN ON EQUITY, ON TANGIBLE EQUITY IS VIRTUALLY AT AN ALL-TIME HIGH. AMERICAN BUSINESS IS DOING VERY, VERY WELL.
LIZ CLAMAN: MARK HAINES WAS SAYING EARLIER, I GUESS THEY'RE TALKING ABOUT THIS BECAUSE THEY HAVEN'T MADE ENOUGH MONEY YET. YOU'VE BEEN ONE TO TALK ABOUT WHEN IS ENOUGH ENOUGH.
WARREN BUFFETT: AMERICAN BUSINESS, I THINK IT'S OVER 8% OF GDP, CORPORATE PROFITS. HISTORICALLY IT'S RANGED BETWEEN 4 AND 6%. SO AMERICAN SHAREHOLDERS, AMERICAN CEOs DO NOT HAVE A LOT TO COMPLAIN ABOUT. IT DOESN'T MEAN THE SYSTEM CAN'T GET BETTER. WE ARE NOT AN ENDANGERED SPECIES.
LIZ CLAMAN: BERKSHIRE HATHAWAY. WHAT'S HAPPENING WITH THE SUCCESSION PLAN? I ALWAYS HAVE TO ASK YOU THIS BECAUSE EVERYBODY WANTS TO KNOW. YOU LOOK WONDERFUL AND HEALTHY.
WARREN BUFFETT: GOOD. WELL, MY JOB, AS I LIKE TO SAY, IS SO EASY, A CAVEMAN COULD DO. -- COULD DO IT.
LIZ CLAMAN: THE GEICO GAVE MAN.
WARREN BUFFETT: I'VE HEARD FROM CAVE MEN. WE'VE HAD OVER 400 REPLIES. THE FIRST REPLY CAME IN -- I HAD ONE FOUR-YEAR OLD APPLY FOR THE JOB. HE MUST KNOW ME AND FIGURED A FOUR-YEAR OLD CAN DO MY JOB.
LIZ CLAMAN: LOOK, YOU CAN'T DENY THAT THE DAY THAT YOU DECIDE TO GO --
WARREN BUFFETT: I WON'T DECIDE TO GO NOW, LIZ. DON'T PUSH ME.
LIZ CLAMAN: YOU'RE GOING KICKING AND SCREAMING.
WARREN BUFFETT: RIGHT.
LIZ CLAMAN: BERKSHIRE SHAREHOLDERS ARE CONCERNED THE STOCK WOULD TAKE A HIT. BECAUSE WHO CAN BE YOU?
WARREN BUFFETT: WELL, WE WILL HAVE TWO PEOPLE IN THE JOB. WE'LL HAVE A CEO RUN THE BUSINESS. WE HAVE A PERSON IDENTIFIED. WE HAVE THREE CANDIDATES ALL OF WHOM WILL BE GOOD.
LIZ CLAMAN: ALL WITHIN BERKSHIRE?
WARREN BUFFETT: WITHIN BERKSHIRE. ALL THREE IN MANY RESPECTS WILL BE BETTER THAN I AM. WE WILL NEED AN INVESTMENT OFFICER. IF SOMETHING HAPPENED TO ME TODAY, LEE SIMPSON WOULD DO A GREAT JOB. CHARLIE WOULD DO A GREAT JOB. ONE IS A LITTLE OLDER, ONE IS A LITTLE YOUNGER. WE NEED SOMEBODY FOR THE LONGER TERM. WE DON'T NEED SOMEBODY FOR TOMORROW, BUT WE NEED SOMEBODY FOR THE LONGER TERM.
LIZ CLAMAN: SOMEBODY WHO CAN INVEST LIKE WARREN BUFFETT INVESTS.
WARREN BUFFETT: THEY'LL DO IT THEIR WAY, BUT WITH THE SAME AVERSION TO RISK, THE SAME GENERAL PRINCIPLES, BUT THEY'LL DO IT DIFFERENTLY.
LIZ CLAMAN: ONE OF THE LAST COMPANIES YOU BOUGHT INTO, TWO OF THEM, ONE WAS ISRAELI, ONE WAS SOUTH KOREAN, PASCO, THE STEEL COMPANY. DOES THIS MEAN YOU'RE LOOKING ELSEWHERE OUTSIDE THE UNITED STATES?
WARREN BUFFETT: I ALWAYS BUY OUTSIDE THE UNITED STATES. LIKE ISCAR, THEY WEREN'T ON THE RADAR SCREEN. I HOPE THEY THINK OF US NOW.
I'VE ALWAYS BOUGHT SOME STOCKS AROUND THE WORLD. I'VE BEEN MORE AGGRESSIVE ABOUT IT LATELY BECAUSE I'VE BEEN ABLE TO FIND BETTER VALUES AROUND THE WORLD.
LIZ CLAMAN: AS WE GO BACK TO HEDGE FUNDS, SHOULD THEY BE REGULATED?
WARREN BUFFETT: IT WOULD BE HARD TO REGULATE THEM. AS A PRACTICAL MATTER, THEY'LL GO OFFSHORE. VERY EASY. MOST OF THEM HAVE OFFSHORE AFFILIATES OF ONE SORT OR ANOTHER. IT'S HARD TO REGULATE THEM.
LIZ: HOW ABOUT SIMPLE REGULATION LIKE REGISTERING?
BUFFETT: I'M NOT SURE HOW MUCH DIFFERENCE THAT WOULD MAKE. THE REAL PROBLEM WITH -- YOU'RE GOING TO HAVE OCCASIONALLY WITH HEDGE FUNDS, YOU'RE GOING TO HAVE BAD APPLES. IT'S AN AREA WHERE PEOPLE CAN MAKE OFF WITH THE MONEY AND REPORT PHONY FIGURES FOR AWHILE. 1/8JETS FLYING OVERHEAD3/8 THAT WON'T BE PREVALENT IN THE INDUSTRY, BUT THERE WILL BE OCCASIONS OF THAT SORT. AND FOR THOSE INVESTORS, IT'S GOING TO BE -- THEY CAN TAKE TOTAL LOSSES. BUT THE WHOLE FIELD, I'M NOT SURE HOW MUCH GOOD IT WOULD DO TO TRACK THEM.
LIZ: THERE IS THE SEC EFFORT TO PERHAPS INCREASE THE AMOUNT OF CAPITAL AND/OR AMOUNT OF INVESTMENT CAPITAL THE PERSON HAS BEFORE THEY CAN INVEST IT?
BUFFETT: THAT'S ALWAYS BEEN A GOOD PRINCIPLE WITH HEDGE FUNDS. IT SHOULD BE A KNOWLEDGEABLE AND WELL TO DO INVESTOR BEFORE WE GO ON. IT IS NOT FOR THE MAN ON THE STREETTHV INCIDENTALLY, THESE FUND TO FUND ARRANGEMENTS WHICH SUPERIMPOSE ANOTHER LEVEL OF FEES, IN MY OPINION, IS SORT OF OUTRAGEOUS. IF THE LITTLE FELLOW THINKS HE'S GOING TO PARTICIPATE IN HEDGE FUNDS BY GOING INTO A FUND OF FUND, HE'S GOING TO FIND HIMSELF EATEN ALIVE BY FEES.
LIZ: I HEARD YOU COVETING ON EXECUTIVE COMPENSATION. YOU'RE NOT ONE TO SIT ON BOARDS AND TALK ABOUT COMPENSATION BECAUSE OF HOW YOU FEEL ABOUT IT.
BUFFETT: I SET THE COMPENSATION FOR 41 MANAGERS AT BERKSHIRE. I AM THE COMPENSATION COMMITTEE FOR 41 BUSINESSES, AND IT'S VERY EASY.
WE'VE NEVER LOST A MANAGER IN 42 YEARS TO SOMEBODY ELSE. SO IT IS NOT ROCKET SCIENCE. THE CONSULTANTS WANT TO MAKE IT ROCKET SCIENCE AND THE CEO NATURALLY WANTS TO COMPARE HIMSELF TO THE HIGHEST PERSON OUT THERE.
LIZ: SO DO YOU THINK THE SEC IS DOING ENOUGH TO CLAMP DOWN ON EXCESSIVE CEO COMPENSATION?
BUFFETT: WELL, I THINK BIG SHAREHOLDERS SHOULD BE THE ONES TO SCREAM. I THINK IF YOU HAD A RELATIVELY FEW OF THE VERY LARGER SHAREHOLDERS JUST SAY, COME OUT PUBLIC AND SAY, WE'RE NOT GOING TO VOTE FOR THIS MANAGEMENT AS WE THINK THE GUY IS ABLE, BUT WE ALSO THINK HE'S OVERREACHING. I THINK THAT WOULD CURE THINGS A LOT FASTER THAN RULES.
LIZ: WHAT DO YOU THINK IS THE NUMBER ONE THREAT? WE HAVE SO MANY INVESTORS WATCHING RIGHT NOW -- TO THE STOCK MARKET, THE CAPITAL MARKETS OVERALL?
BUFFETT: LONG TERM THEY'LL DO FINE OWNING AMERICAN EQUITIES. I HAVE NO IDEA WHAT THE MARKET WILL DO NEXT WEEK, NEXT YEAR, ZERO. I DON'T THINK ABOUT IT. IF I THOUGHT ABOUT IT, IT WOULDN'T DO ANY GOOD. THE MAIN THING AN INVESTOR NEEDS IS THE PROPER TEMPERAMENT. HE DOESN'T HAVE TO HAVE 150 IQ, HE DOESN'T HAVE TO BE AN EXPERT ON ACCOUNTING, BUT HE DOES HAVE TO KEEP HIS BALANCE WHEN UNTOWARD THINGS HAPPEN IN THE MARKET. THE REASON INVESTORS DO POORLY IS THEY BEAT THEMSELVES. THE DOW WENT FROM 66 TO 11,400 IN THE LAST CENTURY.
YOU'D THINK IT WOULD BE PRETTY HARD NOT TO DO WELL IF YOU GO FROM 66 TO 11,400. THE PEOPLE WHO DIDN'T DO WELL ARE THE PEOPLE WHO PANICKED AT THE WRONG TIME, CAME IN BECAUSE STOCKS WERE POPULAR AND LEFT WHEN THEY WERE UNPOPULAR. SO YOU HAVE TO HAVE AN EMOTIONAL STABILITY. IF YOU HAVE AN EMOTIONAL STABILITY AND YOU STICK WITH AMERICAN BUSINESSES, YOU'RE GOING TO DO FINE.
LIZ: SO TWO WEEKS AGO TODAY, WHEN THE MARKET FELL, YOUR SENTIMENT WAS, SO WHAT, I'M IN THE FOR THE LONG TERM?
BUFFETT: I LIKE TO EAT STEAKS. IF I GO TO MY STEAK HOUSE AND I PAY $10 FOR A STAKE ONE -- STEAK, AND THE NEXT NIGHT IT'S $9, I DON'T BREAK OUT IN TEARS.
LIZ: THE NEW YORK STOCK EXCHANGE WHEN THEY ANNOUNCE A SALE, PEOPLE RUN FOR THE EXITS. IT SHOULD BE THE OTHER WAY AROUND.
BUFFETT: ABSOLUTELY.
LIZ: WHERE IS YOUR FAITH AS FAR AS WHAT IS GOING WHERE INVESTORS ARE CONCERNED? DO YOU FEEL THEY HAVE GOTTEN SAVVIER IN THE PAST?
YOU SAID THE GREAT THING ABOUT BUSINESS IS IT IS CONSTANTLY EVOLVING AND CHANGING. ARE INVESTORS GETTING UP TO SPEED?
BUFFETT: I WOULD SAY THERE IS SOME EVIDENCE THEY HAVE COME TO FAVOR MORE INDEX FUNDS OVER TIME. SO THEY HAVE LEARNED THAT THEY CAN'T TRY TO BEAT THE MARKET BY PICKING STOCKS THEMSELVES, AND THEY'VE LEARNED THE DISADVANTAGE OF HAVING HIGH COSTS. SO BY GOING WITH LOW-COST INDEX FUNDS, THEY'VE REALLY PROBABLY GOT THE BEST SOLUTION FOR THEMSELVES. AND MORE AND MORE HAVE GONE THAT DIRECTION. I WOULD SAY AT LEAST THAT GROUP HAS GOTTEN SMARTER ABOUT IT.
LIZ: YEAH. WHEN YOU TALK ABOUT LOW COST, ONE OF THE THINGS -- IF YOU'RE LOOKING AT BERKSHIRE, YOU ALWAYS TRY AND KEEP THE COSTS DOWN.
THE PEOPLE AROUND ME HAVE NOTICED THAT, YES.
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LIZ: WELL, WHEN YOU'RE TRYING TO KEEP THE COSTS DOWN, DO YOU THINK OTHER COMPANIES DO A GOOD ENOUGH JOB OF DOING SHAD?
BUFFETT: SOME DO AND SOME DON'T. INDEX, IF YOU TAKE THE LOW COST INDEX FUNDS, THEY ARE GETTING COST DOWN TO A MINIMUM. IN A SENSE YOU OWN A CROSS-SECTION OF AMERICA AT A VERY LOW COST. YOU'LL GET A GOOD RESULT WITH THAT UNLESS YOU PANIC AT THE WRONG TIME OR SOMETHING. IF YOU JUST STICK WITH IT FOR DECADES, YOU'LL DO FINE.
LIZ: I KNOW YOU DON'T LIKE TO COMMENT ON THE ECONOMY.
BUFFETT: YOU'RE RIGHT.
LIZ: I CAN STILL ASK, THOUGH. WHAT DO YOU THINK ABOUT THE ECONOMY?
BUFFETT: I DON'T THINK ABOUT T. IT DOES PRESIDENT MAKE ANY DIFFERENCE TO ME. I'M GOING TO BUY A BUSINESS AND BE WITH IT FOREVER. I'VE NEVER IN MY LIFE NOT BOUGHT SOMETHING BECAUSE I THOUGHT THE ECONOMY WAS GOING TO GET POOR, AND I'VE NEVER BOUGHT SOMETHING I DIDN'T LIKE BECAUSE I THOUGHT THINGS WERE GOING TO BE GREAT FOR AWHILE. WE'RE GOING TO PLAY THE GAME AS LONG AS I'M ALIVE, AND THERE WILL BE MOSTLY GOOD YEARS, A FEW SENSATIONAL YEARS AND A FEW TERRIBLE YEARS. I CAN'T DANCE IN AND OUT AND SKIP THE TERRIBLE YEARS. OUR OWN BUSINESSES RIGHT NOW, ARE PRETTY GOOD. BUT THE CONSTRUCTION-RELATED BUSINESS, CONSTRUCTION TO CARPET BUSINESS, BRICK BUSINESS, HEY'VE HAD IT DOWN IN A SIGNIFICANT WAY. BUT IT DOESN'T MAKE ANY DIFFERENCE. WE'RE GOING TO BE IN THE CARPET BUSINESS AND BRICK BUSINESS FOREVER.
LIZ: YOU'RE IN THE JEWELRY BUSINESS.
BUFFETT: WOMEN ALWAYS BRING THAT UP.
LIZ: WOMEN ALWAYS BRING UP THE DIAMONDS. THE EXPENDITURES, WHEN YOU TALK ABOUT WHAT'S LEFT IN A PERSON'S POCKET AFTER THE HIGH GAS PRICES AND MORTGAGES, ET CETERA, ARE PEOPLE STILL BUY THE HIGH TICKET ITEMS?
BUFFETT: IT'S NOT BEEN AS STRONG LATELY, ALTHOUGH AT NET JETS WHICH IS A REALLY HIGH END ITEM, THE SUPER RICH ARE STILL SUPER RICH. THE MIDDLE CLASS, UPPER MIDDLE CLASS, I THINK THEY'RE FEELING MAYBE A LITTLE PINCH. BUT THE SUPER RICH, THEY'VE GOT MONEY COMING OUT OF THEIR EARS.
LIZ: AND DO YOU THINK THAT THE TAXES SHOULD -- THE TAX CUTS THE PRESIDENT MADE SHOULD BE MADE PERMANENT -- I THINK IT'S A TERRIBLE SITUATION WHERE THE TAX RATE ON ME IS OVERALL WHAT I PAY TO THE FEDERAL GOVERNMENT AS A PERCENTAGE, COUNTING PAYROLL TAXES, IS A LOWER PERCENTAGE OF MY INCOME THAN MY RECEPTIONIST. I THINK THAT IS PROBABLY TRUE FOR A MAJORITY OF THE FORBES 400. WE'VE HAD A WONDERFUL TAX PLANNER AND HE'S BEEN RIGHT HERE IN WASHINGTON, AND IN MY VIEW, THE RICH 15% TAX RATES, IF I DO MY JOB IN TERMS OF DIVIDENDS AND CAPITAL GAINS AND YOU'RE PAYING A LOT HIGHER TAX RATE FOR YOUR JOB, I JUST DON'T THINK IT'S RIGHT.
LIZ: SO THE GEICO CAVEMAN.
BUFFETT: RIGHT.
LIZ: I HAVE TO ASK YOU ABOUT THIS. AS WE FINISH UP WITH THIS, ABC WANTS A SITCOM WITH THE GEICO CAVEMAN?
BUFFETT: I LIKE THE IDEA. THE GECCO IS GETTING JEALOUS.
LIZ: I KNOW YOU HAVE TO GO AND I APPRECIATE THE EXTENDED TIME YOU'VE PEP WITH US. WARREN BUFFETT, BERKSHIRE HATHAWAY. MARK?
MARK: THANKS, LIZ.
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