Warren Buffett paid $11.6 billion for a company run by his 'long-time friend' — here's why he values trust so much
Trust is always important, especially in the workplace. But for Warren Buffett and the executives who run Berkshire Hathaway's 62 subsidiaries, trust is more than just important. It's essential.
That's likely why Buffett seems confident that his latest acquisition, his largest in nearly seven years, will be successful. On Monday, the billionaire investor's holding company, Berkshire Hathaway, announced a planned $11.6 billion acquisition of insurance company Alleghany — led by CEO Joseph Brandon, a man Buffett described as a "long-time friend."
Their relationship goes back at least two decades: From 2001 to 2008, Brandon served as chairman and CEO of insurer General Re, which is owned by Berkshire. That means Brandon has worked for Buffett before, and he's clearly earned the Oracle of Omaha's trust.
"I am particularly delighted that I will once again work together with my long-time friend, Joe Brandon," Buffett said in a statement announcing the deal, adding: "Berkshire will be the perfect permanent home for Alleghany, a company that I have closely observed for 60 years."
Founded in 1929, Alleghany — which reported $12 billion in total 2021 revenue — now joins a Berkshire portfolio of insurance brands that includes General Re and GEICO. For Buffett, the deal makes sense on multiple levels: He can add yet another insurance brand to Berkshire's holdings, and he can feel comfortable spending billions of dollars on a company run by someone he knows and trusts.
Buffett is known for taking a hands-off approach to running companies he owns through Berkshire. The New York Times has described the billionaire as "Delegator in Chief," while longtime friend and business partner Charlie Munger described Buffett's management style in 2017 as "delegation short of abdication."
In other words, Buffett likes to give his managers the freedom to run their companies as they see fit. By not micro-managing, Buffett said at the 2017 Berkshire annual meeting, "we can free managers up ... so that they can spend all of their time figuring out the best way to run their business."
That's where trust comes in. Buffett has said in the past that the quality of a company's management is a major investment factor for him. And, when he's deciding who he wants to do business with, he's made it clear that he values integrity above all else.
In 1998, speaking to a group of University of Florida MBA students, Buffett laid out his three main criteria for judging a potential employee: integrity, intelligence and energy. Integrity is the most important of those three traits, he said, since you can't trust anyone who lacks it, no matter how much intelligence and energy they might have.
It's also the hardest of the three traits to find in the business world, he said. "Every business student you have has the requisite intelligence and requisite energy," Buffett told a University of Nebraska alumni magazine in 2001. "Integrity is not hard-wired into your DNA."
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