The Wrath Of Warren Buffett: How Benjamin Moore Almost Broke His Promise (interesting article, some excerpts via Fortune)
Not long after Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) acquired Benjamin Moore in 2000, Warren Buffett appeared in a video that was sent to the company’s thousands of independent dealers, who sell the vast majority of Moore paints. Buffett knew that outside ownership was disconcerting for a company that, since its founding in 1883, had usually been run by a Moore descendant. Dealers worried that the new owner might decide there were bigger profits to be made by selling through the dealers’ bitter rivals, big-box giants The Home Depot, Inc. (NYSE:HD) and Lowe’s Companies, Inc. (NYSE:LOW).
Warren Buffett tried to soothe those fears. “I made two main points in the tape,” he says today. “First, we buy businesses to keep. We don’t resell them. Berkshire was going to be a permanent home for Benjamin Moore.” Second, Warren Buffett had no intention of abandoning the dealers—whom he calls the “lifeblood” of the operation—in favor of the giant chains. As he puts it, “I made them a promise that we would forever stick with the dealer system.”
Warren Buffett emphasized on the video that he knows nothing about making paint. His plan was to stay out of the way and let the company run itself. It sounded like a quintessential Berkshire arrangement: Acquire an established, old-economy operation with good margins and steady results, stand aside, and reap the returns.
But this was one time where Warren Buffett’s laissez-faire management style would fail him. Some years later, a Benjamin Moore CEO began pursuing a strategy that chipped away at Buffett’s pledge. By 2012 the CEO was nearing a deal—an agreement to sell through Lowe’s—that would have shattered the promise. Warren Buffett got wind of the plan, intervened, and scotched the arrangement. But the damage was done: Dealers revolted and today, two years later, the company is still recovering from the tumult, still searching for ways to expand its sales, and still working to regain the trust of its 4,200 dealers.
Benjamin Moore is on its third CEO in 2 years, and a combination of strategic zigzags and the dealers’ feelings of betrayal has caused the company to fall behind its main rivals. Moore’s revenues rose a cumulative 40% between 1999 and 2013, while competitors Sherwin Williams and Valspar boosted their revenues, 104% and 196%, respectively. Moore’s revenues declined in the first half of 2014 (the company blames bad weather). Even Warren Buffett himself acknowledges, “Sherwin Williams has done a better job.”
See full article by Fortune