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Berkshire Hathaway: The Role of Trust in Governance

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Abstract: 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. Topics, Issues and Controversies in Corporate Governance and Leadership: The Closer Look series is a collection of short case studies through which we explore topics, issues, and controversies in corporate governance. In each study, we take a targeted look at a specific issue that is relevant to the current debate on governance and explain why it is so important. Larcker and Tayan are co-authors of the book Corporate Governance Matters, and A Real Look at Real World Corporate Governance. Related Teaching Case ($): The Management of Berkshire Hathaway; Case Number: CG-16; Publication Year: 2009 (SSRN), available at: http: ssrn.com abstract=1482085.

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