During their latest episode of the VALUE: After Hours Podcast, Valdez, Taylor, and Carlisle discuss Warren Buffett – Taking The Dagger Off The Steering Wheel. Here’s an excerpt from the episode:
Q2 2023 hedge fund letters, conferences and more
Tobias: It was funny that the conglomerates they said they had the wrong incentive model, because the managers weren’t incentivized. That was the whole pitch of the LBO guys that they would come in, “Hey, you’re going to be an owner and we’re going to put all this debt on,” so you’re focused on increasing the cash.
Jake: Put a dagger on the steering wheel.
Tobias: Which Buffett famously-
[laughter]
Tobias: -called the dagger on the steering wheel.
Jake: Yeah.
Tobias: But then, Buffett solved that problem by making– He’s got that compensation plan for the managers of his distributed companies that they get charged a cost of capital and they get paid a bonus based on what they can return to the mothership. So, that does seem to be a better way of– That takes the dagger off the steering wheel, but it keeps the same pressure to focus on returns on invested capital rather than just expanding it into lower and lower margin opportunities.
Mark: Yup, exactly.
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Article by The Acquirer's Multiple.
