Cognitive Dissonance - BRK Shareholders

[LC]

I was hoping to start a thread listing the business practices that Berkshire and its subsidiaries engage in which you may not agree with. I realize in a forum filled with Berkshire fans and shareholders, maybe it will be a bit controversial (or maybe not). But with all the good business results we hear about from Berkshire, perhaps that is all the more reason to have the discussion and try and counterbalance the echo chamber.

 

I should also say BRK has been at least a 10% position for me since I began investing (~8 years). So there is definitely some cognitive dissonance here on my part, which I think is worth exploring.

 

The question is, what does Berkshire do that you personally would not?

 

The idea for this thread was inspired by a post Cardboard made:

 

And since we are talking about Berkshire and Mr. Buffett who gladly accepts all subsidies and does all he can to defer taxes, we should also discuss why he refuses on the other hand to purchase surplus power from homeowners in Nevada who have solar panels?

 

On this issue, here is a good critique:

https://www.theguardian.com/environment/2016/jan/13/solar-panel-energy-power-company-nevada

 

Essentially the state government encouraged citizens to invest in solar panels. At the time, it made a lot of sense due to the pricing and savings these customers would receive by (1) generating their own energy, and (2) selling surplus energy back to the state regulated utility (Buffett's NV Energy). So people took out loans or paid outright to set up a residential solar system.

 

Some time later, the state changed these regulations. NV Energy can impose a much higher fixed-fee on customers using residential solar, and NV Energy can purchase the surplus energy back from these customers at ~25-30% of market price. All the residential solar companies (solarcity etc.) have since pulled out of the state.

 

This is essentially the outcome of the whole situation:

 

“If they start giving us only 2.8 cents a kilowatt versus the 13 cents they charge us, I will never break even on my investment,” Matz said. “Not only that, if they are going to give us 2.8 cents a kilowatt and then sell it for 13 cents, basically 17,000 Nevada homeowners built a solar farm for Nevada power. I don’t think that can be right.”

 

So I don't know what inspired the Nevada public utility commission (PUC) to change their regulations.. And I think the majority of the blame (if one were to assign blame) would fall on the PUC. But let's be honest here: NV Energy certainly is not feeling the pain which their customers are.

 

And there are accusations of lobbying/corruption, but these things are hard to prove even if they are true

 

Solar advocates have also accused the energy commission of coordinating with utility company lobbyists. Checks and Balances Project, a nonprofit group that investigates corporate influence on clean energy policy, filed a public records request for correspondences between the PUC commissioner, NV Energy and industry trade group Edison Electric Institute. PUC, too, has denied access to messages made on personal devices and accounts.

 

“The story here is one of political corruption,” Miller said. “Brian Sandoval pulled a bait-and-switch on consumers to protect NV Energy’s monopoly profits.”

 

The reality is at the end of the day it seems like a bait-and-switch, and to say NV Energy was just some independent party in the entire affair seems naive. I know I would not like to be treated this way as a customer.

 

___

So I am hoping this thread provides a discussion on specific issues such as the one above, or the broader topic of, "should shareholder agree with the business practices of their investments", or where that line/balance is.

[rb]

I hate the fact that they own Pampered Chef. I don't think that an MLM has any place in a company like Berkshire. I can't understand why he bought it. it brings a host of issues and it's not like it was an elephant. I think this one should have been a pass.

[John Hjorth]

[Damn] Good topic your're starting up here, LC. It's important, so that we don't fall into sleep.

 

Bloomberg [2016.08.03]: Buffett Made a Big Bet On An "In your face" CEO. [About Precision Castparts CEO Mark Donegan].

 

I haven't tried yet to do some kind of follow-up.

[Jurgis]

IBTL ( http://knowyourmeme.com/memes/in-before-the-lock-ibtl ) - or actually "IBTP" - In before the politics

 

8)

 

Clayton Homes - was discussed in the past.

 

Coke purchase and Coke defense - was discussed in the past.

 

GenRE - well, that was more of a mistake and overpayment than "evil company".

 

NetJets - probably also more of a mistake than "evil company" (Disclosure: I'd fly private if I could afford it).

 

Wells Fargo's somewhat defense.

 

DVA - not Buffett

 

IBM - support of crappy management?

 

AXP - support of crappy management?

 

Salomon Brothers way back.

 

Overpriced pushy Kirby vacuums way back.

 

Support of huge payouts (salaries/bonuses) to CEOs while calling it a problem.

 

------------------------------------------

 

Ultimately though one can accuse any (successful) company of evil deeds. If you invest, you have to accept that as a reality and just live with it.

Berkshire is still better in social/environmental/financial aspects than a lot of other companies. So.

 

8)

 

Edit: sorry if this list is partially OT and LC intended only BRK subs to be discussed in this thread.

 

[LC]

Jurgis did you rattle that off the top of your head? Impressive!

 

Do you have any good links for

 

Clayton Homes - was discussed in the past.

Support of huge payouts (salaries/bonuses) to CEOs while calling it a problem.

 

I remember hearing some stuff re: Clayton but I never dove into it.

 

____

 

Ultimately though one can accuse any (successful) company of evil deeds. If you invest, you have to accept that as a reality and just live with it.

Berkshire is still better in social/environmental/financial aspects than a lot of other companies. So.

 

Yeah so, this is part of what I am interested in talking about. I mean, where is the line? And at what point does it become too much?

 

I get that everyone will have their own personal line to draw, but there's got to be some weighing factor, no? Like, "well ok, NV Energy screwed 17K people in Nevada, but XYZ corp. is helping 34k people over in this state, so on the balance...". You mention Berkshire is better socially/environmentally/etc...how do you that calculation.

 

The problem I have is the whole "bury my head in the sand and just collect my paycheck" aspect. At some point that becomes unhealthy IMHO.

 

Take a cigarette company (nowadays). I'm comfortable investing in Altria for example because people know cigarettes can kill you. Hell, I occasionally smoke myself. So there's a level of personal responsibility. So you can't really blame the company for people's individual choices, when those people were fully aware of the consequences.

 

With the NV Energy issue, that doesn't quite seem to be the case.

 

I also think this is part of the reason Buffett likes his "de-centralized" organization. It also de-centralizes him from any responsibility. He can always claim some level of plausible deniability.

 

We are all shades of grey but some are certainly a little darker grey than others.

[cubsfan]

The Clayton stuff was a smear campaign done by a Seattle newspaper. The "investigative" reporter got all his facts wrong, sensationalized the mistreatment of the poor. Was all addressed and refuted by Buffett and Clayton. No apology ever forthcoming from scumbag reporter or editor.

[racemize]

Buffett on the Nevada stuff:

 

Q – Solar energy in Nevada. Why are there new rules in Nevada on solar energy?

 

Warren Buffett: – The public utility and pricing policy is everything in Nevada as well as other places. There are three commissioners that decide what’s proper. The situation in Nevada in terms of rooftop power was that for the last few years, if you had a solar project on your roof, you could sell back excess power you generated to the grid at a price that was far, far above what we, as a utility, could buy it for elsewhere. They were being subsidized by the federal government. The people who had the 17,000 rooftop installations were selling back to the grid at roughly 10 cents a kilowatt hour energy that we could purchase elsewhere for 3.5 cents or thereabouts. Ninety-nine percent of our consumers were being asked to subsidize the 1% that had solar units by paying triple the market price at what we could otherwise buy electricity and sell it to the other 99%. It’s a question if you wish to have the 99% subsidize the 1%. The PUC in Nevada originally let this small group experiment by giving them this 10 cent rebate. They then decided the 99% should not be subsidizing the 1%. For solar to be competitive, it needs subsidization. Who pays for the subsidy gets to be a real question. I personally think if society is the one benefitting, then society should pick up the tab. I don’t think someone sitting in a house in Nevada should be picking up the subsidy for their neighbor. It is not right for 1 million customers in Nevada to subsidize 17,000 customers. The PUC agrees with that. Greg?

 

Greg Abel, president of NV Energy – One, as you’ve touched on earlier, we absolutely support renewables. We are for solar. We want to purchase renewable energy at the market rate – not where 1% of the customers will benefit and the other 99% will not. A working family in Nevada who cannot afford the rooftop unit, and you ask them if they want to subsidize their neighbor, 2016 the answer is no. By 2019, we will be replacing 76% of our coal units and replacing it with solar energy.

 

Warren Buffett: – Put up Slide 7, it will give you a view of what the situation is. This accounts for all of our Berkshire Hathaway energy operations. In a 20 year period, we will have a 57% reduction in our coal usage. It’s moving at a fast pace. You want to be sure that you treat fairly the people involved in this. Someone pays the cost of electric generation. If you are doing something to benefit the planet, and it’s important that it be done, you should not have the costs assessed for that on a specific person who’s having trouble making ends meet in their job. They are not the ones to subsidize the person who can afford to put the solar unit in.

[Jurgis]

Jurgis did you rattle that off the top of your head? Impressive!

 

8)

Do you have any good links for

 

Clayton Homes - was discussed in the past.

Support of huge payouts (salaries/bonuses) to CEOs while calling it a problem.

 

Clayton Homes: http://www.cornerofberkshireandfairfax.ca/forum/berkshire-hathaway/very-negative-article-on-clayton/msg217386/#msg217386

 

CEO salaries/bonuses: I don't have offhand. There were couple through years: He never voted against compensation when he was on boards of companies; he said something that he was never selected for compensation committee because he spoke against excessive comps; he said that he'd pay Jamie Dimon more than his current salary if he came to work for BRK.

 

You mention Berkshire is better socially/environmentally/etc...how do you that calculation.

 

Not scientifically.  ::)

 

Berkshire/MidAmerican seems to be greenish apart from Nevada controversy.

BNSF and rails are mostly greenish compared to trucks.

Buffett hates firing people, so mostly he does not. But perhaps he just delegates.

Mostly there have not been huge employment-related scandals like exploitation of workers.

I like Buffett's charitable donations. It's obviously not BRK as company, but it seems like he would be consistent with the attitude both as CEO and as a person.

BYD is arguably green investment.

 

The problem I have is the whole "bury my head in the sand and just collect my paycheck" aspect. At some point that becomes unhealthy IMHO.

 

Yeah, I try to think about this a bit, but it's tough.

I don't invest in cigarettes, guns, arms, mostly not meat production (this is tough if you buy any conglomerates). I invest in booze though. I also have some TDG.

I vacillate on pharmas.

I invest in banks, but not WFC.

I bought some MCO although I think it was complicit in the GFC.

I probably would buy KO if it was cheap although I think sugary-drinks is not good (but I'll try not to go into that discussion again).

I invest in GOOGL, FB though I think both are partially evil.

I invest in cable co crap monopolies.

I gave up on not-investing-into-excessive-CEO-compensation-companies, since that leaves just 2-3 companies to invest into.

So... shrug.  ::)

 

Peace.  8)

 

I reserve the right to disappear from this thread at any time

[dartmonkey]

Buffett on the Nevada stuff:

 

Q – Solar energy in Nevada. Why are there new rules in Nevada on solar energy?

 

Warren Buffett: – The public utility and pricing policy is everything in Nevada as well as other places. There are three commissioners that decide what’s proper. The situation in Nevada in terms of rooftop power was that for the last few years, if you had a solar project on your roof, you could sell back excess power you generated to the grid at a price that was far, far above what we, as a utility, could buy it for elsewhere. They were being subsidized by the federal government. The people who had the 17,000 rooftop installations were selling back to the grid at roughly 10 cents a kilowatt hour energy that we could purchase elsewhere for 3.5 cents or thereabouts. Ninety-nine percent of our consumers were being asked to subsidize the 1% that had solar units by paying triple the market price at what we could otherwise buy electricity and sell it to the other 99%.

 

This sums it up pretty well. The problem with paying rooftop solar customers average electricty rates for their mid-day solar production is that electricity is worth very different amounts at different times of day. In some of the southern states where there is a lot of sun and a lot of solar panels, market rates for electricity are very low at mid-day, and they are high in the evening when there is no more sun and people still want to use their appliances, heat their water, watch TV, charge their cars, etc. NVE is basically saying that if the utility is forced by the government to buy 3c power for 10c, and then sell 20c power back to that customer for 10c in the evening, then fine, but it is the other rate-payers without solar panels who are basically paying for this crazy scheme.

 

No-one cared when it was 0.1% of rate-payers with solar panels, but as the cost of the panels came down, companies like SolarCity could offer a great deal to homeowners- we install panels on your house for free, we send you a check every month, and after 10 years or so, you own the panels free and clear. Someone has to pay for this, and that is other rate-payers. The NV government made the sensible decision to close down the scheme to new users (grandfathering in, for 20 years, 32,000 homeowners who had already installed rooftop panels). Of course the big bad utility takes the blame for being anti-solar, but that is nonsense: NVE is happy to build out utility-scale solar power, at less than half the cost of rooftop, but they should be able to buy homeowners' power at market rates and they should also get fair reimbursement for providing the connection (transportation, administration, and especially the costly backup power for when there is no sun).

 

So I would remove NVE from the list of Berkshirean wrongdoings. But I would propose a new addition to the list of questionable deals: Flying J Pilot Centers, with what appears to be ethically challenged administration that will be sticking around at least for the next 5 years.

 

[Guest longinvestor]

Buffett on the Nevada stuff:

 

Q – Solar energy in Nevada. Why are there new rules in Nevada on solar energy?

 

Warren Buffett: – The public utility and pricing policy is everything in Nevada as well as other places. There are three commissioners that decide what’s proper. The situation in Nevada in terms of rooftop power was that for the last few years, if you had a solar project on your roof, you could sell back excess power you generated to the grid at a price that was far, far above what we, as a utility, could buy it for elsewhere. They were being subsidized by the federal government. The people who had the 17,000 rooftop installations were selling back to the grid at roughly 10 cents a kilowatt hour energy that we could purchase elsewhere for 3.5 cents or thereabouts. Ninety-nine percent of our consumers were being asked to subsidize the 1% that had solar units by paying triple the market price at what we could otherwise buy electricity and sell it to the other 99%.

 

This sums it up pretty well. The problem with paying rooftop solar customers average electricty rates for their mid-day solar production is that electricity is worth very different amounts at different times of day. In some of the southern states where there is a lot of sun and a lot of solar panels, market rates for electricity are very low at mid-day, and they are high in the evening when there is no more sun and people still want to use their appliances, heat their water, watch TV, charge their cars, etc. NVE is basically saying that if the utility is forced by the government to buy 3c power for 10c, and then sell 20c power back to that customer for 10c in the evening, then fine, but it is the other rate-payers without solar panels who are basically paying for this crazy scheme.

 

No-one cared when it was 0.1% of rate-payers with solar panels, but as the cost of the panels came down, companies like SolarCity could offer a great deal to homeowners- we install panels on your house for free, we send you a check every month, and after 10 years or so, you own the panels free and clear. Someone has to pay for this, and that is other rate-payers. The NV government made the sensible decision to close down the scheme to new users (grandfathering in, for 20 years, 32,000 homeowners who had already installed rooftop panels). Of course the big bad utility takes the blame for being anti-solar, but that is nonsense: NVE is happy to build out utility-scale solar power, at less than half the cost of rooftop, but they should be able to buy homeowners' power at market rates and they should also get fair reimbursement for providing the connection (transportation, administration, and especially the costly backup power for when there is no sun).

 

So I would remove NVE from the list of Berkshirean wrongdoings. But I would propose a new addition to the list of questionable deals: Flying J Pilot Centers, with what appears to be ethically challenged administration that will be sticking around at least for the next 5 years.

 

Agree about NVE, there's a lot of trash circulating in the story. There are two other parties that are ducking the headline; Folks like SolarCity and the WS financiers who financed the installs. The assumptions made in justifying the install would have had to be pie in the sky versus market forces.

[Guest longinvestor]

The Clayton stuff was a smear campaign done by a Seattle newspaper. The "investigative" reporter got all his facts wrong, sensationalized the mistreatment of the poor. Was all addressed and refuted by Buffett and Clayton. No apology ever forthcoming from scumbag reporter or editor.

Wondering if there is the hand of the losers in the mfd home industry (including the third party financiers) that Clayton Homes took out over the past decade?

[DTEJD1997]

Hey all:

 

Berkshire was heavily invested in the Washington Post.  The Washington Post was invested in "for profit" skools.  Some of these were predatory.  It was absolutely disgraceful.

 

Everybody involved in that should take some blame.

[Dynamic]

The first thing the sprung to my mind was Pampered Chef. I had no idea it was MLM until I watched Penn and Teller Bullshit on YouTube. To be honest I'm still not sure how the business works. I'm aware that people hold parties and it uses the bonds of friendship to encourage people - mostly women - to buy just like Tupperware and Ann Summers (UK - which now has a lot of shops too).

 

What I'm not clear on is whether it's truly multi level like a pyramid where each seller becomes a distributor or whether there is a fixed distribution system of wholesalers and retailers like a normal business.

 

At least the wares being sold are useful and are often sold for a huge markup in cook shops.