94 THE WARREN BUFFETT WAY
The Pampered Chef
Doris Christopher, the founder, chairman and CEO of the Pampered
Chef, has allocated her capital well—f inancing all expansion and growth
through internal earnings. She has reinvested virtually all her prof its
in the company and the resulting expansion has brought tremendous
growth in sales. Between 1995 and 2001, the Pampered Chef ’s business
grew an astonishing 232 percent, with pretax prof it margins above 25
percent. And the only debt the company ever had was the original $3,000
seed money that Christopher borrowed from her life insurance policy.
From all appearances, Doris Christopher is a careful and prof itable
manager, and she runs a tight ship. She displays keen management intu-
ition by treating her representatives well but competitively. The Pam-
pered Chef ’s direct marketers across the country are the bread and butter
of the business and the company’s only direct contact with its over 12
million customers. The sales force earns commissions of 18 to 20 percent
on goods they sell, and 1 to 4 percent on the sales of kitchen consultants
whom they bring into the company.
CANDOR
Buffett holds in high regard managers who report their companies’ fi-
nancial performance fully and genuinely, who admit mistakes as well as
share successes, and who are in all ways candid with shareholders. In
particular, he respects managers who are able to communicate the per-
formance of their company without hiding behind Generally Accepted
Accounting Principles (GAAP).
Financial accounting standards only require disclosure of business
information classif ied by industry segment. Some managers exploit this
minimum requirement and lump together all the company’s businesses
into one industry segment, making it diff icult for owners to understand
the dynamics of their separate business interests.
“What needs to be reported,” Buffett insists, “is data—whether
GAAP, non-GAAP, or extra GAAP—that helps the f inancially literate
readers answer three key questions: (1) Approximately how much is
this company worth? (2) what is the likelihood that it can meet its fu-
ture obligations? and (3) how good a job are its managers doing, given
the hand they have been dealt?”^11