Investing Guidelines: Financial Tenets 115announces a cost-cutting program, he knows this company has not f ig-
ured out what expenses can do to a company’s owners. “The really
good manager,” Buffett says, “does not wake up in the morning and
say, ‘This is the day I’m going to cut costs,’ any more than he wakes up
and decides to practice breathing.”^6
Buffett understands the right size staff for any business operation
and believes that for every dollar of sales there is an appropriate level of
expenses. He has singled out Carl Reichardt and Paul Hazen at Wells
Fargo for their relentless attack on unnecessary expenses. They “abhor
having a bigger head count than is needed,” he says, “and ‘Attack costs
as vigorously when prof its are at record levels as when they are under
pressure.’ ”^7
Buffett himself can be tough when it comes to costs and unnecessary
expenses, and he is very sensitive about Berkshire’s prof it margins. Of
course, Berkshire Hathaway is a unique corporation. The corporate staff
at Kiewit Plaza would have diff iculty f ielding a softball team. Berkshire
Hathaway does not have a legal department, a public or investor rela-
tions department. There are no strategic planning departments staffed
with MBA-trained workers plotting mergers and acquisitions. The
company’s aftertax overhead corporate expense runs less than 1 percent
of operating earnings. Compare this, says Buffett, with other companies
Figure 7.3 The Coca-Cola Company net income and “owner earnings.”