- Warren Buffett’s Berkshire Hathaway made a surprise bet on gold miner Barrick last quarter, undermining the billionaire investor’s past criticisms of the metal as an investment.
- However, Berkshire and Barrick have more in common than it appears.
- Barrick’s bosses have emulated Berkshire’s culture of trust and partnership and its decentralized structure, and vowed to follow Buffett’s advice to think independently and invest astutely.
- “It is our intention to become one of the few businesses that fulfill Warren Buffett’s ideal holding period of forever,” Barrick chairman John Thornton said in 2016.
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The bet isn’t quite as bewildering as it seems.
Barrick’s bosses have emulated Buffett’s management style for years, and modeled their company culture and structure on the famed investor’s conglomerate. As a result, the gold miner is probably a better fit for Berkshire’s portfolio than its peers.
Here are some of the key similarities between the two companies, based on an analysis of company transcripts on Sentieo, a financial-research site:
- Barrick’s late founder and CEO, Peter Munk, said on an analyst call in 2014 that trust within the company was key to its success. He compared his colleagues’ bond to the “seamless web of deserved trust” that Buffett’s partner, Charlie Munger, has underscored as critical to Berkshire’s outperformance.
- Chairman John Thornton outlined a slew of structural changes in Barrick’s 2014 annual report that moved the company closer to the Berkshire model. You can see them below (bold text is what Barrick did, italic is Berkshire’s strategy):
- It expanded its partnership plan to 35 leaders, granting them stock options to incentivize long-term performance. It also vowed to strike fair deals with external partners such as governments and local communities, potentially sacrificing short-term revenue to build relationships and secure future projects.
- Buffett views Berkshire stockholders as his partners in the company. “Charlie and I are working for our shareholder-partners,” he said in his 2018 shareholder letter.
- Barrick appointed two co-presidents, giving its operations chief and corporate-affairs boss a stake in each other’s success.
- At Berkshire, Buffett works in partnership with Munger, Todd Combs and Ted Weschler co-manage its investment portfolio, and Ajit Jain and Greg Abel split responsibilities for the insurance and non-insurance operations respectively.
- Barrick decentralized its operations, halving the size of its headquarters and removing management layers between its Toronto headquarters and its mines. Its goal was to minimize bureaucracy and allow the head office to focus on allocating people and money across Barrick’s operations.
- Thornton summed up the shift with a Buffett quote: “Hire well, manage little.”
- Berkshire owns scores of businesses — including Geico, See’s Candies, and the BNSF railway — and employs close to 400,000 people worldwide. Yet it only has a couple dozen employees in its headquarters, and Buffett and his team allocate capital across the company.
That’s not where the similarities end, however.
Thornton vowed in Barrick’s 2015 annual report that the miner wouldn’t succumb to the “institutional imperative” among companies to “mindlessly imitate” their peers, a problem that Buffett identified in 1989. Barrick differentiates itself by aiming to enrich not just its owners but its employees and local communities as well, he said.
The chairman also proclaimed his desire for Barrick to be one of the world’s best companies at the miner’s annual meeting in 2016, adding that he wanted it to be worthy of Buffett’s investment.
“It is our intention to become one of the few businesses that fulfill Warren Buffett’s ideal holding period of forever,” he said.
Moreover, Thornton invoked Buffett’s 1989 warning against plowing excess cash into increasingly subpar projects and acquisitions at an investor day in 2018. He vowed that Barrick would be disciplined in its investments and not fall into the trap.
Based on those comments, Barrick shares Berkshire’s cultural values of trust and partnership, subscribes to its decentralization model, and heeds Buffett’s advice to act independently and spend intelligently.
Those similarities undoubtedly factored into Berkshire’s decision to invest. Thornton’s goal to have Barrick live up to Buffett’s standards is now a reality.