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The Essays of Warren Buffett: Lessons for Corporate America Essays by Warren E. Buffett Selected, Arranged, and Introduced by Lawrence A. Cunningham Includes Previously Copyrighted Material Reprinted with Permission THE ESSAYS OF WARREN BUFFETT: LESSONS FOR CORPORATE AMERICA Essays by Warren E. Buffett Chairman and CEO Berkshire Hathaway Inc. Selected, Arranged, and Introduced by Lawrence A. Cunningham Professor of Law Director, The Samuel and Ronnie Heyman Center on Corporate Governance Benjamin N. Cardozo School of Law Yeshiva University © 1997; 1998 Lawrence A. Cunningham All Rights Reserved Includes Previously Copyrighted Material Reprinted with Permission TABLE OF CONTENTS INTRODUCTION§ PROLOGUE 1. Corporate GOVERNANCE........- A. Owner-Related Business Principles B. Boards and Managers ........ C. The Anxieties of Plant Closings D. An Owner-Based Approach to Corporate Charity . E. A Principled Approach to Executive Pay.......... Il. Corporate FINANCE AND INVESTING . Mr. Market Arbitrage Debunking Standard Dogma . “Value” Investing: A Redundancy Intelligent Investing .........6.++ Cigar Butts and the Institutional Imperative . . Junk Bonds....... . Zero-Coupon Bonds Preferred Stock ... 'OMMON STOCK .... The Bane of Trading: Transaction Costs . Attracting the Right Sort of Investor . Dividend Policy... |. Stock Splits and Trading Activity . Shareholder Strategies ........ Berkshire’s Recapitalization Hl. ™MOOPPO “ToOMMOwD IV. MERGERS AND ACQUISITIONS A. Bad Motives and High Prices. B. Sensible Stock Repurchases Versus Greenmail . C. Leveraged Buyouts ... D. E. . Sound Acquisition Policies . . On Selling One’s Business V. ACCOUNTING AND TAXATION .. A Satire on Accounting Shenanigans Look-Through Earnings .......... Economic Goodwill Versus Accounting Goodwill . . Owner Earnings and the Cash Flow Fallacy... Intrinsic Value, Book Value, and Market Price Segment Data and Consolidation . . Deferred Taxes.........ccccc08e ammyponp> 5 27 29 29 38 43 47 54 63 63 66 72 82 89 93 97 103 . 110 -. 119 +. 119 . 121 123 127 — 130 - 132 137 137 147 148 151 154 159 159 165 171 : 187 191 » 193