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“If I don’t take my own cash flow and reinvest, all I do is add to his problems,” said James Hambrick, CEO of chemical maker Lubrizol, which Berkshire bought in 2011.

Ummm, I'm not sure that I like that logic.
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“If I don’t take my own cash flow and reinvest, all I do is add to his problems,”
said James Hambrick, CEO of chemical maker Lubrizol, which Berkshire bought in 2011.


Ummm, I'm not sure that I like that logic.

Well, it's fine as long as you take it as a friendly joke.
The "problem" in question is drowning in cash.

Jim
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Well, it's fine as long as you take it as a friendly joke.
The "problem" in question is drowning in cash.


Hard to tell the context from that quote.

What we obviously want to avoid like the plague are subsidiary CEOs who feel some sort of need to find marginal capex opportunities to avoid sending money up to HQ. Of course the way to manage this is more related to setting subsidiary CEO compensation based on measures relating to profitability vs. capital employed and perhaps incremental profitability generated by incremental capital invested. I believe that this is part of the compensation formula for many of the CEOs so probably there is no need for worry.
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What we obviously want to avoid like the plague are subsidiary CEOs who feel some sort of need to find marginal capex opportunities to avoid sending money up to HQ. Of course the way to manage this is more related to setting subsidiary CEO compensation based on measures relating to profitability vs. capital employed and perhaps incremental profitability generated by incremental capital invested. I believe that this is part of the compensation formula for many of the CEOs so probably there is no need for worry.


I agree that we probably don't need to worry. This is question 1 in any discussion between Buffett and his CEOs, if I understand the process. Buffett takes an interest in how the businesses are run, but keeps his hands off. But Buffett has to approve all major and not even so major capital decisions. If he thinks the return will be mediocre, he will tell them to send the $ to the parent. Hambrick's job is to run the existing business, and to identify investment opportunities to present to Buffett, so that the HQ won't drown in cash. That doesn't mean he can reinvest in marginal opportunities, it means his challenge is to find good opportunities.

Regards, DTM
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