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By Root 3497 0

Doctrine was repealed, any liquidation of a corporation and distribution of its assets would result in a tax on the corporation’s profits and another tax on the shareholders upon distribution. Since the double tax added up to a staggering amount of money, closely held and family corporations all over the country rushed to liquidate themselves before the act went into effect. Buffett, who regularly said in his shareholder letters that Berkshire had gotten so large that its money was a barrier to investing success, could have distributed its assets, then raised a more manageable sum—still in the billions—set up a new partnership, and started over investing within weeks (collecting his fee again, to boot). With $1.2 billion of unrealized profits on Berkshire’s balance sheet, had Buffett liquidated Berkshire, he could have given his shareholders a total tax avoidance of more than $400 million and the chance to start over in a partnership free of the corporate double tax.54 But he didn’t.

Buffett wrote a lengthy dissertation on taxes in his annual letter, in which he addressed this topic and dismissed the idea of liquidating out of hand: “If Berkshire, for example, were to be liquidated—which it most certainly won’t be—shareholders would, under the new law, receive far less from the sales of our properties than they would have if the properties had been sold in the past.”55

The Warren Buffett of old would not have sneered at an extra $185 million in his own bank account and the chance to start over earning fees without the corporate income tax—which is what his decision not to liquidate Berkshire Hathaway in 1986 cost him personally. But ordinary greed no longer drove his decisions—for this cost him far more than any other shareholder. His long-standing attachment to Berkshire held him so firmly in its grip that he gave up the option of keeping Berkshire as a virtual partnership. Otherwise, he would have liquidated without a second’s hesitation.

Instead he had crossed the Rubicon and chosen the role of being the CEO of a major corporation, like Procter & Gamble or Colgate-Palmolive, one that would continue to exist after he was gone.

This company, Berkshire, with its disparate parts, was hard to value. Munger liked to joke that Berkshire was the “Frozen Corporation,” since it would grow endlessly but never pay a penny in dividends to its owners. If the owners couldn’t extract any money from their money-making machine, how much was that company really worth?

But Buffett was growing Berkshire’s book value far faster than his shareholders could have accumulated such wealth themselves, and he had the scorecard to prove it. Moreover, it was a long-term scorecard, far more comfortable for him than the year-to-year pressure of beating the market’s bogey. By shutting down the partnership, he had freed himself from that tyranny; in fact he no longer presented numbers in a fashion that allowed someone to calculate his investing performance from inception.56 Besides, being CEO of the Frozen Corporation was fun. He got to own a newspaper in Buffalo; he got to use his shareholder letters as the editorial column in a newspaper. Yet even though he had now officially joined the CEO club, he had no desire to acquire most of their habits—visiting five-star resorts, collecting wine or art, buying a yacht, or acquiring a trophy wife. “I’ve never seen a trophy wife yet that looks like a trophy,” he would later say. “To me they always look like a booby prize.”

One day in 1986, however, he called his friend Walter Scott Jr., a down-to-earth hometown boy who had worked for Peter Kiewit Sons’, Inc, all his life, just like his father before him. Scott was businesslike yet refreshingly open and relaxed. He had succeeded Peter Kiewit, then made his reputation during a federal highway bid-rigging scandal that threatened Kiewit’s existence by disqualifying it from bidding on any contracts that got government funds. By forthrightness, “groveling,” and thorough reforms, Scott led the company through a long restoration—a model for dealing with the government