My last post asked if anyone could confirm that Charlie Munger had said that Berkshire Hathaway applied The No Asshole Rule from early on. I am delighted to report that, thanks to Bill's comment, I now know that it comes from an interview with Charlie Munger that is quoted on page 388 of Snowball, Alice Schroder's current bestseller on Warren Buffett. I had started reading the book, but had not got that far!
The quote comes at the bottom of page 388 and the context is that they had bought 20% of a troubled investment firm called Source Capital at a discount from "two assholes who were the sellers," but then they started packing the board with talented managers who were not assholes. Munger's quote is, to confirm, "We had the no asshole rule very early. Our basic rule is that we don't deal with assholes."
A few comments:
First, as I have said from the start, I did not invent the no asshole rule. It has been around for a long time, The book -- and this blog -- simply meant report how it is used in different settings, provide evidence to show why it assholes are so damaging, and to show that it is possible to be successful in business and still apply the rule. I am especially delighted to hear that Buffett and Munger -- two of the most successful capitalists of our time -- have used it for years.
Second, note that Munger and Buffett use the word asshole -- not something else. I know it offends some people, but no other word carries the right cultural meaning for me --and a lot of other people. "Jerk" or "bully" just wouldn't do in this case.
Third, reading this quote in context is interesting because, in making this investment, Munger and Buffett realized that they were in fact violating their own rules. When he heard about Source Capital, Buffett joked "Now I understand the two-asshole exception to the no-asshole rule." My take on this is that, in business and in life, there are times when for practical reasons of all kinds, your will end-up violating the no asshole rule. The question, however, is what happens during and after the transgression. If you do it knowingly and believe that it is worth dealing with assholes to get something you want or need, there might be times when it is worth making a deal with one of these devils -- so long as you don't become one yourself. Indeed, such self-knowledge alone can help you resist catching the asshole poisoning from them. Moreover, in some cases, such knowledge can put you in position to reverse the nastiness down the line -- in this case Munger put talented and civilized managers on the board to offset those two creeps.
Finally, to rain on my own parade a bit here, although companies in Berkshire Hathaway portfolio are generally well-managed, it is unreasonable to believe that all of these companies have and enforce the no asshole rule. Note the comment on my prior post from "Living with an asshole" that makes this point.
Thanks again to Bill. And now I can add Berkshire Hathaway to my Honor Roll of people and places that enforce the no asshole rule.