Thanks for downloading the Freakonomics Radio podcast. This summer, we’re putting out five hour-long shows that’ll air on public radio stations across the country. One of them is about family business — particularly the very common practice of handing down a family business to the next generation. We have some questions about that practice. Such as: is it a good idea? What do the numbers have to say? And is America a leader in the family-handoff business, or a laggard?
Today’s podcast gives you a taste of one of the many stories from that program. If I told you we’d be hearing today from a guy named Peter Buffett and he’s a musician, and his father is famous, who would you think his father is? (MUSIC) Of course! Jimmy Buffett. But that’s not Peter’s dad. Peter’s dad is named Warren. As in Warren Buffett, chairman and CEO of the investment group Berkshire Hathaway, and the third-richest man in the world. But Peter didn’t follow his dad into the family business. Which is exactly why we’re talking to him.
[Peter BUFFETT] Peter Buffet, composer, author, philanthropist. I do those in that order, actually. Well, maybe switched around a little, but…
DUBNER: Depending on day of the week?
BUFFETT: Yeah, I think so.
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Peter Buffett has written a book called Life is What You Make It: Find Your Own Path to Fulfillment. It’s sort of an investment guide — but not the kind of investing that Warren Buffett does; it’s about investing in yourself. About acquiring the kind of human capital that makes you happy.
Now Warren Buffett, as you probably know, is famously down-to-earth for someone who’s worth about $47 billion. He lives in the same house he bought for $31,500 in 1958 in Omaha, Nebraska. That’s where Peter Buffett grew up. It was a very ordinary upbringing. Peter is 53 years old. His whole life, he says, when people found out whose kid he is, they’re shocked. They say: “But … you’re so normal!”
BUFFETT: Well, I think the assumptions are based on, of course, celebrity culture, what we’ve seen just grow and grow–it’s always been there of course, since Cleopatra probably–but celebrity culture and the Paris Hiltons of the world. So there was the “you’re not an obnoxious rich kid that thinks they’re entitled to everything.” And then there’s the, I walked to public school, I had the same English teacher my mother had, all these kind of really fundamental Midwestern things.
DUBNER: This is all taking place in Omaha, Nebraska.
BUFFETT: Right, Omaha, Nebraska. My great grandfather’s name was Ernest and his brother’s name was Frank. So there you have it, frank and earnest. But it came from, again, just a collection of assumptions around what a child of a wealthy person probably grew up in, acts like, thinks he’s entitled to, all that kind of stuff.
DUBNER: Talk to me for a minute about your degree of interest in Berkshire growing up.
BUFFETT: Well, you know, growing up we really didn’t know what my dad did. It was quite mysterious. He read a lot, which he still does. And I will say if you walk in the house today you will see the same thing that I saw in 1965. He’s just this consistent human being in spades. It was incredible. But we didn’t know what he did. In fact, when my sister filled out a form, I think in fourth or fifth grade, about what our parents did, she put “security analysis,” and it was assumed that what he did was check alarm systems. So to a kid it was like “what do all the numbers on the page mean? And what exactly is the New York Stock Exchange and buying and selling and all that?” So we really didn’t know.
DUBNER: Now, at some point you figured it out. I’m guessing that may have been gradual. Tell me about that.
BUFFETT: It was very gradual. People will ask me “what was it like growing up in this household?” “When did you realize that your father had amassed all this wealth?” And the answer is that I was probably about 25.
DUBNER: No kidding.
BUFFETT: The truth is it just wasn’t around. I can’t say enough for actions speaking louder than words. So we didn’t grow up around the exposition of wealth.
DUBNER: Okay, at some point you figured out your dad was, that “security analysis” was not checking fire alarms, and that there was good money in it whatever it was, and that he’d actually done quite well and was doing even better. At some point, did you get interested in Berkshire Hathaway itself and the business, and did you put a toe into it, were you an intern? Tell me about that.
BUFFETT: Well, I’m the last of three children. So, my sister didn’t go into the business. My brother didn’t, although he is sort of looked at as taking over the chairmanship at some point. But he didn’t go into the business. So I was the last great hope I think, for my dad. And I went off to college because I got in, frankly. I went to Stanford, and I went because I got in. And I didn’t know what I was going to be when I supposedly grew up. And at some point about a year in, I thought, well it’s dumb not to at least explore this a little bit. And my dad was very accommodating, certainly. He sent me some information about the business and a bunch of old annual reports and things. And, you know, it just wasn’t there for me.
DUBNER: It didn’t speak to you?
BUFFETT: No. And I knew it, and he knew it, and he wasn’t pushing it at all. I mean, I grew up with him saying “do what you love. That’s the thing. There’s nothing more important than that.” And we both knew that this wasn’t something that I was passionate about.
DUBNER: Sounds kind of wonderful.
BUFFETT: Tremendous. Yeah, very lucky.
DUBNER: What would you say to other fathers or mothers who founded companies about whether they should involve their sons and daughters in running the business after the founder has stepped aside? What do you say to that?
BUFFETT: Well, you know, my dad talks about the “ovarian lottery.” This idea that you’re, you know, born into these circumstances that you can’t, at least as far as I’m concerned, you can’t control when you’re on the other side of being born. And so I think there’s a version of that that holds true in this. You know, the odds of having a son or daughter that are as passionate, and excited and driven as the founder of a business was, or even the person that took it over—whatever that might be, whatever passion and drive was there in that person—the odds of that being in the next generation, I think are incredibly small. But I think that if the child is truly passionate about it and lives and breathes the same thing, absolutely. But again, what are the odds?
Coming up, how running the family business is either a dream come true or your worst nightmare. Also: how Berkshire Hathaway is a little bit like your favorite Beatle.
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In 2006, Warren Buffett announced he was giving away 85 percent of his wealth to charity, most of it to the Bill & Melinda Gates Foundation. Each of his three grown children, meanwhile, got about a billion dollars to set up their own philanthropies. Peter Buffett and his wife, Jennifer, created the NoVo Foundation, which focuses on young women in the developing world. Now, keep in mind, that billion is to be spent on other people, it’s not kicking-around cash. But don’t worry about the Buffett kids. Peter, for instance, when he was 19, was given a bequest, in the form of Berkshire Hathaway stock.
BUFFETT: Because we didn’t grow up wealthy or seemingly, we never though about an inheritance. We never assumed we would be getting anything at any time. And we weren’t bitter or thinking that we should for some reason. We just grew up in a house where you work hard and you make your way in life, and hopefully you have a well-lived life based on all sorts of criteria. So when we got the money at 19, I probably must have known it was coming because my brother and sister came first, but I wasn’t thinking about it, like “oh my God I can’t wait!” In fact, I remember the letter started from my dad with, “Bonanza time has arrived”, or something like that. I mean it was this moment where I was searching and thinking, “I think I want to get into music.” This money shows up and I talk to my parents about, what do you think? Maybe I could quit school for a little bit and try my hand at music. And my dad and mom both were extremely supportive of that idea. My dad gave me some advice in terms of here’s what you could spend in a month and not really eat into much principal. I was a college kid, I didn’t need much. So we didn’t expect it, so when it came it was a surprise, and I certainly didn’t expect anything else. And so that mentality, of course, makes you want to put that $90,000 to work, as far as I’m concerned.
DUBNER: Now, I’m sure you’ve been asked this question before, and I know you’ve answered it before, but that $90,000 when you were nineteen would be worth what today?
BUFFETT: Over $70 million, and I am living proof, and I paraphrase it as your money or your life, but living proof that I would much rather have invested in myself, taken the time, and grown my own life with all the mistakes and all the successes and everything else that I can say is mine. As opposed to have a pile of money that essentially belonged to somebody else’s success.
DUBNER: Do people believe you when you tell that to them?
BUFFETT: Well, they do, and it must be the sound of my voice, because it’s, I love being this kind of living example of somebody that would much rather have a life than the money.
DUBNER: Do you ever have a dream, or maybe it’s a nightmare, where you are running Berkshire Hathaway?
BUFFETT: Yeah, it would be somewhere between a dream and a nightmare. Because I do feel like all three of us kids have an element of my dad’s overarching value system and philosophy, and take on life. There’s a certain feeling that would be okay if I did that, except that I have a life that I love. Even the philanthropic work worried me a little bit about getting into that so deeply that I’d lose track of where my music was going. Luckily that hasn’t happened, but that would be my concern is that I’d get thrown off my own personal track, frankly.
DUBNER: Tell me what you know, or what you think about the succession plans at Berkshire Hathaway.
BUFFETT: I don’t know really anything. What I think is that we’ll start to hear more because he doesn’t want to have the company in any sort of limbo or question mark. So I know when he feels it’s right he’ll make announcements that put people at ease for sure. He’s incredibly healthy, especially for his diet. It’s phenomenal. So, he’s not going anywhere anytime soon. He wants to be buried with an Ouija board so he can keep working afterwards. He’s going to do everything he can to stay current and engaged. And my brother will make sure that there’s a consistent overall value system still at work.
DUBNER: Any indication yet of what shareholders think of your brother’s succession as chairman?
BUFFETT: No, I have no idea. And it will be interesting of course to see what happens with the stock immediately after my dad’s death, because people will, you know, assume something massive has changed. And of course in some ways it has, but I kind of liken it to the death of John Lennon. I mean, here’s a guy where he passed away and there’s a certain aspect of what he does that’s no longer here, but the catalog is strong. It’s not going away. I’m still listening to Beatles songs. The underlying companies at Berkshire are strong. Those will not change. So I don’t think the value should shift at all, but people’s emotions are different.
Stay tuned for five hour-long episodes of Freakonomics Radio. They’ll be playing on finer public-radio stations this summer. You’ll hear a lot more about the ins and outs of family business, but you’ll also hear from Romanian witches, the dean of suicide studies, and a couple of prostitutes. Oh yeah, a bunch of economists as well. See you then!