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Berkshire Hathaway hails its success, assails business world's bad actors

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Berkshire Hathaway hails its success, assails business world's bad actors

Adam Cancryn is a seniorreporter with S&P Global Market Intelligence. The views and opinionsexpressed in this piece are those of the author and do not necessarilyrepresent the views of S&P Global Market Intelligence.

Theworldwide debut of BerkshireHathaway Inc.'s annual meeting featured a heavy dose of blunt talkfrom its star, Warren Buffett, who sought to pitch his company as thecommon-sense alternative in an increasingly fraught business world.

Buffett,alongside Vice Chairman Charles Munger, touted Berkshire's culture andlong-term success and issued frank assessments of a slew of corporate badactors, in an all-day session broadcast to the public for the first time ever. Thatnew global platform played host to what were perhaps some of Buffett andMunger's sharpest remarks in years, as they singled out everything fromtroubled biotechnology companies to the hedge fund industry for heavy criticism.

Thetwo also seized on the opportunity to reintroduce Berkshire to a broaderaudience as an above-the-fray investment, an entity that differentiates itselfthrough its strong values and straightforward approach to business.

"Youhave shareholders that clearly recognized the special nature of theculture," Buffett, the 85-year-old chairman, president and CEO, saidduring the meeting. "It thrusts out people that really aren't in tune withit, and there are very few of them, and it embraces those who enjoy and appreciateit."

Inaddition to the viewers tuning in online, Buffett and Munger answered questionsin front of the roughly 40,000 people who packed into Omaha, Neb.'s CenturyLinkCenter and a network of overflow rooms around the city.

Thoseattendees did not have to wait long before the so-called Warren and CharlieShow got going in earnest. Munger responded to a question about ValeantPharmaceuticals International Inc. by calling the troubled company "a sewer" andcheering "all the opprobrium" that its executives have received fromCongress and the broader public for its controversial tactics. That was afterBuffett compared Valeant's business model to a chain letter, saying it wasdesigned specifically to fool people.

Buffetttargeted another disgraced biotech company later on, calling out Silicon Valleydarling Theranos for stocking its board with big names who nevertheless had noinvolvement in its business. Yet perhaps his harshest take was reserved for thehedge fund industry, which he addressed on two separate occasions.

"There'sbeen far, far, far more money made by people in Wall Street throughsalesmanship abilities than through investment abilities," Buffett said,deriding hedge funds for collecting hefty fees but failing to beat the broadermarket and urging people to invest in passive investments instead. "Theydo know how to sell you, and that's my message."

Earlierin the question-and-answer session, Buffett also hedge funds' use of offshorereinsurance vehicles as a "beard" for tax avoidance. Along with othertraditional reinsurers, Berkshire's reinsurance operations have suffered fromthe rash of alternative reinsurance entrants competing for business. They contributedin large part to Buffett's view that the reinsurance industry's outlook willworsen over the next decade, he has said.

Inthe midst of doling out criticism, Buffett and Munger wasted few opportunitiesto build up Berkshire as the paragon of simple and down-to-earth businesses.The company has long credited Buffett's basic and often folksy principles forits unparalleled success, and Munger during the meeting emphasized Berkshire'sfocus on operating honestly and avoiding destructive behavior.

"Idon't know anybody who's had a generally better record than Berkshire injudging business quality and the human quality," he said.

Thatposition also received a boost from its live-stream partner Yahoo Finance,which spent much of the time surrounding the Q&A session touting theconglomerate's achievements.

"Hereally brings fun and joy and real passion to what he does, and I wish therewas more of that in the business world," Yahoo Finance Editor in ChiefAndy Serwer said of Buffett.

Yahoo!Inc., which announced its livestreaming deal alongside Berkshire in February,did not receive any money from the arrangement.

Yetwhile the meeting largely celebrated Berkshire's promise, Buffett and Mungerdid have to sidestep a few thorny questions from shareholders. Buffettdismissed criticism of Berkshire's investment in The Coca-Cola Co. after aninvestor wondered whether the company should be proud of its stake in thesugary drink maker, instead calling ties between soda and obesity a"spurious" connection.

He alsowaved off a shareholder question about the diversity of Berkshire's board. Justthree of the conglomerate's 12 board members are women. But Buffett argued thatBerkshire's directors need be evaluated based on only three core qualities:business savvy, shareholder orientation and personal interest in Berkshire.

"Wefound people like that," Buffett said. "We will continue to applythat test."

Headded that seeking those three qualities have helped Berkshire assemble thebest board possible and emphasized that he hopes that the current board willremain intact for years to come. Berkshire is the rock amid an oftenunpredictable environment, Buffett and Munger stressed throughout the meeting.For better or worse, it has no intention of changing.