Buffett’s Favorite Manager

In reading through Warren Buffett’s letter to Berkshire shareholders from 1985, he makes the bold claim that “ [the management of Capital Cities] is the best of any publicly-owned company in the country.” In Buffett’s mind are Tom Murphy and Dan Burke, and in Murphy’s case, he presided over Capital Cities’ growth from one television station to a $20 billion dollar company that ultimately merged with Disney in 1995. By Murphy’s estimation, his tenure returned $10000 to owners for every $1 originally invested; can one even imagine a 10,000 bagger today?

In 2000, Tom Murphy sat down with a Director of Media Development at Harvard Business School for this interview. Describing his start as slipping into “a little crapshoot up in Albany, New York,” largely thanks to a story told by Murphy’s father, Murphy came under the wing of an excellent mentor Frank Smith. After some initial struggles and some capital shortfalls, Capital Cities went on an almost unprecedented acquisition spree, ultimately taking it afield, into newspapers, cable, and radio.

If today’s investor is looking for the next Tom Murphy, what attributes should he seek? For one, Murphy encouraged and sustained a “barebones culture,” as CapCities’ early years provided meager capital. To keep operations “tight,” Murphy hired the smartest and most diligent he could find, not necessarily those with the most experience. And he gave his chosen few plenty of responsibility, so that he never had any more employees than necessary.

From the beginning, Murphy “always ran the company, for better or for worse, as if [he] owned 100 percent of it.” And the principle ran deep, as “we really thought about our stockholders. We ran the company to do the best job for our stockholders. We never ran it to get big. We ran it, if we could, to get our stockholders rich.”

Looking back though, Murphy attributes the majority of his success to being well placed at the beginning stages of a great and growing industry. As he notes, “there’s no substitute for being in good businesses, and there are not many of them. If you go into business, the most important thing is to do something you like. That’s the most important thing, but it’s even better if you can do that and pick a business that really has a future… Today, the cable business is a pretty good business. It’s probably better than the broadcast industry, although the broadcasting business has been pretty good in the past several decades too.”

Simple principles, to be sure, but difficult to argue with his results.