Feb 1st, 2007 by Martin Lee
At Berkshire, after-tax overhead costs are under 1% of their reported operating earnings and less than 0.5% on their look-through earnings. They have no legal, personnel, public relations, investor relations or strategic planning departments. And no need of support personnel such as guards, drivers and messengers.
Some companies spend up to 10% (or even more) of their operating earnings on corporate expenses. Warren Buffett observes no correlation between high corporate costs and good corporate performance.
In actual fact, he feels that the simpler and lower operation is more likely to operate effectively than one saddled with bureauracy.
If the operating earnings of two companies are similar but one spends 10% on corporate costs while the other spends only 1%, then shareholders of the first business lose 9% in the value of their holdings due to this corporate overheads.