Billionaire Warren Buffett is retiring from the board of Washington Post Co., the publishing company in which his Berkshire Hathaway Inc. is the largest shareholder.

Buffett, who joined the board in 1974, will remain a director until the end of his term in May and won’t seek re- election, Washington Post said today in a statement distributed by Business Wire. He’ll continue to consult with the company.

“I will always be available to help management in any way they request,” Buffett said in the statement.

Buffett, 80, is preparing Omaha, Nebraska-based Berkshire for his eventual departure. Last year, the company announced the addition of money manager Todd Combs to help oversee investments. Buffett stepped down from the board of Coca-Cola Co. in 2006, and the soft-drink maker said in December that his son Howard Buffett was becoming a director.

“He’s making the steps for the transition at Berkshire, and that’s going to take more of his time,” said Paul Howard, director of research at Solstice Investment Research in Glastonbury, Connecticut. “It’s logical for him to be more worried about that than going on to his 37th year on the Washington Post board.”

Washington Post gained $2.61 to $426 at 1:44 p.m. in New York Stock Exchange composite trading. Berkshire was little changed.

Buffett’s Firm

Buffett, Berkshire’s chairman, chief executive officer and biggest shareholder, built the company over four decades. He launched a succession plan in 2006. Buffett oversees more than 70 operating units and an investment portfolio that contains the biggest stakes in Wells Fargo & Co. and Atlanta-based Coca-Cola.

Melinda French Gates, who runs the Bill & Melinda Gates Foundation with her husband, Microsoft Corp.’s co-founder, stepped down from Washington Post’s board in November.

The Washington Post newspaper’s average weekday readership was 545,345 in the six months through September, down 6.4 percent from a year earlier, according to Audit Bureau of Circulations data. That compares with a 5 percent drop industrywide.

To contact the reporter on this story: Andrew Frye in New York at afrye@bloomberg.net

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net

Buffett's Crazy Comments Show Why He's Successful

By Morgan Housel | More Articles
January 25, 2011 | Comments (22)

After announcing last week that he wouldn't seek re-election as a board member of the Washington Post (NYSE: WPO), Warren Buffett made it clear that Berkshire Hathaway (NYSE: BRK-B) isn't abandoning its longtime investment in the company. "We're going to keep every share of stock we have," he said. "I would never sell a share of the Post."

Never?

What's interesting about his comment is that the newspaper industry isn't protected by an enduring moat like, say, Coca-Cola (NYSE: KO) is. It's a dying business with little hope of turning around. How do I know? Buffett said so himself two years ago:

Twenty to 40 years ago, [newspapers] were essential to customers and advertisers. They had pricing power, but [it] essentiality has eroded. Erosion accelerated dramatically, and it won't end based on anything on the horizon. We do not see anything to reverse it. They are essential to advertisers only as long as they're essential to readers. Ten years ago, the head of The Buffalo News said that on an economic basis, Berkshire should sell The Buffalo News. We could have sold the business for hundreds of millions. Not so today.

He then gave his stance on selling newspaper investments: "As long as we're not losing money forever and there are no union problems, we won't sell. ... We'll play it out as long as we can."

To be fair to the Post, a decade of diversification has turned it into more than a newspaper. For-profit education and cable TV now make up substantially all of its operating profit. This, though, doesn't exactly turn the company into a durable franchise. If there are two industries whose futures look as scary as newspapers, it's for-profit education and cable TV.

So why, then, does Buffett hold a till-death-do-us-part attitude? I think his comment underlines a key reason Berkshire has been so successful. To a certain extent, Berkshire will stick with lousy investments because it has made a commitment to the company, its managers, and its employees.

Consider what Buffett once said about why businesses should sell to Berkshire instead of Wall Street:

You can sell it to Berkshire, and we'll put it in the Metropolitan Museum; it'll have a wing all by itself; it'll be there forever. Or you can sell it to some porn shop operator, and he'll take the painting and he'll make the boobs a little bigger and he'll stick it up in the window, and some other guy will come along in a raincoat, and he'll buy it.

Or this line, when a reporter asked Buffett why businesses looking to sell should come to him first: "If they care about the business and how the people are treated afterwards, Berkshire will be the best option."

That attitude is why Berkshire has been able to buy so many grade-A businesses at favorable terms. Businesses come to him. They want Berkshire to buy them because they know Buffett will respect the company and stick with the investment even when it languishes.

Let's go back to the Washington Post. When Berkshire began buying Post stock in 1973, nerves began rattling after the late Chairwoman Katharine Graham feared Buffett was attempting to gain control over the company her family built. "He's going to take over the Washington Post," she worried to friends, according to Buffett's biography The Snowball.

Buffett knew how worried Graham was. "When I first met with Kay, she was wary and scared. She was terrified by me. ... I could see that even though she had all the A [voting] stock, she was afraid of me. I mean, they had spent their whole life dreaming up and putting defenses around the stock."

He then reassured her in writing:

I also know that it is so important to you in this world that you're going to worry about it no matter what you've got. It's your whole life. I'm telling you that even though these teeth look like Little Red Riding Hood's wolf fangs, they really are baby teeth. ... I'll never buy another share of stock unless you're OK with it.

Snowball author Alice Schroeder continues: "That afternoon, Buffett -- who had spent $10,627,605 to buy twelve percent of the company -- signed an agreement with Graham not to buy any more of the Post stock without her permission."

Graham could have pursued any number of poison-pill actions to prevent Berkshire from making a significant investment in the Post. Instead, Buffett's don't-worry, I'm-not-here-to-harm-you attitude made him allies with Graham and the company's board.

The result: While the Post's future might look dim today, the investment is still a 63-bagger for Berkshire, not including dividends. In percentage terms, it might be Berkshire's best investment ever. And it may have never materialized without Buffett convincing the Post that he was a good guy.

When I first heard Buffett's comments about vowing to never sell a share of a dying company, I thought maybe he was losing it. Maybe his sentimental values were too strong. Maybe his technophobia put him in denial of newspapers' demise. But whenever I find myself second-guessing a great investor like Buffett, I stop and say, Look, there's a reason he's a billionaire and you're not.

As I thought about it more, it became clearer: Buffett's rich because he thinks about businesses as businesses -- commitments backed by people he trusts, and people who trust him -- not as tradable shares that can be bought or sold with abandon. That, more than anything, is what's made him so successful.

Check back every Tuesday and Friday for Morgan Housel's columns on finance and economics.