Here is an excerpt from our book, Intelligent Fanatics: Standing on the Shoulders of Giants. Members can access the book [Here].
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Mentor Machine: Peter Kiewit
Peter Kiewit Sons’, Inc.
“If you set out to replicate the Kiewit company, you could put as much capital into the business as it has. You could move into corporate quarters that rival Kiewit’s. You could even buy all its equipment and replicate its organizational structure. But, you would not be able to build a culture like Kiewit’s. That culture is the result of the vision of an extraordinary man, carried on and moved forward by extraordinary people. You could canvass the world, recruiting the top picks from Stanford, Harvard—you name it—and you would never replicate the magic and success that is the culture of the Kiewit company.”
—Warren Buffett, on Kiewit: An Uncommon Company
“The three best operating companies I’m aware of are Costco, Kiewit, and Glenair. There is nothing remarkable about the product or field for any of these three. But there is something remarkable about the culture of all three.”
—Charlie Munger, in a talk to Capital Group executives
In 1951, Warren Buffett received his graduate degree from Columbia University, where he studied under Benjamin Graham. After graduation, he worked at Buffett-Falk & Company until 1954. At the time, Buffett-Falk was located on the fourth floor of the Omaha National Bank Building, suite 445. In that same building, on the tenth floor, was an intelligent fanatic named Peter Kiewit. Peter grew his family’s business from the twelfth-largest contractor in Omaha to one of the largest and most respected in the entire United States.
Buffett would learn as much from Peter Kiewit and his successor, Walter Scott Jr., as he did from Benjamin Graham. Peter Kiewit also made an indelible mark on Omaha. Most people outside of Omaha are not familiar with Peter Kiewit or the outstanding company he led—Peter Kiewit Sons’, Inc. (PKS).
By the 1950s, Peter Kiewit was a legend in Omaha, having constructed dozens of buildings throughout the city. Young Buffett, fresh out of Dale Carnegie’s course on public speaking, took it upon himself to reach out and meet Peter Kiewit. They met in 1952, and Buffett was surprised at how nice Kiewit was, for a man of his notoriety and stature.
From that one meeting in 1952, Warren would go onto emulate Peter in terms of character, business building, and giving. Buffett says, “It’s better to hang out with people better than you. Pick out associates whose behavior is better than yours and you’ll drift in that direction,” True to this, Buffett eventually chose to partner with Kiewit, the business, on a few deals and to locate Berkshire Hathaway only a few floors away from PKS, known today as Kiewit Corporation, in Kiewit Plaza.
The connections between Berkshire Hathaway and PKS have been strong over the decades. Walter Scott Jr., who became president of PKS after Peter Kiewit’s passing, had been a childhood friend of Warren. Scott has been a long-term director on Berkshire Hathaway’s board. When Warren was contemplating getting a corporate jet for Berkshire, in the late 1980s, he knew Peter Kiewit had successfully utilized multiple private aircraft to move himself and employees to remote construction sites. He asked Walter Scott his opinion: “Walter, how do you justify buying a private airplane?” Walter replied, “Warren, you don’t justify it. You rationalize it.” Buffett would later state, after purchasing the $6.8 million Indefensible in 1989, that the jet was one of his few “guilty pleasures.” He rationalized the benefit of saving his time in traveling for Berkshire Hathaway.
Berkshire Hathaway also has had multiple business transactions directly or indirectly with PKS. Take, for instance, MidAmerican Energy Company. MidAmerican Energy’s predecessor, CalEnergy Company, was a majority-owned stake of PKS before Berkshire Hathaway acquired it in 2000. Additionally, again with the help of Walter Scott Jr., Warren Buffett honored Peter Kiewit’s wish to keep the Omaha newspaper the World-Herald locally owned. Peter Kiewit’s company had purchased the newspaper in 1962, for $40.48 million, with only sixteen days’ notice. The business was almost acquired by Samuel I. Newhouse’s New York City newspaper franchise. Residents and employees were furious that a nonlocal entity could be the owner. Kiewit said, “I figure anything as important to a city as its newspaper will be a good, sound investment.”
With mounting debt, the World-Herald needed an opportunity to address its long-term capital needs while maintaining local ownership. Warren Buffett stepped up in 2011, as Peter had forty-nine years earlier, and through Berkshire Hathaway acquired the World-Herald for $150 million. Like Kiewit, Buffett saw the World-Herald as a sound investment, different than most newspapers in the United States, which he would not own “at any price.” He said in the press release that this newspaper “delivers solid profits and is one of the best-run newspapers in America.”
Upon Peter’s death, Warren also shared his view of Peter’s giving. He said, “Peter Kiewit made major deposits in society’s bank . . . but his withdrawals have been few.” Peter Kiewit gave generously while he was alive, and the majority of his net worth upon his death. With the help of the Gates Foundation, Buffett will closely follow Kiewit’s major deposits in society’s bank, with minimal withdrawals.
Peter Kiewit operated in a difficult industry. BizMiner, an industry analysis provider, estimated that from 2004 to 2006 the failure rate for various contracting firms in the United States was 23.6%. Developers and governments are highly price sensitive. Contractors bid for projects with no knowledge of their competitor’s bids. Winning really comes down to price, and there are numerous factors outside the control of the owner.
So how was it that, in the depths of the Depression—1931 to be exact—Peter Kiewit persevered and grew his father’s business from $400,000 in annual revenues to a $7 billion, nationally recognized contracting firm upon his death in 1979? And how does the company maintain dominance in the United States even to this day?
We will highlight Peter Kiewit’s story and how he did it. Not surprisingly, he and PKS fit the intelligent fanatic mold. We also will juxtapose PKS with two other contracting firms that did not utilize the same strategies Peter Kiewit built and did not achieve the same sustained success.
You can read Peter Kiewit’s story in our book, Intelligent Fanatics: Standing on the Shoulders of Giants.
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