Asa Candler vs. Warren Buffett

I recently visited a library to review the media treatment that Asa Candler received in Atlanta, Georgia during his heyday of running the Coca-Cola Company. I started by looking at articles in The Atlanta Journal (n/k/a the Atlanta Journal-Constitution) in the 1920s, and after encountering my surprise at finding news stories penned by Margaret Mitchell of “Gone With The Wind” fame, I was able to do cross-reference many of the citations from Google Books that alluded to Asa Candler’s treatment in the Atlanta media when he would enforce contract rights against some of Coca-Cola’s bottlers and other supplies.

As many of you know, Asa Candler made the decision to purchase the entirety of The Coca-Cola Company between 1888 and 1891 for between $2,300 and $2,500 (the reason why sources differ on the amount is because Candler sold $200 worth of retail inventory to buy out one of the early investors). The moneymaker for the business was, and continues to be, the creation of the syrup. The bottling has always been outsourced via various contracts with distributors.

When Candler would provide Atlanta drug stores with advances of Coca-Cola, sometimes giving small operators 180 days to pay, he would require the receipt of a secured interest as a condition for the delayed payment. In other words, if the drug-store couldn’t pay its bill for six months of Coca-Cola sold, Candler had a right to foreclose on the fixtures, inventory, bank accounts, or even second mortgage on the property, depending upon the terms of the contract.

When it was clear that Coca-Cola wasn’t going to get paid, Candler took legal action on behalf of the company to enforce the rights in the collateral. Normally, a business will delegate this tasks to lawyers in conjunction with an underling business representative. In fact, in all states today, the requirement to bring a suit on behalf a company requires hiring a lawyer to file suit.

But in early 1900s Atlanta, the statutory law permitted controlling owners of corporations to bring suit by themselves. And Candler chose to exercise this right himself, taking an unusual personal interest in collection of meager debts in the thousand-dollar range even as his fortune ballooned into the millions and he was making donations in that same range.

And yet, when the Atlanta Journal reported on Candler’s behavior, they regarded him as a penny-pinching millionaire for making court appearances. One front-page article called him “A Gimcrack Coke Miser.” It was an unfair depiction of a man who was quite charitable in his personal life, provided drug stores a favor by allowing them up to six months to pay their Coca-Cola bills at a time when the commercial standard was monthly payment, and in the case of well-established relationships, quarterly payment terms. But the image of a wealthy man seeking payment from the corner clerk created a distorted reality that led to unfair criticism.

It is an interesting with the public image of Warren Buffett, who now owns 10% of the company that Asa Candler once owned in full. Berkshire has risen to untold heights by entering into insurance contracts that enabled Berkshire to turn an insurance profit over fifty years and make intelligent investments with that surplus.

But Buffett’s track record involves the same thing as Candler’s—enforcing contracts. Buffett outsources catastrophic reinsurance risk calculations to Ajit Jain, and most of the policies contain a maximum liability provision. If Berkshire reinsures for $800 million in maximum and $1.2 billion in damages result from an event, there is not going to be an additional $400 million forthcoming from Berkshire. This same holds true, with much smaller sums, regarding auto policies taken out with GEICO. On prior occasions, Buffett has explained the basis for doing this, saying something to the effect of, “If the insured wanted a higher amount of coverage, they would have to pay a higher premium.” I suspect, if Candler were alive to discuss his rationale, he would provide a similar comment.

The disparate treatment is a fascinating insight into human nature in that it reveals using intermediaries to enforce rights actually does affect how outside observers process their opinions of the one directing the action. My view is that performing unpleasant tasks, rather than delegating them to others, is commendable behavior, but it is clearly not the consensus view.