Corporate Expense Accounts-"A New Normal?"

In yesterday's New York Times, Joe Sharkey reports on Vince Vitti's book, Travelogy: Managing Travel Thru the Great Recession, "intended, Mr. Vitti says, for senior executives, chief financial officers who need to exercise far greater control and get more personally involved in expense account monitoring.....All the C.F.O. has to do is hang one or two people for expense account padding. Then everybody will straighten out, at least for a couple of years." ________________________________________

Joe Sharkey, Paying Closer Attention to Expense Accounts, New York Times, October 27, 2009

Warren Buffett's frugality and strict corporate cost controls are legendary, beginning 31 years ago.

"....our after-tax overhead costs are under 1% of our reported operating earnings and less than 1/2 of 1% of our look-through earnings. We have no legal, personnel, public relations, investor relations, or strategic planning departments. In turn this means we don't need support personnel such as guards, drivers, messengers, etc. Finally, except for Verne, we employ no consultants. Professor Parkinson would like our operation - though Charlie, I must say, still finds it outrageously fat.

At some companies, corporate expense runs 10% or more of operating earnings. The tithing that operations thus makes to headquarters not only hurts earnings, but more importantly slashes capital values. If the business that spends 10% on headquarters' costs achieves earnings at its operating levels identical to those achieved by the business that incurs costs of only 1%, shareholders of the first enterprise suffer a 9% loss in the value of their holdings simply because of corporate overhead. Charlie and I have observed no correlation between high corporate costs and good corporate performance. In fact, we see the simpler, low-cost operation as more likely to operate effectively than its bureaucratic brethren. We're admirers of the Wal-Mart, Nucor, Dover, GEICO, Golden West Financial and Price Co. models.
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Warren Buffett, 1992 Letter to Berkshire Hathaway Shareholders

"We cherish cost-consciousness at Berkshire. Our model is the widow who went to the local newspaper to place an obituary notice. Told there was a 25-cents-a-word charge, she requested "Fred Brown Died" She was then informed there was a seven-word minimum. "Okay" the bereaved woman replied, "make it "Fred Brown died, golf clubs for sale.'"
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Warren Buffett, 2002 Letter to Berkshire Hathaway Shareholders

"I can't resist one more Chandler quote: "Beginning this year about March 1st...we employed ten traveling salesmen by means of which, with systematic correspondence from the office, we covered almost the territory of the Union." "That's my kind of sales force."
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Warren Buffett, 1996 Letter to Berkshire Hathaway Shareholders

"Our experience has been that the manager of an already high-cost operation frequently is uncommoningly resourceful in finding new ways to add to overhead, while the manager of a tightly-run operation usually continues to find additional methods to curtail costs, even when his costs are already well below those of his competitors."
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Warren Buffett, 1978 Letter to Berkshire Hathaway Shareholders