Kenneth V. Chace
CEO of Berkshire Hathaway Textiles
Long-time Berkshire Hathaway manager who succeeded Seabury Stanton and later ran the textile operations.
Biography
Kenneth V. Chace was a long-time employee of Berkshire Hathaway who became the company's president in 1965 — the year Warren Buffett took control — and ran its original textile business through two decades of industry decline. When Buffett Partnership, Ltd. acquired control of Berkshire, Seabury Stanton resigned as director and president after more than fifty years of service, and Chace, a veteran of the mill organization, was elected to succeed him. Buffett later wrote that he had immediately selected Chace, a long-time employee, for the job — and that in this respect he had been 100% correct.
The assignment was unenviable. New England textiles were in structural decline, squeezed by lower-cost southern plants that were largely non-union, and most northern operations had already closed. In the nine years after the 1955 merger of Berkshire Fine Spinning and Hathaway Manufacturing, the combined company had recorded aggregate sales of $530 million and an aggregate loss of $10 million. Chace could not fix the industry. What he could do — and did — was manage with discipline: cutting overhead, shrinking inventories, paying down bank loans, selling off unprofitable plants, and pulling capital out of a business that could not earn an adequate return on it.
That discipline mattered far beyond the mills. In early 1967, cash generated and released by the textile operation funded Berkshire's purchase of National Indemnity Company, the acquisition that began the company's transformation into an insurance enterprise. Buffett said explicitly in the 1977 letter that Chace's efforts after the 1965 change in control generated the capital needed to finance the acquisition and expansion of the profitable insurance operation.
Chace eventually handed the textile presidency to his successor, Garry Morrison, but remained a Berkshire director for decades. In 1990, at 75 and living in Maine, he decided not to stand for reelection — Berkshire has no mandatory retirement age for directors, but Chace simply chose to cut back his activities.
Key Stories
The Insider Who Got the Job (1965) — When Buffett took control of Berkshire, he did not import a turnaround team. He promoted from within, choosing a man who knew the mills, the people, and the product. The 1965 partnership letter reported the situation with evident satisfaction: the remaining units had excellent management personnel, and not a single man had to be brought in from the outside. Chace, running the business in what Buffett called a first-class manner, was the centerpiece of that judgment.
Swimming Against a Strong Tide (1970–1971) — The late 1960s pickup faded, and by 1970 sales in menswear linings and home fabrics were declining significantly. Chace's organization was forced to curtail production repeatedly to keep inventories from mounting — costly for the company and disruptive for employees. Buffett's 1970 letter made a point he would repeat for years: the effort, attitude and enterprise of Chace's people were every bit the equal of those in Berkshire's far more profitable businesses. They were simply swimming against a strong tide.
Building the Sales Organization (1972) — When the industry finally picked up in 1972, Berkshire was positioned to benefit. Chace and Ralph Rigby had spent the lean years building an outstanding sales organization with a growing reputation for service and reliability, and had restructured manufacturing to complement those sales strengths. The payoff was real but modest — better profitability, Buffett cautioned, though not of a dramatic nature.
Candor in a Bad Year (1976) — The 1975 purchase of Waumbec Mills in Manchester, New Hampshire, was meant to extend Berkshire's textile scale without heavy investment in new fixed assets. Instead, 1976 brought disappointment: marketing efforts and mill capabilities were not properly matched in the new operation, and machinery and personnel had been misjudged. Buffett reported the failure and, in the same breath, praised the man who told him about it — Chace, as always, was candid in reporting problems and diligent in correcting them.
The Capital That Bought an Insurance Company — The deepest story in Chace's tenure is financial rather than operational. Textiles never became a good earner, not even in cyclical upturns. But by reducing investment in inventories, receivables, and fixed assets, Chace's management released cash from a dying business — cash that bought National Indemnity in 1967 and seeded everything Berkshire's insurance operation became.
Impact on Berkshire
Chace's impact on Berkshire is a study in the difference between a good manager and a good business. He was, by Buffett's repeated testimony, an excellent manager — every bit the equal of the managers running Berkshire's profitable operations. Yet the business he ran could not reward that excellence. The lesson Buffett drew from the textile episode, retold most fully in the 1985 letter when the mills were finally closed, became one of the foundational convictions of Berkshire's acquisition philosophy: when a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.
More concretely, Chace financed the pivot. The working capital he wrung out of the textile operation was the seed money for National Indemnity, and National Indemnity was the seed of the insurance float engine that powers Berkshire to this day. Buffett's capital-allocation genius needed capital to allocate; Chace's cost discipline supplied an early and critical stream of it.
Chace also set a template for the kind of operating manager Buffett would seek for the rest of his career: candid in reporting problems, diligent in correcting them, energetic without being extravagant, and able to run a business without capital injections from Omaha. The praise Buffett lavished on Chace in hard years — he is a pleasure to work with, even under difficult operating conditions — reads like the job description for every Berkshire subsidiary manager who followed.
Key Passages from Buffett's Letters
Berkshire is a delight to own. There is no question that the state of the textile industry is the dominant factor in determining the earning power of the business, but we are most fortunate to have Ken Chace running the business in a first-class manner, and we also have several of the best sales people in the business heading up this end of their respective divisions.
Led by Ken Chace, the effort, attitude and enterprise manifested by management and labor in this operation have been every bit the equal of their counterparts in our much more profitable businesses. But in the past year they have been swimming against a strong tide and, at this writing, that situation still prevails.
In recent years, Ken Chace and Ralph Rigby have developed an outstanding sales organization enjoying a growing reputation for service and reliability. Manufacturing capabilities have been restructured to complement our sales strengths.
Ken Chace, as always, has been candid in reporting problems and has worked diligently to correct them. He is a pleasure to work with -- even under difficult operating conditions.
Management also has been energetic and straightforward in its approach to our textile problems. In particular, Ken Chace’s efforts after the change in corporate control took place in 1965 generated capital from the textile division needed to finance the acquisition and expansion of our profitable insurance operation.
In this respect we were 100% correct: Ken and his recent successor, Garry Morrison, have been excellent managers, every bit the equal of managers at our more profitable businesses.
Ken Chace has decided not to stand for reelection as a director at our upcoming annual meeting. We have no mandatory retirement age for directors at Berkshire (and won't!), but Ken, at 75 and living in Maine, simply decided to cut back his activities.