Here’s some must-reading for the week (or weekend). Berkshire-Hathaway’s annual report includes Warren Buffett’s 23-page letter to investors. Buffet writes in plain English about his very complex buiness and describes strategy, management fundamentals and market dynamics in a way that a 12-year-old can understand. A pretty good job for a company that made $16.9 billion and returned 18.2 percent on his per-share book value. In fact, Buffett claims his company set a “record for a one-year gain in net worth — more than has ever been booked by any American business …”

Here are a few tidbits I took away from this:

• Buffett on his role as a leader: He quotes Ronald Reagan: “It’s probably true that hard work never killed anyone, but why take the chance?”
• “My only tasks are to (1) cheer them on, (2) sculpt and harden our corporate culture, and (3) make major capital-allocation decisions. Our managers have returned that trust by working hard and effectively. “
• Buffett on their 2006 financial sucess, led by results from their insurance subsidiary GEICO: Productivity driven by internal operations efficiencies and reinvesting in marketing and sales to drive revenue growth. The results are remarkable. Buffet writes, “Between 2003 and year-end 2006, the number of GEICO policies increased from 5.7 million to 8.1 million, a jump of 42 percent. Yet during that same period, the company’s employees fell 3.5 percent. So productivity grew 47 percent. And GEICO didn’t start fat.”
• Buffett’s four criteria for directors: “We were guided by our long-standing criteria, which are that board members be (1) owner-oriented, (2) business savvy, (3) interested and (4) truly independent.”
• One final thought: Transparency and plain English management discussion:  Buffett’s plain English approach to informing his stockholders is refreshing. He also does a great job articulating the business strategy and market dynamics, making the business understandable — a great service to investors. Our profession is working to encourage just this kind of thinking with our Enhanced Business Reporting initiative. Kudos to Mr. Buffett for trailblazing in this area. I will be writing more about this in the future.

It is well worth the read. What are you reading?