H.H. Brown Shoe Company

Origin of Relationship

H.H. Brown was purchased by Ray Heffernan in 1927 for $10,000. Under Heffernan's 62-year stewardship, the company grew into a highly profitable work boot manufacturer. After Heffernan died in late 1990, his family decided to sell the company, hiring an investment bank. However, the transaction was initiated when Frank Rooney (Heffernan's son-in-law and the new CEO) played golf with John Loomis, a friend of Warren Buffett and a Berkshire shareholder. Loomis pointed out that H.H. Brown was a perfect fit for Berkshire. Rooney called Buffett, and a deal was struck rapidly in mid-1991.

Major Milestones

• 1927: Ray Heffernan buys H.H. Brown for $10,000.
• 1990: Heffernan passes away, and Frank Rooney (former legendary CEO of Melville Corp) takes over as CEO.
• 1991: Berkshire acquires H.H. Brown for cash, retaining Frank Rooney as CEO.
• 1993: Under Rooney, H.H. Brown acquires Lowell Shoe and coordinates the acquisition/merger of Dexter Shoe Co.
• 1995: Jim Issler succeeds Rooney as head of shoe operations.

Strategic Importance

H.H. Brown serves as a key case study in two areas:

1. The Capital Charge Compensation Model: Key managers at H.H. Brown are paid a minimal base salary ($7,800) plus a share of profits only after deducting a charge for the capital employed. This aligns management incentives perfectly with shareholders, treating capital as a costly resource rather than a free asset.
2. Niche Leadership in a Commodity Industry: Despite the shoe industry being decimated by cheap imports (85% of US shoes were imported by 1991), H.H. Brown maintained excellent margins and returns on capital by focusing on specialized niches (work boots, western boots, comfort footwear) and maintaining outstanding operating discipline.

🔗 Connections

• People: Frank Rooney, Ray Heffernan, Jim Issler, John Loomis
• Entities: Dexter Shoe Co, Melville Corp
• Sources: 1991 Letter, 1993 Letter, 1994 Letter, 1995 Letter