Warren Buffet believes “non-professional” directors are best

The annual letter from Berkshire Hathaway chairman, Warren Buffet, to shareholders is always an interesting read, and the recently released Annual Report is no exception.

While there are some differences between the US and Australian markets particularly around the role of the CEO who is often the Chairman, Mr Buffet’s observations resonate nonetheless.

  • Board independence – why is it that in these times of high director compensation that directors who are reliant on their retainer fees are considered independent while directors whose own fortunes are ‘substantially linked to the welfare of the corporation are deemed lacking in independence’.
  • Non-Wealthy Directors (NWD) reliant on the fee income and seeking multiple board appointments will be more likely to be cocker spaniels rather than pit bulls. ‘It’s the cocker spaniel that gets taken home’.
  • Audit committees ‘remain no match for managers who wish to game numbers’.
  • CEO recruitment – finding and retaining a talented CEO remains the ‘bedrock challenge for directors’.

Interestingly, for a company where the Chairman has 99% of his net worth held in Berkshire stock, Warren Buffet as the third richest individual in the US (Forbes 2019 list) has never sold stock and has no plans to do so, and has instructed his executors over a twelve to fifteen year period to distribute stock to various foundations confident that they will remain a good investment.

Mr Buffet’s letter to shareholders can be found HERE .

© Guerdon Associates 2023
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