In a recent Forbes article entitled Warren Buffett, And His Board, May be Too Old to Run Berkshire Hathaway, Francine McKenna makes the case for both greater vigilance by Berkshire investors (including the author) and a different concept of corporate governance.
Ms. McKenna may well be right as to her ultimate conclusion, although Berkshire’s performance over time should give us pause as to whether directors have ‘lost it’. However, her argument that regulators should be involved in this determination illustrates what is wrong with current governance theory. She invokes Prof. Larcker’s treatise on governance as a point of reference as to whether board members are ‘too busy’, discusses the process by which key decisions are made – e.g. the recent $5 billion investment in Bank of America supposedly made by Mr. Buffett while bathing – and discusses at length the ages of board members. Yet none of this has anything to do with the quality of the decision-making or any external exposure which should concern regulators.
One can justifiably argue against (as well as for) the BofA transaction, but the ages of decision-makers and the venue for the decision have nothing to do with its quality. Essentially the same decision-makers were involved in the decision to acquire all of Burlington Northern Railroad, which has thus far been a huge success for Berkshire. Ditto for the 2008 investments in Goldman Sachs preferred stock, which not only paid off handsomely for Berkshire, but also played a role in stabilizing the economy. Are we to believe that 2-3 years have taken a major toll on the competence of the board?
Even assuming that there is some reason for such a belief, is there any reason Continue Reading →
