Governance Buffett Style
The Harvard Law School Forum on Corporate Governance and Financial Regulation 2013-03-29
In Warren Buffett’s model of corporate governance, managers are stewards of shareholder capital. The best managers think like owners in making business decisions. They have shareholder interests at heart. But even first-rate managers will sometimes have interests that conflict with those of shareholders. How to ease those conflicts and to nurture managerial stewardship have been constant objectives of Buffett’s long career and a prominent theme of his shareholder letters that I began collecting two decades into the stand-alone book, The Essays of Warren Buffett: Lessons for Corporate America, the third edition of which was released in March 2013.
The essays address some of the most important governance problems. The first is the importance of forthrightness and candor in communications by managers to shareholders. Buffett tells it like it is, or at least as he sees it, and laments that he is in the minority. Berkshire’s annual report is not glossy; Buffett prepares its contents using words and numbers people of average intelligence can understand; and all investors get the same information at the same time. Buffett and Berkshire avoid making predictions, a bad managerial habit that too often leads other managers to make up their financial reports.