From the editor

From the editor

Warren Buffet, the plainspoken CEO-billionaire of Berkshire Hathaway, advocates a fairly simple way of insuring that corporate board members truly represent shareholder interests.

Inadvertently, he may have also come up with a way to solve the crisis in D&O insurance.

His solution: companies ought not to pay for D&O insurance for board members. In effect, Buffet said, let directors go without insurance at all.

Buffett, in his annual letter to shareholders of Berkshire Hathaway, says that directors’ fees often represent a good chunk of a board member’s annual income. That makes them less likely to criticize the CEO or oppose decisions that management supports.

He wrote, “a director whose moderate income is heavily dependent on directors’ fees … is highly unlikely to offend a CEO or fellow directors.”

At Berkshire, Buffet, says directors’ fees are a “pittance.”

In addition, because Buffett thinks that directors should not be insulated from corporate disasters, “we don’t provide them with officers’ and directors’ liability insurance.”

Buffett wants directors’ decisions to be driven by the effect those decisions may have on their families’ net worth.

Maybe if directors forgo D&O insurance, they would have stronger incentives to keep corporate disasters under control–if only to protect their own financial wellbeing. D&O insurance, he argues, insulates the individuals from the consequences of his or her own bad decision-making.

Besides, as Buffett also notes, his no-D&O-insurance policy has saved Berkshire Hathaway millions of dollars over the years.

Buffett, in this case, speaks with some authority, not only as the CEO of a top U.S. company but as an insurance executive. Berkshire owns General Re and GEICO and has substantial property/casualty lines.

Jack Roberts


COPYRIGHT 2003 Axon Group

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