Buffett used most of his letter, released Saturday, to reiterate the business basics that have made his company a juggernaut. But it did include a section about how corporations should manage risk. Buffett said CEOs and the boards that hired them should pay a steep price if their companies get into trouble with risky investments.
Buffett lamented that shareholders, not CEOs and directors, have borne most of the burden of company failures during the economic crisis.
He's describing what's known in academic circles as the agency problem. Agency problems are now a permanent fixture of corporate governance because a hereditary class of perpetual Peter Principle executives has captured boards of directors. Why do people join boards anyway? Ostensibly they should enjoy working for shareholders and helping CEOs fix problems. I suspect they just want the prestige value of board membership for networking and resume padding.
Grow some spine, board members. Put me on a board and watch sparks fly as I insult some Harvard MBA CEO for buying a private jet. Then watch me get voted off the board for making waves. Wheeee! Business is fun.
