The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success

by William N. Thorndike Jr.

Buffett’s approach to corporate governance is also unconventional, contradicting many of the dictates of the Sarbanes-Oxley legislation. Buffett believes that the best boards are composed of relatively small groups (Berkshire has twelve directors) of experienced businesspeople with large ownership stakes. (He requires that all directors have significant personal capital invested in Berkshire’s stock.) He believes directors should have exposure to the consequences of poor decisions (Berkshire does not carry insurance for its directors) and should not be reliant on the income from board fees, which are minimal at Berkshire. This approach, which leaves him with a small group of “insiders” by Sarbanes-Oxley standards, provides a stark contrast with most public company boards, whose members rarely have meaningful personal capital invested alongside shareholders, whose downsides are limited by insurance, and whose fees often represent a high percentage of their total income. Which approach leads to better alignment with shareholders?