2019: Independent directors aren't necessarily independent.
WARREN BUFFETT: I’d like to point out one thing on independent directors. I mean, I have been on 20 public company corporate boards, not counting any Berkshire subsidiaries. So, I’ve seen a lot of corporate boards operate. And the independent directors, in many cases, are the least independent.
I mean, if the income you receive as a corporate director — which typically may be around $250,000 a year — now, if that’s an important part of your income, and you hope that some other corporation calls the CEO and says, “How’s so-and-so as a director?” and the current CEO — your CEO — says, “Oh, he’s fine and never raises any problems,” and then you get on another board at 250,000 and that’s an important part, how in the world is that independent? I mean, I really, just an observation. (Applause)
I can’t recall, particularly, any independent director — where their income from the board was important to them — I can’t recall them ever doing anything in board meetings or committee meetings that actually was counter to the interest — you know, they put them on the comp committee.
They’re just not going to upset the apple cart, because what they’re — and I’d probably behave the same way in the same position. I mean, if $250,000 a year is important to you, why in the hell would you behave in a way that’s going to cause your CEO to say to the next CEO, “This guy acts up a little bit too much. You really better get somebody else.” It’s the way it works. But they’ve —
CHARLIE MUNGER: I think it works a little worse than Warren’s telling you. (Laughter)
WARREN BUFFETT: Yeah, Charlie and I —
CHARLIE MUNGER: It’s really awful.
WARREN BUFFETT: It’s awful. I mean, we —
CHARLIE MUNGER: And not only that, Warren and I are — we occupy the niche for pomposity very well ourselves. We don’t need any more of it. (Laughter)
WARREN BUFFETT: Charlie and I were on one board. Well, I was on one board, actually, a long time ago where we owned a very significant percentage of the company. And the rest of the board was almost exclusively customers of the company. But not owners. They had absolutely token holdings. And at one point we were looking at something where a tax decision was being made in terms of the distribution of some securities.
And it was a lot of money that was involved. And one of the other directors said, “Well, let’s just swallow the tax.” Well, his swallowing amounted to about $15 or something — (Laughs)
I said, “Let’s parse this sentence out. Let’s swallow the tax. That’s let us swallow the tax. So, who wants to swallow an equal amount, you know, to me?”
It’s — you know, it’s — you don’t get invited to be on boards if you belch too often at the dinner table —
CHARLIE MUNGER: Well, at Blue Chip Stamps we had a director who said, “I don’t see why you guys get to be so important just because you own all the shares.”
WARREN BUFFETT: Yeah. (Laughter)
Charlie and I used to have to cool off after the Blue Chip Stamps meetings, because we and Rick Garrett owned what percent, probably?
CHARLIE MUNGER: Oh, 50 percent.
WARREN BUFFETT: Yeah, 50 percent, and they’d appointed all these —
CHARLIE MUNGER: They were all members of the Rotary Club.
WARREN BUFFETT: It came out of a government settlement or something. And it was not an ideal form of decision making. And they just had a different calculus in their mind than we did. And I can understand it, but I’m not going to replicate it. (Laughs)