Board Meetings

In the Berkshire Hathaway Annual Letters, Warren Buffett uses the dynamics of the board meeting to explain why corporate governance so often fails. He observes that “relations between the Board and the CEO are expected to be congenial,” so that “at board meetings, criticism of the CEO’s performance is often viewed as the social equivalent of belching” — whereas “no such inhibitions restrain the office manager from critically evaluating the substandard typ­ist.” His point: the boardroom’s atmosphere of politeness, not any deficiency in law, is what makes directors reluctant to challenge a CEO’s compensation or acquisitions. Buffett’s endorsed reform is for outside directors to meet regularly without the CEO present. The concept is the close companion of Board Directors in his governance critique.

Where this appears

• Berkshire Hathaway Annual Letters — the “social equivalent of belching” line on why boardroom congeniality suppresses honest criticism of CEOs