WFC Wells Fargo and Company

By Chip Cutter 

What's wrong with Corporate America? Just ask Warren Buffett.

The chairman and CEO of Berkshire Hathaway Inc. and his longtime business partner, Charlie Munger, spent the weekend riffing on highly paid corporate board members who aren't truly independent; committee meetings that waste time; and best practices embraced by managers that may not necessarily work.

The billionaires share a long, colorful history of critical comments. They have made a tradition of doling out advice and tossing off bon mots at Berkshire's annual meeting in Omaha, Neb., which is attended by thousands of shareholders and watched live online by many more.

In the past, Messrs. Buffett and Munger, who are 88 and 95, respectively, have sounded off on the dangers of consultants, meetings, PowerPoint presentations and corporate bloat. In 2016, Mr. Buffett said American companies are "loaded with people that aren't really doing anything or are doing the wrong thing."

At this year's event, during a multihour Q&A session with investors, they praised Berkshire's corporate culture and took jabs at the way other companies operate, including a critique of management incentives at Wells Fargo & Co. that contributed to a series of scandals at the bank. (Berkshire is Wells Fargo's largest shareholder.)

Berkshire is a conglomerate that employs about 390,000 people. Its businesses include the insurance company Geico, furniture businesses and a wide range of other companies, such as See's Candies. Those subsidiaries have long operated largely independently, although they are now quietly collaborating more.

Even though Mr. Buffett directed some of this year's questions to Greg Abel and Ajit Jain, his possible successors for the CEO role, he emphasized that Berkshire's culture will endure after he and Mr. Munger are gone. The company isn't interested in activities that "don't actually let us run the business better," Mr. Buffett said.

When asked how Berkshire would score on measures of environmental, social and governance investing that are lauded by asset managers including BlackRock Inc., Mr. Buffett said he believed Berkshire would fare well. But he added that he was uninterested in the paperwork and questionnaires needed to measure such performance.

"We don't want to be preparing a lot of reports and asking 60 subsidiaries each to do something," he said. "They'll set up a team, then mail things to headquarters, and then we'll supply them to somebody who, if our stock goes up some, is probably going to sell it anyway. We want our managers to do the right things. We give them enormous latitude to do that, and I think that our batting average really is quite good."

Mr. Munger issued this warning: "The so-called best corporate practices -- I think the people who talk about them don't really know what the best practices are."

"I like our way of doing things better than theirs, and I hope to God we never follow their best practices," he added.

The Berkshire way includes a disdain for PowerPoint presentations. In 2016, Mr. Buffett claimed to have not seen one at his company.

"We don't have make-work activities," he said.

Berkshire takes a dim view of consultants. In 2017, Mr. Munger derided those who advise on pay, saying, "I hardly can find the words to express my contempt." That same year, Mr. Buffett threatened to come back from the grave should a compensation consultant be hired after his death.

This year Mr. Buffett took aim at corporate board members, saying many had become accustomed to their big paydays, rendering them incapable of being truly independent. In contrast, Berkshire pays its directors between $3,300 and $7,300, depending on which committee they sit on.

Directors who earn $250,000 annually to serve on a board probably want little more than for the CEO to recommend them for additional paid board seats elsewhere, Mr. Buffett said. "How in the world is that independent?" Meanwhile, directors who break rank and speak out typically find themselves on the outs with their peers. "You don't get invited to be on boards if you belch too often at the dinner table," he said.

The ideals presented by Messrs. Buffett and Munger still resonate with some younger executives.

"People view them as perfect grandfathers," said Chad Sandstedt, chief executive at TagniFi, a financial data platform. "They have answers for everything."

Anand Sanwal, chief executive of the technology company CB Insights, attended his first Berkshire meeting in person this year. He described the event as part of his "nerd bucket list" and got up at 3 a.m. Saturday to get in line.

He said he was struck by Mr. Buffett's emphasis on hiring high-quality managers and then getting out of their way. Mr. Buffett bragged in 2018 about speaking to the CEO of a Berkshire unit only three times in a decade aside from chance meetings.

Mr. Sanwal said his company is five times larger today than it was three years ago, with 250 employees, and needs to make good decisions quickly, hiring managers capable of making the right calls.

"That's super important to us," he said.

Write to Chip Cutter at chip.cutter@wsj.com

(END) Dow Jones Newswires

May 07, 2019 08:08 ET (12:08 GMT)

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