Does Warren Buffett use Berkshire’s Board of Directors $BRK.A $BRK.B

Warren Buffett is clearly one of the most successful investors since time immemorial. Berkshire Hathaway (NYSE:BRK.A) has made many investors rich and happy.

Because Berkshire is a publicly traded company they need a Board of Directors. In this case the investors most likely do not rely on the board. you rely on Warren Buffett. But the guy is getting old and feels good but had this prostate cancer thing and who knows what little time he has left.

A successor has been arranged. But unlike the Vatican no smoke up the chimney because it’s still a secret. So lets take a look at the board of Berkshire Hathaway.

Total of 13 individuals. Warren Buffett and Charles Munger are iconic members but very old. Howard Buffett 58 is the son of Warren and not considered an independent.

Four independent directors are over the age of 80. They are

David Keough 86. Ten years on the board. He is former Chairman of Allen & Company.

Thomas Murphy 87 Ten years on the board. Officially retired but was former chairman and CEO of capital cities/ABC.

Walter Scott 81 Twenty-Five years experience on the board. Was Chairman of LeveL 3 Communications.

David Gottesman 86 9 years experience on the board. Currently principal of First Manhattan & Co.

Charles Rotblut CFA and Editor of AAII Journal and vice President of American Association of Individual Investors recently interviewed David Laibson who is a professor of economics at Harvard University Cambridge for an article entitled “Aging and Investing”. Not surprisingly as you age there exists the growing risk of cognitive impairment. In addition to Warren Buffett and Charlie Munger this board has unmitigated risk in this calculation.

So there you have seven out of thirteen members who are very old and entrenched as they say. Governance experts will tell you that this is a very big negative.

For $253 Billion in market cap the risks are not very well covered. It all depends on the torch being passed effectively to someone new. Therefore you are investing or following stars and hoping for the best.

Risky way to make a buck if you ask me.

George Gutowski writes from a caveat emptor perspective. Follow him on twitter at twitter.com/financialskepti

 

Hedge Fund Ultimate Behaviourial Bias = Retail $SHLD $JCP $XRT

The greatest enemy of investors is behavioural bias. Hedge Fund managers those that do well have been able to identify and control their behavioural biases. Cold hearted, flinty eyed even psychopathic they are here for the buck and only the buck.

Roger so far. So how come two major forays into retail are far from stellar successes. Sears Holdings (Nasdaq:SHLD) with Eddie Lampert 51 and William Ackman 45 rebuilding JC Penney (NYSE:JCP).

You can say a lot of things about these two individuals but stupid is not one of them. Yet the big bet investments have yet to start looking good.

Why is that?

Here is my very biased very opinionated answer.

Rich guys do not understand stores or retail. They have unlimited amounts of personal funds. They go into a store and they just buy it. Pair of shoes sure. Some new suits and a dozen fresh shirts and silk ties no problemo. So when they analyze or think they are analyzing retail they have that blind spot of enormous wealth.

The average well to do millionaire knows his wealth is somewhat limited. Not on food stamps but there are limits and they know them. The average working man is pay cheque to pay cheque and so goes retail.

Hedge Fund Billionaires believe there is a magic formula; just like you know, an algorithm running a high frequency black box which will make exactly the right choices and just move on.

So buy control, fire the old idiotic managers who screwed up and hire new bright pennies who promise not to screw up and there you have it. People will just come in and buy stuff if you manage it properly right.

They have forgotten the utility value of a dollar to a billionaire is very different to people living pay cheque to pay cheque which adequately describes America’s consumer class.

And that ladies and gentlemen is the rationale for hedge fund behavioural bias when considering retail as an investment.

Most creative fresh retail concepts have been started by rebels and out of the box thinkers. Not by the monied classes. Very few rich kids become cutting edge designers who build big labels.

So Eddie Lampert and William Ackman will probably not make mega billions and will gladly exit as soon as hubris allows.

George Gutowski writes from a caveat emptor perspective. I have a behaviourial bias about retail investment. I actually view retail as risky because I cannot guess at the next big thing. I usually rely on beautiful women to guide me in these matters.

Hess Corp Proxy Fight for Board. Does Hess Stink? Is Elliot Correct $HES

Hess Corp (NYSE:HES) is in a proxy fight to place five new board members who will support an investor activist Elliot Management. Chairman and CEO John Hess who inherited the corporation from his father naturally opposes. He thinks everything is just fine.

Elliot points out a lot of the independent directors have close ties to the Hess Family. The new lead independent director who until recently was an executor of the family’s estate. That does sound bad.

Elliot management wants to pay the directors cash bonuses in addition to base fees. The bonuses would be ties to how well the corporation’s stock was doing. Hess’s incumbent directors up for re-election are leaving the board. Hess has recruited several new outside nominees to run.

Only a portion of Hess directors stand for re-election each year, so a majority of its 14-person board isn’t at stake. Bad governance according to many experts. But who is asking?

Lets take a look at what some of the issues may be. If you look at individual Hess Board Members you will notice they are rather elderly. While grey hair and gravitas is quite becoming in the board room. You do need an energy level as well.

Nicholas Brady 81. Former Treasury Secretary. Former Chairman of Dillon Read & Co. Director of Franklin Templeton.

Robert Wilson 71 Former Vice Chair of Johnson and Johnson. Director of Charles Schwab.

Ernst von Metzsch 72 investor.

John Mullin 70 Former Managing Director Dillon Read.

Frank Olson 79 Director or Trustee of various Franklin-Templeton Mutual funds.

Thomas Kean 76 Former Governor of New Jersey. Director of Franklin Resources.

Edith Holiday 60. Former Assistant to President of United States and Secretary of Cabinet. Director or Trustee of various Franklin-Templeton Mutual Funds.

Craig Mathews 68 Former Vice Chair & COO Key Span.

Samuel Bodman III 73 Former Secretary of Energy and Deputy Secretary Treasury. chair and CEO of global Specialty Chemicals.

Risa Lavizzo-Mourey 57 President and CEO of Robert Wood Johnson Foundation.

Samuel Nunn Lawyer and for 24 years Senator for Georgia. sits on board of Coca Cola and GE.

James Quigley Newly appointed as of March 1, 2013. not much of a corporate profile provided.

Lots of high level politicians. Very strong Dillon Read and Franklin Templeton flavouring. Not too strong on the diversity of experience factor.

Activist investors have learned the art of leverage. 51% voting control is very difficult. But if you can control the board by other means that’s just as well.

Investors do not pay enough attention to the selection of directors. Otherwise Hess would not have been able to mix this particular concoction.

In a future post more on Hess proposal for new directors and who does Elliot Management favour.

George Gutowski writes from a caveat emptor perspective.

Business Wire vs PR Newswire Battle of Twitter Feeds Still Early Days. $TWIT $GOOG

Google (Nasdaq:GOOG) has forsaken Google Reader and the RSS world is not the same. Interesting scuttlebutt about why they did it. But the bastards abandoned their clientage. So Twitter will be the big winner.

Image representing Twitter as depicted in Crun...

Image via CrunchBase

But the news feeds from both Business Wire and PR Newswire are not yet maximizing Twitter. So my suggestion to both is step it up before some kid clocks you and further erodes your relevancy.

Being a former arms merchant to the investor relations business I know my way around your sites. You have RSS and web feeds that spew news by category. But you do not have twitter feeds that spew news by category.

So here is the suggestion and I  expect some quick action. Establish multiple twitter accounts for the different categories that you already follow. Compliance, earnings, corp news, appointments, trade show and product news. Allow me to follow in one spot. Because if you do not do it I’m gonna have lunch with my 20 something son and we’re gonna build an app that will kill you.

Consider your self warned.

Wonder where my son  wants to go eat?

George Gutowski writes from a caveat emptor perspective.

Wells Fargo Board of Directors. Did Warren Buffett Understand what was in the Stage Coach. $WFC $XLF

Wells Fargo (NYSE:WFC) has held Warren Buffett’s respect for a long time. Did he understand the make up of the board as he developed a favourable impression? Lets take a quick look at the independent’s and try to spot a few winning DNA combinations.

I’ll start you off with two clues. Firstly many of them earned law degrees and several were practicing lawyers for much of their careers. Secondly many have DNA  from regulated industries such as telecommunications, healthcare, utilities, financial services and real estate development.

Here’s a few tidbits from corporate bio’s which support my conclusions.

Susan Swenson 64 Made her bones in information technology and telecommunications which are regulated and hyper competitive.

Cynthia Milligan 66 is a lawyer, bank regulator, academic and former director of Omaha Branch of Kansas City Federal Reserve.

Lloyd Dean 62 is a San Francisco based President, CEO and Director of Dignity Health one of the largest hospital systems in the USA. Between medicine, insurance and politicians there are lots of regulatory issues.

John Baker 64 is a lawyer and experienced in real estate and construction materials. He has experience on Duke Energy board which means regulatory affairs.

Judith Runstan 68 is a lawyer and former chairwoman of the board of the Federal Reserve San Francisco. She also has experience in real estate development.

Enrique Hernandez 57 lawyer trained by Harvard Law. Director of Chevron, McDonald’s and non executive chairman of Nordstrom. A very wide scope of companies to be a steward over.

John Chen 57 is a computer guy. Former Chair and CEO of Sybase which was sold to SAP from Germany.

Susan Engel 66 was formerly a consultant with Booz Allen and has held many positions in retail consumer oriented businesses.

Federico Pena 66 is a lawyer turned professional politician. Mayor of Denver, Secretary of Transportation than Energy. Now a private equity type.

Donald James 64  started off in law school and became Chairman and CEO of Vulcan Materials. Formerly a director of Wachovia. Presiding director of Southern Company a large public utility.

Philip Quigley 70 retiring next annual meeting but was the Chair, President and CEO of Pacific Telesis Group San Francisco telecommunications.

Nicholas Moore 71 lawyer and accountant who became the global chairman of PriceWaterhouseCoopers. retiring next annual meeting.

Howard Richardson 62 Partner PriceWaterhouseCoopers New York City specializing in financial services.

Elaine Chao 59 was formerly the US Secretary of Labor. Previously held positions of increasing importance within the federal government. She is the first Asian Pacific American women to hold cabinet rank. She also sits on the board of News Corp which is an interesting hook up between Wells Fargo and Rupert Murdoch.

Stephen Sanger 66  is the lead independent director and former chairman of General Mills. He also has board experience on Pfizer and Target. Interestingly enough the lead director does not fit into my suggested profile of lawyer and regulatory savvy.

Wells Fargo has several prominent retired politicians, many lawyers who also practiced and several Fed Reserve Board alumnae. Probably not the way Warren Buffett analyzes his investments but there you have it anyway.

George Gutowski writes from a caveat emptor perspective.

Blackstone Group. Do they have a real board? $BX

Blackstone Group (NYSE:BX) is a private equity giant. What kind of board of directors do they have and what do they need? Considering their role in life is financial engineering the average Blackstone executive has a very heightened sense of the strategic. Where would the board fit in?

Take a look at some of the independent directors and see if a theme or two comes out.

Brian Mulroney 73 is the former prime minister of Canada. He was in the saddle with President Ronald Regan and Prime Minister Maggie Thatcher. The man is clearly there for political networking.

William Parrett 67 is the former CEO of Deloitte Touche Tohmatsu. Blackstone will buy their accounting advice on a deal by deal basis and charge the customer. His value will again be contacts and networks.

Richard Jenrette 83 is the retired founder and former Chair and CEO of Donaldson, Lufkin & Jenrette. Stock trading advice? Meh! He does have an element of sainthood and gravitas.

Jay Light 71 dean emeritus Harvard Business School. Contacts, prestige, contacts and then prestige again.

This is not a working board which acts as the shareholders representative. This is an old school board with contacts and connections to help the Blackstone Group. nothing wrong with that. Just that it does not fit modern-day governance practices.

George Gutowski writes from a caveat emptor perspective. Follow him on twitter@financialskepti or maybe follow his evil twin who is writing a Wall Street Murder Thriller at twitter@georgegutowski

 

Jamie Dimon Black Swan Waiting. JP Morgan’s Coming Political Demise $JPM

JP Morgan (NYSE:JPM) got its ass kicked in Washington DC again. The whole London whale thing was rehashed except with power of subpoena and regulatory oversight a slightly different view is coming out.

Jamie Dimon originally characterized the problem as dumb mistakes and people got fired but we have the capital so don’t worry. Some of the testimony indicates major fails in the governance process. Executives skated the puck around pretending it was something else as the risk management process was subverted to get around problems until the whale was so big nothing more can be done.

Imagine a Harvard Case Study where the CEO declares “We were dumb”. Yes they were dumb and continue to be dumb. It no longer is business. This is politics. The Obama administration needs to show changes on Wall Street. Jamie Dimon who once nurture fantasies of a cabinet level position is now only a CEO of a major NYC money center bank. (with a fancy Upper East side apartment of course)

Elizabeth Warren is a Senator from Massachusetts and probably will be re-elected for the rest of her life. Jamie Dimon has played his political cards very poorly. He even flirted with that guy Romney for a little while. Politically they want a poster boy scalp. The left wants the raw meat. The right is too disorganized to mount a defence. The Tea Party may be funded by Wall Street but it does not know how to defend Wall Street.

Target JP Morgan and Jamie Dimon.

Look at JP Morgan’s Board of Directors. no one and I mean no one has any experience in trading, derivates or mathematics and underpins both. So when the regulator says the board is inadequate  you have to be afraid. But how do you change the board. The power structure will support itself and defend against change. shareholder wealth will not be maximized.

So if you are starting to belive there is a political plot against Jamie Dimon and JP Morgan. I would agree with you.

Check out a few board members and see if they should be involved in trading derivatives and political machinations.

James Bell 63 retired from Boeing.

Timothy Flynn 55 retired head of KPMG

Crandall Bowles 64 retired Chair of Spring Industries a manufacturer of window products made it onto the board of JP Morgan.

David Cote 59 Chair and CEO of Honeywell. an industrialist.

William Weldon 63 was Chair and CEO J&J now just chair.

Laban Jackson 69 Real Estate Developer

Steven Burke 53 NBCUniversal and Comcast

Ellen Futter 62 President American Museum of Natural History. Perhaps one day they will have an exhibit of trading desks.

Lee Raymond 73 Fmr Chair & CEO of ExxonMobil. He may have some understanding of trading.

James Crown 58 Private Investor.

No one on the board has an operational background in banking, financial services, derivatives, or political operations. Perhaps Team Obama has figured this out and sees a soft target.

Not sure if Jamie Dimon has figured this one out yet.

But he will?

George Gutowski writes from a caveat emptor perspective. Follow him on twitter@financialskepti or maybe follow his evil twin who is writing a Wall Street Murder Thriller at twitter@georgegutowski