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
Logo of the Bill & Melinda Gates Foundation. Source: Bill & Melinda Gates Foundation 2007 Annual Report (Photo credit: Wikipedia)
So after the big annual meeting Warren Buffett chief cook and bottle washer over at Berkshire Hathaway (NYSE:BRK.B) is starting to talk dividend. All this after being disdainful of dividends from Berkshire and wanting to invest all the cash because he could do the best job. Now that the end is near, even with a mild form of prostate problem, Warren Buffett is facing his own mortality and wondering what can be done to keep his money machine going.
Buffett watchers know he has donated the bulk of his holdings to Bill and Melinda Gates Foundation. You can hear the IRS crying right now. Anyway the money will not go to Washington DC. When you think about it it’s almost tea-party like in avoiding government and doing as you wish. Anyway Bill and Melinda Gates will be spending their funds on a vast amount of hopefully worthwhile projects. If the stock does not pay a dividend than you will eventually have to sell significant portions. The foundation becomes a net seller and the market sees them coming with an onbalance sell program which will depress prices or at best keep the share prices from appreciating.
Solution: declare dividends which hopefully increase over time quelling the desire to liquidate. Genius move for the long-term investor. The charitable foundation looking for liquidity events can find one every ninety days as dividends are deposited into their bank accounts.
A little bit of Buffett hubris comes into play. You see under that old dog Warren Buffet you did not need or look for a dividend. You let it ride all the way. It was a statement of support to forgo the dividend. Now with the new managers coming on board the dividend becomes important and Buffett does not say trust them. He did say trust me. But he is not saying trust them.
But this is still all speculation. The dividend is a conversation about next years possibility. The investment world will change. But the shareholder interests will eventually need to be aligned. Wonder if Warren and Bill were talking it over in that Netjets ad where they sit in a very comfortable executive jet eating jelly beans. If either of you two read this post a response would be most appreciated.
George Gutowski writes from a caveat emptor perspective.