Warren Buffett's Comments

**JohnYE** · 02-27-2010 05:22 PM

Buffett's annual letter to Berkshire Hathaway shareholders was released today. In it, he states that CEOs and Boards should be held accountable for "risky" investment decisions. According to an AP report today, "'In my view a board of directors of a huge financial institution is derelict if it does not insist that its CEO bear full responsibility for risk control,' Buffett wrote. 'If he's incapable of handling that job, he should look for other employment. And if he fails at it - with the government thereupon required to step in with funds or guarantees - the financial consequences for him and his board should be severe.'"

What do you think? Wouldn't CEOs be in trouble for playing it safe as well? If an investment decision was obviously unwise, that's one thing, but isn't taking risks part of playing the game well?

**Ashvini Kumar Saxena** · 09-02-2010 04:44 AM

Hi John,

Risk taking is inherent to business. Let me take this example. In India we have govt. controlled bank. Before liberalization era, these banks were typical government banks. They lent to anyone only if they had collateral ( i.e. in form of fixed deposits). Most of the time entrepreneurs did not get loans from them. This hampered growth of economy. Managers of these banks were simply not prepared or encouraged to take risk of any kind.
With the financial crises I see similar tendency worldwide. But not taking risk means not developing new areas, new products and that is not at all good.

The world market is jittery because of a few that took wrong decisions. They should be punished for excessive harm to the system but to discourage risk taking is the end of free enterprise. Hence I agree with you.

**watsa** · 09-04-2010 12:00 PM

Hi John,

You're right that taking risks is part of the game, but risks must be calculated and as Buffett says they should only taken when the upside of the investment far outweighs the downside. In his annual letter Buffett refers to investment decisions of banks and investment banks that were clearly unwise were motivated by personal greed rather than a duty to shareholders.

**benbjones** · 11-28-2010 12:19 AM

Hi John,

I think that a CEO is in charge of everything that the company does. He or she bears the full responsibility of the actions of the company. The CEO obviously cannot do everything personally, but must create a system that ensures proper risk control.

That's my two cents.

-Ben
benbjones.com

**Austy** · 12-15-2010 01:00 AM

CEOs should live by the standard that the captain goes down with the ship. Frankly, I believe slow vesting stock grants are the only proper way to compensate any chief officer position.