Warren Buffett on Derelict CEOs

American corporations have become bloated at the top with incompetent and overpaid executives. The Wall Street crowd wrecked the economy but then handed out record-breaking bonuses this year for their "sterling performance" in 2009 while the rest of the US economy tanked.

Warren Buffett, the best investor in the US, has come out with a scathing attack on these CEOs in his annual letter to stockholders (see page 15):

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. 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.

It has not been shareholders who have botched the operations of some of our country’s largest financial institutions. Yet they have borne the burden, with 90% or more of the value of their holdings wiped out in most cases of failure. Collectively, they have lost more than $500 billion in just the four largest financial fiascos of the last two years. To say these owners have been “bailed-out” is to make a mockery of the term.

The CEOs and directors of the failed companies, however, have largely gone unscathed. Their fortunes may have been diminished by the disasters they oversaw, but they still live in grand style. It is the behavior of these
CEOs and directors that needs to be changed: If their institutions and the country are harmed by their recklessness, they should pay a heavy price – one not reimbursable by the companies they’ve damaged nor by insurance. CEOs and, in many cases, directors have long benefitted from oversized financial carrots; some meaningful sticks now need to be part of their employment picture as well.

The US would be more prosperous and on better financial footing if it followed Warren Buffett's business philosophy. There wouldn't be a runaway rich class turning America into a third world country with a walled-in elite living jet set lives while the majority watch as the promise of a better future drifts away.

The odd thing about America is its inability to see itself and recognize its blemishes. I'm reading John Keegan's The American Civil War and was struck by this paragraph in a section where he remarks on America's ability to compromise over slavery for 50+ years, but then let the compromise fail spectacularly:

The political leaders of the South correctly recognized that the tide of opinion in a country in which they represented a minority was running against them. They might have moderated their position and sought common ground. It would have been difficult to find. Not only was the South indeed different from the North, with the difference founded on an institution that could not be disguised or easily altered; as the dispute with the North dragged on, Southerners had begun to make a virtue of the difference, by inventing a creed of Southern nationalism which eventually committed them to confrontation. Mid-century Southerners proclaimed themselves to be a superior breed to Northerners, preserving the agrarian way of life on which the republic had been founded at the Revolution and led by a breed of cultivated gentlemen who better resembled the Founding Fathers than the money-grubbing capitalists who dominated public life in the North. The South's poorer classes, too, sons of the soil and outdoorsmen, were held to be superior to their equivalents in the North, whose lives were confined by factory walls and who were often not native-born but immigrants, sometimes not English-speaking, and Catholic rather than Protestant. Southern nationalism had impressive ideologues as its own founding fathers, John C. Calhoun and Henry Clay, and it even had its own lyceum, the University of the South, founded at Sewanee, Tennessee, to train Southern scholars who could debate on equal terms with men from Harvard. The North took it seriously enough to destroy its buildings, down to the foundation stone, soon after the Civil War began.

I find the echo of today in the above. After Nixon adopted the "Southern strategy" the Republicans have founded their own "peculiar system" with inverted values and perverted ideology. The Right in the US doesn't promote itself through argument and reason. Instead it uses propaganda and deceit. Like the Civil War which mobilized poor Southern whites to defend the privileges of the rich plantation class, the modern Republicans use the socially inferior Christian fundamentalists as their shock troops to win the war to cut taxes for the top 0.1% of the population and to pursue a pro-business that in fact destroys the country as Warren Buffett is trying valiantly to make known. Buffett is well known for admitting that he is shamed by the fact that as the second richest man in America he pays a lower tax rate on his income than the office staff in his company. That is profoundly wrong. The rich of today, like the planter class of mid-19th century America, are using proxies to fight their wars. They are a blight on America. Sadly the citizens have not woken up to the evil that has been perpetrated upon them.