The Wrong Standard

Barron's (reg req): The Most Respected CEOs. (Warren) Buffett is the ultimate example of a CEO who counts -- Berkshire Hathaway wouldn't exist without him. Some worrywarts at Barron's were concerned about putting him on the list because of the ongoing investigation into a potentially dubious reinsurance contract that Berkshire's General Re unit provided to American International Group. That deal may not have represented Berkshire's finest hour, but it in no way diminishes Buffett's extraordinary achievement. Berkshire stock stood at 15 when he took over 40 years ago and it's now at $87,000 a share. That pretty much says it all.

First, a disclosure: I am an investor in Berkshire Hathaway, and have been since the mid-1980s. More than not, I admire Warren Buffett as a visionary and an advocate of honest capitalism. In particular, his loud complaints against sleazy accounting tricks and excessive pay for unaccountable executives who use those tricks to help pad insiders' pockets have been a welcome part of the conversation we all need to have about the nature and future of a system that, while imperfect, is plainly the best of the alternatives.

That's also why I get frustrated by the anything-goes attitude on Wall Street and in Washington and so many other places where cynical people ignore the context in which capitalism operates. Corporations are creatures of the state, not God, and they exist in a real world where employees, suppliers and communities should be, but frequently are not, given sufficient consideration next to pursuit of profits.

A spectacular return on investment does not pretty much say it all. It tells only part of the story.

If it turns out that Berkshire Hathaway has played a significant role in the growing insurance scandal, that would be more than a passing thought in my book. It would be an unfortunate contribution to the unethical culture that has become such a dismal hallmark of American business in recent years.

Buffett has earned the benefit of the doubt. But he has some questions to answer.

I hope Barron's -- like its sister publication, the Wall Street Journal, a newspaper of depth and influence -- will be asking those questions.

Comments

[Jack Krupansky]

I agree with the gist of your comments on Warren Buffett, but I really do think that he needs to go the extra mile here, especially since he really is one of the "last men standing" that true investors can have at least a little faith in.

The reason he (and all you shareholders, including my mother) got in trouble with General Re is a failure of due diligence and a failure to hold the acquisition to the same high standards he's had with past acquisiitons. General Re has been nothing but bad news to B-H shareholders (and I WAS one, and many GR shareholders were misguidedly turned into B-H share-flippers) since the get-go. AT least we can credit Warren with being honest about each of GR's problems as they've come out.

To go the extra mile... Warren needs to focus on true investment (for the long-term) rather than playing the "trading" game with silver, treasury shuffling, foreign exchange, commodities, etc. He also needs to further streamline and simplify B-H so that even simple-minded shareholders can make sense of every aspect of the company finances.

A good start would be for B-H to spinoff GR so that market forces can force GR to reform itself and restructure itself away from "rocket science" financial engineering.

As far as Barron's and the Wall Street Journal, make no mistake, if you're a true investor (for the long-term), those two rags ARE THE ENEMY. Neither is focused on truth or enlightenment of the investor, but at best offering grist for short-term trading. I used to read both, both 98% of their value can be gotten from web-based sources. The other 2% of their value simply isn't worth the moral bankruptcy of "feeding the crocodile".

With the internet, the web, blogging, and grassroots activist citizen-journalists, what possible value do Barron's and WSJ have to offer those of us who are not Wall Street insiders? And why do any of us need to tolerate the undue and unfair influence that "The Journal" has insinuated in our society, especially in matters of national public policy, especially beyond even strictly financial matters?

I do believe that Warren Buffett CAN come through for us (citizens, even if not investors), but only to the extent that he further distances himself from the kind of "Old Wall Street" that is unfortunately epitomized by Barron's and the Wall Street Journal.

[Michael Fraase]

Corporations are creatures of the state, not God, and they exist in a real world where employees, suppliers and communities should be, but frequently are not, given sufficient consideration next to pursuit of profits.

That corporations are creatures of the state has been open for debate since 1886 when a circuit court sort of said they were natural persons. Except no court really ever said that; and there has been no debate. That's the conversation we need to be having: the legal fiction of corporate personhood. Fix that and we get a long way toward fixing everything else in the "market."

[andyman]

I have been and continue to be an admirer of Warren Buffett,with these stipulations:
Warren is a capitalist - not a saint.
He has in the past used the opportunity of others' misfortunes and/or misdeeds as investment opportunities (anti-takeover positions, near bankruptcy fire sales
and the S&L liquidation giveaways are examples.)
Providing others with vehicles to commit fraud is not fraud, but, on the other hand, it is not honorable.
Buffett is big enough to take the heat but the various elements of the traditional American press are such corporate and status quo lap dogs that they won't even take on a story.
Greenberg was a more talented Ken Lay, with an "asset light" company from the beginning.

[Jim M]

It seems to me that if there are questions which should be asked, as there so often are, if Warren Buffet be asked them or won't answer them, then who would?

[Dan Gillmor]

I wish I could be at the Berkshire annual meeting, because I'd ask them there myself.

[Al]

So let me get this straight: Bush and Delay sued for money, then support the tort reform bills and then you call them hypocrites. (http://dangillmor.typepad.com/dan_gillmor_on_grassroots/2005/03/hypocrisy_in_th.html#comments)

But you rail against CEO's and you own BH stock knowing there are probably some ethical lapses.

I wouldn't call you a hypocrite and I wouldn't them hypocrites either.

[mark pincus]

my guess is that mr buffett is doing his own investigation and, once he knows the facts, will publicly disclose them, take his lumps if there are any and end up far on the right side of ethical line; that's far past the legal line.

and i totally agree with you dan, that he is one of the few ethical capitalists left and hopefully will continue to set an example for the rest of us to aspire to.

i'd be very interested to hear your take on my proposal that the SEC institute a new rule forcing corp insiders to disgorge all profits on stock sold during times of earnings restatements or material misconduct (AIG is guilty of both). sure you know that 414 companies restated last year. this one change would do far more to protect and repay investors than any sarbanes oxley panacea.