Omaha, Neb. (March 11, 2003) -- In his annual letter to shareholders, business guru Warren Buffett said corporate boards need to get tougher on their chief executives, and that investors should be wary of auditors who consider CEOs as their clients.
Hiring independent, outside directors to challenge auditors and top company executives will go a long way to ending years of too much coziness in the nation’s boardrooms, said Buffett, the chairman of Berkshire Hathaway.
"It's almost impossible ... in a boardroom populated by well-mannered people, to raise the question of whether the CEO should be replaced," he said. "It's equally awkward to question a proposed acquisition ... endorsed by the CEO, particularly when his inside staff and outside advisors are present and unanimously support his decision."
The so-called "Oracle of Omaha" also confessed that he’s been guilty of some of the same behavior he is now criticizing while serving on 19 boards over the past 40 years. "Too often I was silent when management made proposals that I judged to be counter to the interests of shareholders," he admits.
He added that when accounting firms also provide services other than auditing for corporate clients, they are often more concerned with offending management than looking after the interests of shareholders.
"The rules that have been recently instituted won't materially change this reality," Buffett asserted. "What will break this cozy relationship is audit committees unequivocally putting auditors on the spot, making them understand they will become liable for major monetary penalties if they don't' come forth with what they know or suspect."
-- Electronic Accountant Newswire staff
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