Buffett Rebuffs D&O Insurance at Berkshire Hathaway
Warren Buffett doesn't buy Directors and Officers insurance for his company, why should I? Well, before you decide to drop your D&O policy, consider's Buffett's rationale:
Buffett believes that corporate culture matters. At Berkshire, directors are expected to act like owners. They are not treated like rock stars. They do not get fancy Wall Street-like perks. And if they screw up, they must bear the consequences without insurance protection. Buffett explains:
“They receive token compensation: no options, no restricted stock and, for that matter, virtually no cash. We do not provide them directors and officers liability insurance, a given at almost every other large public company. If they mess up with your money, they will lose their money as well. Leaving my holdings aside, directors and their families own Berkshire shares worth more than $3 billion. Our directors, therefore, monitor Berkshire’s actions and results with keen interest and an owner’s eye.”
I'm guessing Buffett has very few difficulties recruiting directors and officers for Berkshire. He also wants to make sure they have skin in the game. The Oracle of Omaha knows good PR when he sees it too.
But, what is good for Berkshire may not be good for your business. D&O insurance is a great coverage for publicly-held and privately-held companies. It is going to be an essential element in your ability to recruit talent for your Board and your management team.