Sounds ridiculous, doesn't it? After all, Buffett has a reputation for being one of the most astute and ethical investors of the last 30 years. Plus, the billionaire stock-picker is a bit of a good-governance guru himself, pushing, among other things, for companies to expense employee stock options to show their true cost.
But this is the sort of argument some corporate governance watchdogs make. Last spring, for example, the California Public Employees Retirement System wanted Buffett booted off the board of the Coca-Cola Co. Calpers, as the $145 billion pension fund is known, argued that Buffett had a conflict of interest. He sat on a committee that voted to let Coke's auditor do some non-audit work for the company. At the time, Calpers was making a national campaign out of its hard-line stance on conflicts of interest, saying it would oppose the re-election of directors at more than 2,700 companies.
Also this spring, another watchdog group complained that two companies owned by Berkshire Hathaway, Buffett's Omaha, Neb.-based investment holding company, sold Coke products. In theory, this, too, was a conflict for Buffett.
Wharton accounting professors David Larcker, Irem Tuna and Scott Richardson say this sort of check-box approach to corporate governance doesn't work. Companies and their situations are too diverse. "The recipe book is big, and there's a different recipe for each company," Richardson notes. Even worse, the professors say, are consultants and ratings services that use formulas - which they typically refuse to reveal - to boil down a company's corporate governance to a single number or grade.
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