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Governance  |  Remuneration  |  Succession planning

An investor’s letter to its shareholders

Non executive director


Each year, Warren Buffett writes an open letter to Berkshire Hathaway shareholders. These letters are insightful and over the years have become a “must-read” for investment professionals. But not only. The 2019 letter, which was published at the end of February, includes thought-provoking considerations on the topics of boards and governance that are of interest to the NEDonBoard non-executive and board member community. In this blog, we outline a few points worth highlighting to our members.


“In recent years both the composition of corporate boards and their purpose have become hot topics”

Diversity is an increasing important dimension of succession planning. In the UK, the Alexander-Hampton Review and the Parker Review provide data on the state of FTSE 350 boards with regards to gender and ethnicity diversity.

Diversity goes beyond gender and ethnicity criteria. Age is another dimension too often ignored. Most importantly, diversity in boardrooms is about having the right mix of skills and expertise for organisations to deliver on their corporate mission and achieve their strategic objectives.

Related posts: 2020 Parker Review recommendations and ours; NEDonBoard calls for the appointment of next gen NEDs


Mr Buffett also discusses the retention of CEOs. Attracting and retaining high-performing CEOs is a key consideration for all organisations regardless of size, ownership and sector. For example, in her MSB Leaders study, Sarah McKenna notes that “MSB directors and boards are acutely focused on and addressing succession planning and leadership continuity as the businesses mature”. Appropriate compensation for attracting and retaining CEOs was one of the themes discussed in the remuneration committee round-table discussions in Q3 2019.

Related post: Remuneration Committee Board Best Practice® panel insights


Purpose is a core theme of the UK Corporate Governance Code and Wates Corporate Governance Principles for Large Private Companies.


“Audit committees now work much harder than they once did and almost always view the job with appropriate seriousness”

Recent corporate scandals in the UK have highlighted the responsibilities of boards and audit committees with regards to the integrity of financial statements.

The FRC publishes its Guidance on Audit Committee, intended to assist boards and audit committees in dealing with the provisions of the UK Corporate Governance Code. While the Code only applies to premium listed companies, NEDonBoard encourages non-executive directors to familiarise themselves with the Guidance and go through the NEDonBoard resources dealing with Audit Committees.

Related posts: Audit Committee, Board Best Practice®


“Compensation committees now rely much more heavily on consultants than they used to”

NEDonBoard hosted round-table discussions on the topic of Remuneration Committee in Q3 2019. The use of consultants as well as the complexity of remuneration practices were part of the discussion. A Board Best Practice® publication is currently being written and will be made available to members in the coming months.

Related post: Remuneration Committee Board Best Practice® panel insights


“One very important improvement in corporate governance has been mandated: a regularly-scheduled “executive session” of directors at which the CEO is barred”

Warren Buffet’s comment echoes the thinking developed by the NEDonBoard working group who presented to a NEDonBoard panel event on 30 January 2020 and recommended NEDs to have sessions among themselves in which executive directors are not present.

Related post: Protect yourself as a NED


“When seeking directors, CEOs don’t look for pit bulls”

“The CEO of a company searching for board members will almost certainly check with the NWD’s [non-wealthy director] current CEO as to whether NWD is a “good” director. “Good,” of course, is a code word. If the NWD has seriously challenged his/her present CEO’s compensation or acquisition dreams, his or her candidacy will silently die. When seeking directors, CEOs don’t look for pit bulls. It’s the cocker spaniel that gets taken home.”

Unfortunately, the above situation is a reality!


“Board independence has become a new area of emphasis”

W. Buffett discusses the high compensation paid to directors and how it feels “better when directors of [his] portfolio companies have had the experience of purchasing shares with their savings, rather than simply having been the recipients of grants”.

In the UK, there is great emphasis on the independence of directors in the UK Corporate Governance Code as well as in the Wates Corporate Governance Principles for Large Private Companies. Provisions 10 of the Code goes against Mr. Buffet’s thinking.


Written by Elise Perraud, NEDonBoard COO


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