Berkshire Hathaway Vice Chairman Charlie Munger is well known as the partner of CEO Warren Buffett and also for his advocacy of “multi-disciplinary thinking”—the application of fundamental concepts from across various academic disciplines to solve complex real-world problems. One problem that Munger has addressed over the years is the optimal system of corporate governance.
Munger advocates that corporate governance systems become more simple, rather than more complex, and rely on trust rather than compliance to instill ethical behavior in employees and executives. He advocates giving more power to a highly capable and ethical CEO, and taking several steps to improve the culture of the organization to reduce the risk of self-interested behavior. We examine Munger’s solution in detail. We ask:
- Would the trust-based system that Munger advocates work in the average corporation?
- What governance practices today are “necessary” and which are “excessive”?
- How can a company ensure that its culture will continue following a CEO succession?
Stanford Graduate School of Business
David F. Larcker, Brian Tajan
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