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Most investors obsess over charts, P/E ratios, and the latest Fed meeting. But Warren Buffett knows the truth: long-term wealth isn't just about math; it's about people.
Decades of sitting on boards taught Buffett that a company is only as good as the directors guarding it. He developed 10 "Commandments" for directors, but I view them as a survival guide for us, the retail investors.
If you want to sleep well at night while your wealth compounds, run your portfolio through this 10-point integrity check.
1. The One Job That Matters Most 🎯
Select an Outstanding CEO.
The board’s primary duty is recruiting, overseeing, and (if necessary) replacing the Chief Executive. If they get this wrong, nothing else matters.
Your move: Look for CEOs with a track record of capital allocation (like the early days of Jeff Bezos at Amazon). If the board picks a flashy marketer instead of a business operator, stay away.
2. Ignore the "Quarterly Game" 📉
Set Real Performance Standards.
Great boards judge CEOs on long-term value (like Return on Invested Capital), not on hitting a quarterly earnings target.
The Red Flag: If a company obsesses over "beating estimates" by a penny while their fundamental business stagnates, the board is failing you.
3. Skin in the Game 🤝
Adopt an Owner Orientation.
Directors should act like they own the place, because they should. Buffett insists directors buy and hold sizable personal stakes.
The Test: Check the proxy statement. If a director has served for 5 years but owns less stock than you do, they aren't walking in your shoes.
4. Pull the Band-Aid Off Promptly 🩹
Replace Managers When Needed.
Buffett’s mantra for crisis? "Get it right, get it out, get it over." Weak boards let struggling CEOs linger, hoping things will improve. Strong boards act fast to protect your money.
5. Speak Up, Don't Shut Up 📢
Alert Colleagues to Problems.
A director’s job isn't to be popular; it's to be honest. If a director sees a governance issue, they must alert the rest of the board immediately. Silence is a wealth-killer.
6. Respect the True Boss (You) 🏛️
Reach Out to Shareholders.
If a director is outvoted on a major issue (like a terrible acquisition), Buffett believes they should communicate with the shareholders.
Modern Context: Companies should engage with long-term owners, not just hide behind PR statements.
7. Kill the Politeness 🍽️
Adjust the Atmosphere.
Boardrooms shouldn't feel like polite dinner parties. They should be places of debate. If directors are too scared to ask "rude" questions about a merger or a scandal, they are useless to you.
8. Negotiate the Paycheck 💰
Don't Let Compensation Run Wild.
Compensation committees often rubber-stamp massive CEO pay packages because consultants tell them to. Buffett says: Negotiate hard. Executive pay is an expense that comes out of your pocket.
9. Check the Receipts 🔍
Empower the Audit Committee.
Directors can't audit the books themselves, but they must ask the auditors the scary questions: "If you were the CEO, would you have reported these numbers differently?"
10. Draft the Best Players 🌟
Choose Directors Well.
Finally, who is actually on the board? You want business-savvy, owner-oriented people who understand the specific industry, not just famous names or friends of the CEO.
Why This Matters for the "Relax to Rich" Club
We are looking for compounders, stocks we can hold for a decade. You cannot compound wealth if the leadership is focused on short-term looting or polite incompetence.
Before you buy your next stock, take five minutes to scan the "Corporate Governance" section of their annual report. Do they pass the Buffett test?
Tell me: Which of these 10 rules do you think is most ignored by modern companies? Hit reply, I’d love to hear your take. 👇