106 THE WARREN BUFFETT WAY
which directors are willing to honor their f iduciary responsibility at the
risk of displeasing the senior executives. That willingness, or lack of it,
is on display in boardrooms across the country.
“True independence—meaning the willingness to challenge a
forceful CEO when something is wrong or foolish—is an enormously
valuable trait in a director,” Buffett writes. “It is also rare. The place to
look for it is among high-grade people whose interests are in line with
those of rank and f ile shareholders.” Buffett illuminates his position by
describing what he looks for in members of the Berkshire Hathaway
board—“very high integrity, business savvy, shareholder orientation
and a genuine interest in the company.”^31
CAN WE REALLY PUT A VALUE ON MANAGEMENT?
Buffett would be the f irst to admit that evaluating managers along his
three dimensions—rationality, candor, and independent thinking—is
more diff icult than measuring f inancial performance, for the simple
reason that human beings are more complex than numbers.
Indeed, many analysts believe that because measuring human activity
is vague and imprecise, we simply cannot value management with any
degree of conf idence, and therefore the exercise is futile. Without a dec-
imal point, they seem to suggest, there is nothing to measure. Others
hold the view that the value of management is fully ref lected in the com-
pany’s performance statistics, including sales, prof it margins, and return
on equity, and no other measuring stick is necessary.
Both opinions have some validity, but neither is strong enough to
outweigh the original premise. The reason for taking the time to eval-
uate management is that it gives you early warning signs of eventual f i-
nancial performance. If you look closely at the words and actions of a
management team, you will f ind clues that can help you measure the
value of their work long before it shows up in the company’s f inancial
reports or in the stock pages of your daily newspaper. Doing so will
take some digging on your part, and that may be enough to discourage
the weak of heart or the lazy. That is their loss, and your gain.
How to go about gathering the necessary information? Buffett offers
a few tips. He suggests reviewing annual reports from a few years back,
paying special attention to what management said then about strategies
for the future. Then compare those plans to today’s results: How fully