Mailbag question from a reader: “Tim, is there any downside to Berkshire’s policy of not covering the Directors with liability insurance against losses. This is something Warren Buffett occasionally brags about. What’s the downside? [rest of conversation redacted] -William.”
Warren Buffett is right to brag about the lack of insurance coverage Berkshire agents have regarding their stewardship of the firm. It is the most surefire way to avoid approving of things that you do not understand, and it invites caution towards those deals that appear lucrative at first glance but have some type of remote catastrophic risk attached (this is why Berkshire avoided an acquisition of Lehman Brothers for pennies on the dollar while Bank of America opened arms for Countrywide Financial).
But that’s not what you asked. The way I see it, there are two potential downsides to not carrying personal liability insurance for directors. The first theoretical downside … Read the rest of this article!