Corporate Governance According to Charles T. Munger
7 Pages Posted: 4 Mar 2014
Date Written: March 3, 2014
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?
Topics, Issues and Controversies in Corporate Governance. The Closer Look series is a collection of short case studies through which we explore topics, issues, and controversies in corporate governance. In each study, we take a targeted look at a specific issue that is relevant to the current debate on governance and explain why it is so important. Larcker and Tayan are co-authors of the books Corporate Governance Matters and A Real Look at Real World Corporate Governance.
Keywords: corporate governance systems, role of trust in governance, incentives and control, high-trust organizations, organizational trust, governance structure
JEL Classification: G3, G30, G34, J33, M41, M52
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