What's Up With Charlie Munger's Other Company?
New York Times columnist Joe Nocera threw a well-deserved dart at Warren Buffett the other day for failing to practice what he has preached at Coca-Cola Co., where Berkshire Hathaway Inc. is the largest shareholder and his son, Howard Buffett, is a director.
Back in 2009, at Berkshire's annual shareholder meeting, Buffett encouraged institutional investors to "speak out on the most egregious cases" of excessive executive pay and said "the way to get big shots to change their behavior is to embarrass them." Yet when he found Coke's latest pay plan objectionable, he didn't vote Berkshire's shares against it; he abstained.
"I love Coke," Buffett told Becky Quick of CNBC last week. "I didn't want to express any disapproval of management. But we did disapprove of the plan." Nocera wrote in his New York Times column that, instead of providing leadership, Buffett chose not to rock the boat.
I hope Buffett takes another shot at explaining his reasons at Berkshire's annual meeting this weekend. But that's not the main point of this column. Rather, it's to highlight a similarly touchy situation at Daily Journal Corp., where Buffett's longtime sidekick, Charlie Munger, has been the non-executive chairman since 1977.
Buffett and Munger, who is Berkshire's vice chairman, usually sit around for hours at Berkshire's annual meeting taking questions from the audience and selected panelists. Given that Munger has often pontificated publicly on matters of corporate governance, the situation at Los Angeles-based Daily Journal, which publishes legal newspapers, also cries out for an explanation.
Daily Journal's 2013 fiscal year ended Sept. 30. It hasn't filed its annual report with the Securities and Exchange Commission or its report for the quarter that ended Dec. 31. The Nasdaq Stock Market has warned the company that it's out of compliance with Nasdaq listing requirements. And the company hasn't held an annual shareholder meeting since February 2013.
Daily Journal has said it's unable to file the reports because its accounting firm, Ernst & Young LLP, hasn't completed its audit for fiscal 2013. But the company hasn't provided details, although it did issue a news release in February with financial results for the Dec. 31 quarter. "I have nothing to tell you at this moment," a company spokeswoman, Tu To, said today when asked why the company still was behind on its filings.
Last month, the Rock Center for Corporate Governance at Stanford University released a paper called "Corporate Governance According to Charles T. Munger," by David Larcker and Brian Tayan of Stanford's Graduate School of Business. Munger often has spoken about the need for "trust-based governance," and the paper offers an excellent roundup of his views.
Munger has noted before that many successful companies, including Berkshire, have a business model that relies on fewer, rather than more, internal controls. The authors pointed to this quote from Munger in 2008:
"A lot of people think if you just had more process and more compliance -- checks and doublechecks and so forth -- you could create a better result in the world. Well, Berkshire has had practically no process. We had hardly any internal auditing until they forced it on us. We just try to operate in a seamless web of deserved trust and be careful whom we trust."
There may be something to be said for that, especially coming from someone as esteemed as Munger. So why can't Daily Journal close its books? The company isn't saying much. I guess its investors will just have to trust that everything is fine.
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