Billionaire investor Warren Buffett, whose Berkshire Hathaway recorded 61 per cent rise in full-year profit largely due to gains from derivatives investments, has said that CEOs and boards of the companies should be penalised for failing in their job.
The company’s net earnings surged to $8.06 billion at the end of December 31, from $5 billion at the end of 2008, Berkshire said in its 2009 annual report.
In a letter to the shareholders, Buffett said: “A board of directors of a huge financial institution is derelict if it does not insist that its CEO bear full responsibility for risk control.” “If he’s incapable of handling that job, he should look for other employment. And if he fails at it — with the government thereupon required to step in with funds or guarantees — the financial consequences for him and his board should be severe.”
The company’s net earnings rose to $3.06 billion in the fourth quarter ended December 31, from $117 million in the corresponding period a year ago, the annual report said.
“We are delighted that we hold the derivatives contracts that we do. To date we have significantly profited from the float they provide. We expect also to earn further investment income over the life of our contracts,” the report added.
Berkshire’s investment in derivative bets reaped a total gain of $787 million in 2009, against a loss of $7.4 billion in 2008.
The company’s total revenue, including from subsidiaries, increased for the third consecutive quarter to $112 billion at the end of December 2009.
“We have put a lot of money to work during the chaos of the last two years. It’s been an ideal period for investors: A climate of fear is their best friend,” Buffet said in his letter to the shareholders.
Berkshire’s cash balance at 2009-end stood $30.6 billion.