At a symposium I hosted two decades ago featuring Warren Buffett and his annual

shareholder letters, the legendary investor joked that his service on 17 public company boards
revealed a "dominant masochistic gene." Buffett has since served on several more boards,
interacting with some 300 members during his illustrious half-century career.

The Berkshire Hathaway (BRK-A) chairman and CEO has devoted parts of his letters to
describing what the best directors do. A condensed version of these points follows. Living by
these "10 commandments," as I call them, has made him excel in the boardroom.

1. Selecting the right CEO comes before all other tasks.

The board's most important job is recruiting, overseeing and, when necessary, replacing the
chief executive officer, Buffett stresses. All other tasks are secondary to that one, because if
the board secures an outstanding CEO, it will face few of the problems directors are
otherwise called upon to address.

Outstanding CEOs Bob Iger at Disney; Katharine Graham, who skillfully ran The
Washington Post; and Jeff Bezos, the current owner of that company's legacy newspaper and
founder and CEO of Amazon all meet Buffett's practical bottom-line test: They are people
any director would like, trust and admire and be happy to have their child marry.

2. You should discuss a CEO behind his/her back.

All CEOs must be measured according to a set of performance standards, Buffett notes. A
board's outside directors must formulate these and regularly evaluate the CEO in light of
them without the CEO being present. Standards should be tailored to the particular
business and corporate culture but stress fundamental baselines such as returns on
shareholder capital and steady progress in market value per share. Performance should not be
based on quarterly earnings and emphatically not in terms of whether the manager achieves
guidance targets. In fact, Buffett argues that companies are usually better off not providing
analysts with earnings guidance.

3. Act as if you work for a single absentee owner.

All directors should act as if there is a single absentee owner and do everything reasonably
possible to advance that owner's long-term interest, Buffett advises.

They need to think independently to tighten the wiggle room that "long term" gives to CEOs
while corporate leaders should think in terms of years, not quarters, they must not
rationalize sustained subpar performance by perpetual pleas to shareholder patience. To that
end, it is desirable for directors to buy and hold sizable personal stakes in the companies they
serve so that they truly walk in the shoes of owners. Buffett's board service has almost always
involved companies where Berkshire owns a significant stake. Prominent examples: Cap
Cities/ABC (19861996); The Coca-Cola Co. (KO) (19892006); Gillette (19892003);
Kraft Heinz (KHC)(2013present); Salomon Brothers (19871997); US Airways (:USG1-
FF)(19931995); and The Washington Post (GHC)(19741986 and 19962011).

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There is a sub-commandment in this lesson call it Commandment 3.5: Directors can and
should sometimes replace themselves.

In 2005, despite Berkshire's longtime substantial stake in Coca-Cola worth $8 billion then
and $18 billion now CalPERS as well as Institutional Shareholder Services challenged
Buffett's independence as a director. They cited business relationships between various
Berkshire subsidiaries and Coca-Cola, including Dairy Queen, a customer. Buffett objected,
stressing how Berkshire's large and lengthy stock ownership dwarfed the modest and routine
business transactions of its subsidiaries.

In the ensuing board election, 16 percent of Coca-Cola's shares were cast as withhold votes
on Buffett, so he was reelected, but he nevertheless opted to stand down. While I disagreed
with those doubting Buffett's independence, he responded to the shareholder ballot and set an
example: Any director receiving a non-trivial level of withhold votes should withdraw from
the board.

4. Be fair, swift, decisive and prepared to fire people.

If the CEO's performance consistently falls short of the standards set by the outside
directors, then the board must replace the CEO. The same goes for all other senior
managers they oversee, just as an intelligent owner would if present. In addition, the
directors must be the stewards of owner capital to contain any managerial overreach
that dips into shareholders' pockets. Such pickpocketing may range from imperious
acquisition sprees to managerial enrichment through interested transactions or even
myopia amid internal scandal and related crises.

In addressing these problems, the director's actions must be fair, swift and decisive; in
crisis response the Berkshire mantra is "Get it right, get it out, and get it over." The
classic case concerned Salomon Brothers' 1991 bond-trading imbroglio, four years after
Berkshire acquired a block of preferred stock and Buffett joined its board. Amid
knowledge of illegality, CEO John Gutfreund allowed problems to fester, refraining from
firing the guilty and failing to inform the board or regulators. On becoming aware of the
dire events, the board promptly requested Gutfreund's resignation and appointed a
reluctant Buffett to lead the investment bank out of its dark days and reshape its culture.

5. If you perceive a problem, speak up about it.

Directors who perceive a managerial or governance problem should alert other directors
to the issue. If enough are persuaded, concerted action can be readily coordinated to
resolve the problem. Aside from basics like whether the CEO is meeting performance
standards or to curtail managerial excess, take the perennial topic of whether the roles
of chairman and CEO should be separate or combined.

As stated in principles Buffett endorsed last year with a dozen other boardroom
denizens (called "commonsense principles"), outside directors are best positioned to
evaluate this question and then present it to the full board. Those with strong views
either way need to make their case to fellow outside directors based on general
research and the company's specific circumstances and culture.

6. When no one is listening, reach out to the absentee owner: shareholders.

When a director remains in the minority and the problem is sufficiently grave, reaching
out to absentee owners is warranted, Buffett believes. Colleagues may resist or
 complain, which imposes a useful restraint against going public for trivial or nonrational
causes. But consistent with confidentiality and other fiduciary duties, informing
shareholders is sometimes appropriate, Buffett says.

In 1996, when Buffett served on the board of Gillette of which Berkshire owned 11
percent Gillette agreed to acquire KKR's share of Duracell International for $7.82
billion in stock. For its related services in the transaction, KKR's bill was double that of
Gillette's advisors (though in line with market pricing), and Buffett strongly protested the
fee. While outvoted by the rest of the board, Buffett made a public record of his
disagreement for fellow shareholders to see.

As stated in the "commonsense principles" endorsed last year, companies should make
their officers and directors available to their largest long-term investors.

7. Sometimes a leader has to burp at the table.

Even high-quality directors can fail because of what Buffett calls "boardroom
atmosphere." Populated by the well-mannered, boards see broaching certain topics as
akin to belching at dinner from questioning the wisdom of an acquisition to CEO
succession. Adjust the social atmosphere of the room, Buffett urges. How to do so
depends on the corporate culture and personalities involved. Aside from formal
meetings, boards can convene for meals, training sessions and retreats, all offering the
chance for diplomatic engagement.

Any director unable to persuade enough fellow directors or shareholders that vital
change is needed ultimately has one vital lever: threaten to resign.

8. Don't let any outside consultant decide how much people get paid.

Buffett admonishes boards as to compensation committees: "Directors should not serve

on compensation committees unless they are themselves capable of negotiating on
behalf of owners." In other words, this task should not be delegated to consultants,
though it too often is.

At this year's annual meeting of Berkshire shareholders, he warned, "If the board hires a
compensation consultant after I'm gone, I will come back." He quipped that CEOs who
otherwise welcome him on a board do not want him on the compensation committee.

In the negotiations, directors must make one point non-negotiable: all forms of
compensation, especially equity-based, must be treated as an expense for accounting
purposes. No CEO can have his cake and eat it too.

9. There is only one way to avoid audit issues: pry.

The audit committee occupies a central role in today's financial reporting ecosystem, yet
directors cannot conduct the audit and sometimes feel overwhelmed. Buffett's advice is
to focus on what is possible, which is simply getting the auditors to candidly divulge what
they know. Buffett prescribes getting answers to these four issues:

If the auditor were solely responsible for the financials, would the audit have been done
differently?
If the auditor were an investor, would the audit have produced all relevant information to
understand the company's performance?
 If the auditor were the CEO, would the internal audit procedure differ?
Is the auditor aware of any actions involving shifting revenues or expenses between
periods?

10. When it comes time to choose your own replacement, refer to

commandments 1 through 9.

What qualities should be sought in directors when boards undertake their own
succession planning? The answer: People capable of honoring these commandments,
meaning those who are skilled managerial recruiters and overseers, given the
company's particular business and culture, and are owner-oriented, engaged, articulate,
communicative and astute. Basic habits such as diligence, preparation and attendance
are also essential.

Buffett adds these qualifications that make for high-quality directors: business savvy, a
strong interest in the specific company and an owner-orientation. Companies boasting
such directors gain an advantage. If those directors then follow Buffett's 10
commandments, the shareholders are doubly blessed.

By Lawrence A. Cunningham, professor at George Washington University and a

director of both public and private companies who advises other corporate boards on
conduct, culture and governance. He is the author of several books, including "Berkshire
Beyond Buffett" (Columbia Business School, 2014) and "Quality Investing" (Harriman
House, 2016).

This is a condensed and edited version of Cunningham's article for the summer edition
of the National Association of Corporate Directors' Directorship magazine, published on
Monday.