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.