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US Investment Guru Shareholders Revolt

This excerpt is from an open source article and is not necessarily the opinion of

Warren Buffett, the billionaire investor, has urged shareholders to rise up against greedy executives, in a searing weekend attack on rising pay and the business practices that grew out of the dotcom boom.

Mr Buffett was particularly critical of the trend to report Ebitda - earnings before interest, tax, depreciation and amortisation - which became popular in the 90s and remain so today. His long-time business partner at investment fund Berkshire Hathaway, Charlie Munger, summed up their attitude: "Wherever you read Ebitda, you should substitute it with 'bullshit earnings'. "

At the annual shareholder meeting of Berkshire Hathaway, in Omaha, Mr Buffett also delivered a brutal assessment of the $726bn tax cuts proposed by President Bush, which, he said "screamed of injustice" to the poor.

In a six-hour meeting that touched frequently on the culture of greed in the US, Mr Buffett said restraining executive pay would be the "acid test" of the reforms which seek to restore some confidence in Wall Street.

"There was more misdirected compensation in corporate America in the past five years than in the 100 years before that."

There was rarely a "parity of concern" when negotiating a chief executive's pay. "Someone who was not picked because they were the doberman of the board is dealing with play money and the final figure is almost meaningless to him - but it's not meaningless to the guy on the other side of the table.

"I've never seen a compensation consultant come in and say you should reduce the compensation or get rid of this bozo. It's a bad system.

"The share owners have to provide some countervailing force, otherwise the huge disparity that you have had in the past 10 years and the disconnect between what people are getting paid and the results for shareholders will continue. So arise, shareholders."

Mr Buffett has repeatedly said that he will give more than 99% of his $30bn fortune back to society after his death and is an advocate of high inheritance tax. His salary is a mere $100,000.

Mr Buffett said the centrepiece of the Bush economic stimulus package, the end of taxation on dividends, would benefit only the wealthy. "The main beneficiaries will be people like me and Charlie. I am not for the Bush plan. It screams of injustice.

"This is not going to stimulate the economy. It will stimulate us. It will result in us sending a smaller percentage of our income to Washington compared to the people who work in our shoe factory. When I am asked, 'what did you do in the war grandpa?' that's not what I want to admit to."

Mr Buffett and Mr Munger, dismissed as remnants of the old economy during the dotcom boom, attacked many of the practices that flourished on Wall Street in recent years.

Mr Buffett said companies using Ebitda were living in a dream world. "Depreciation is a real cost but people were encouraged not to think that by investment bankers who wanted them to talk about Ebitda. Why not put all expenses in the footnotes, just put in sales and say that equals profits? Ebitda is a term that has lost investors a lot of money."

On the accounting scandals of the past 18 months, Mr Buffet said: "I felt much better working with the financial statements of the 1960s than I do now, even though there was much less detail."

© Guardian News & Media 2008


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