DealBook: Warren Buffett Has a Problem With ‘Independent’ Directors

February 24, 2020

Good morning. I’m on The Daily today discussing recent sustainability efforts by the likes of Jeff Bezos, Microsoft and Delta. Are the carbon-reduction programs genuine or simply marketing? Take a listen. (Was this email forwarded to you? Sign up here.)

Warren Buffett Johannes Eisele/Agence France-Presse — Getty Images

Buffett’s big idea for better M&A advice

Berkshire Hathaway hasn’t done a big deal in years, as Warren Buffett explains in his latest annual letter to shareholders. Even so, he’s happy with his track record. Likening mergers to marriages, the legendary investor writes, “I would say that our marital record remains largely acceptable, with all parties happy with the decisions they made long ago.”

He thinks others could do better. There is the ever-present risk of succumbing to “Wall Streeters bearing fees,” as he describes deal-hungry investment bankers. “At many companies, these super-salesmen might win,” he notes. “I do not, however, expect that to happen at Berkshire.”

“Independent” directors, in particular, aren’t serving companies well, he says.

• When it comes to acquisitions that C.E.O.s want to make, independent directors are supposed to check their impulses. But corporate chiefs rarely bring in outside advisers who provide dissenting opinions, so the deals usually happen. “When seeking directors, C.E.O.s don’t look for pit bulls,” Mr. Buffett writes. “It’s the cocker spaniel that gets taken home.”

• Too many directors covet the pay that comes with serving on a corporate board, playing nice with a C.E.O. to keep their jobs and get a good reference for more directorships. If a director pushes back on a C.E.O.’s deal proposal, “his or her candidacy will silently die.”

• Directors with stakes in the company they serve, paid for with their own money and not as compensation for their role, are better incentivized to give good advice, Mr. Buffett says, even though they are often not considered independent for corporate-governance purposes.

He proposed a way for boards to get better advice when weighing a deal:

It would be an interesting exercise for a company to hire two “expert” acquisition advisers, one pro and one con, to deliver his or her views on a proposed deal to the board — with the winning adviser to receive, say, 10 times a token sum paid to the loser.

To which we say: Good luck with that.

____________________________

Today’s DealBook Briefing was written by Andrew Ross Sorkin in New York and Michael J. de la Merced and Jason Karaian in London.

____________________________

Intuit hopes combining TurboTax with Credit Karma will create a financial data empire. Peter Barreras/AP Images, via Associated Press

Intuit wants to create a ‘Facebook for financial services’

The owner of TurboTax could announce as soon as today a deal to buy Credit Karma, the start-up that made free credit-score checks popular, for about $7 billion. The reason, Nathaniel Popper and Michael write in the NYT: There’s gold to be mined in the average American’s financial data:

There is a potentially significant business opportunity for Intuit if it completes a deal. For example, Intuit could try to match all the tax data its TurboTax customers provide with the credit-scoring data that Credit Karma holds.

That could let Intuit serve up better customer prospects to credit card issuers — and eventually let Intuit charge lenders more for access to its hoard of data.

Sheel Mohnot, a venture capitalist who focuses on fintech start-ups, suggested that the combined company could become a sort of Facebook for financial services.

“They would have all of this rich information, and they would basically be an ad network,” he said. “You’re almost forced to advertise with them.”

Such a grip over Americans’ financial data could give regulators reason to scrutinize the deal, however.

Lloyd Blankfein, Wall Street whisperer. Mike Cohen for The New York Times

Blankfein channels Wall Street’s fear of Sanders

Having retired as C.E.O. of Goldman Sachs, Lloyd Blankfein can speak more freely than his counterparts who are still running big financial firms. A few of his recent comments about Bernie Sanders may be a window into what others on Wall Street think about the favorite to win the Democratic presidential nomination.

“I think I might find it harder to vote for Bernie than for Trump,” Mr. Blankfein said at a recent lunch with the FT. Mr. Blankfein finds Mr. Sanders’ attacks on the rich, including a potential wealth tax, offensive: “I find that just as subversive of the American character as someone like Trump who denigrates groups of people who he has never met. At least Trump cares about the economy.”

Trading nasty tweets with Mr. Sanders in recent days, Mr. Blankfein first said the Vermont Senator would “ruin our economy and doesn’t care about our military.” Mr. Sanders shot back, “I welcome the hatred of the crooks who destroyed our economy.” Mr. Blankfein then disputed his “hate” for Mr. Sanders, suggesting that the senator “wants to feel hated because HE hates.”

Coronavirus news roundup

Follow the NYT’s live briefing on the outbreak for all the latest developments. Here are five recent articles of note:

• The economic impact is bad. Really, really bad.

• An outbreak in Italy is raising fears about the spread outside Asia.

• UBS’s chairman says markets are underestimating the risk.

• The White House is expected to ask for emergency funds to fight the virus. Will it be enough?

• What will happen to the Tokyo Olympics? The torch relay begins next month.

Lael Brainard, a Fed governor. Brian Snyder/Reuters

To fight the next recession, the Fed will get creative

The U.S. central bank is in the middle of reviewing its recession-fighting plans. On Friday, one of its governors, Lael Brainard, proposed an array of unconventional tools that policymakers may need to deploy during the next economic downturn.

Get to know “yield curve control,” in which the Fed sets a target for longer-term government bond yields and commits to buy as much debt as it takes to achieve that target. (The Brookings Institution published a helpful analysis of how it works.) It wasn’t the first time Ms. Brainard has mentioned it, nor was she the only past or present Fed official to suggest it. But a groundswell of support implies that it could happen eventually. It would be a “bond trader’s nightmare,” as Brian Chappatta of Bloomberg Opinion put it.

The U.S. last tried it in the 1940s. Japan is currently giving it a go, with mixed results. A new paper presented at the conference where Ms. Brainard spoke, written by high-profile economists including from JPMorgan and Citigroup, named yield curve control as one of the new tools that may be useful in fighting a downturn in a low-rate, low-inflation world.

But the economists conclude that policymakers “should be humble about their likely effectiveness.” 😬

Angel Gurría, the secrety-general of the O.E.C.D., and Bruno Le Maire, France's finance minister, at the G20 meeting. Alessandro Della Valle/EPA, via Shutterstock

Digital taxes could set off the next trade war

If the trade fight between the U.S. and China threw the world off balance, a battle between America and Europe over how to tax internet companies could completely upend global relations, finance ministers at the G20 summit warned over the weekend.

“The trade tensions of today would look like they are not so serious compared to the consequences of something like this,” Angel Gurría, the secretary-general of the O.E.C.D., told Alan Rapeport of the NYT.

Efforts by the O.E.C.D. to broker an agreement on internet taxes have been slow going. European countries like France and Britain want to be able to tax the services of digital companies, even those without a physical presence within the countries’ borders. Treasury Secretary Steven Mnuchin says that’s discriminatory and has threatened economic war if those levies come to pass.

It often felt like the G19 versus the U.S. “This needs leadership in certain countries,” Olaf Scholz, Germany’s finance minister, said — while looking directly at Mr. Mnuchin, who was sitting next to him, Reuters reports.

Mr. Mnuchin floated a vague compromise on a “safe harbor” provision, in which some companies could agree to pay more in taxes in exchange for financial certainty. European officials fear this would make the taxes optional for the mostly American internet giants.

The speed read

Deals

• Elon Musk’s SpaceX is reportedly planning to raise $250 million at a valuation of $36 billion. (CNBC)

• EBay has been weighing a sale of its classifieds business, with potential bidders including TPG, Blackstone and the European internet giant Prosus. (WSJ)

• CVC Capital Partners reportedly plans to make rugby its next sports empire. (FT)

Politics and policy

• Mike Bloomberg’s aggressive spending on social media is testing internet companies’ inconsistent policies for political campaigns. (NYT)

• Mr. Bloomberg will release three women from the N.D.A.s they signed with Bloomberg L.P. to let them discuss harassment and discrimination accusations they had made against him. (Axios)

• Senator Bernie Sanders’ commanding win in Saturday’s Nevada caucuses is worrying the Democratic establishment. (Politico)

Tech

• Smart speakers like Amazon’s Echo activate accidentally and record users up to 19 times a day, a new study finds. (ZDNet)

• The European Data Protection Board warned that Google’s pending acquisition of Fitbit poses a big privacy risk. (Business Insider)

• Why Silicon Valley can’t get enough of “The Lord of the Rings.” (CNBC)

Best of the rest

• A Bahamas property battle between the Canadian fashion designer Peter Nygard and the hedge fund mogul Louis Bacon has escalated into a lawsuit accusing Mr. Nygard of sexually exploiting teenage girls. (NYT)

• Barclays is said to be preparing a search for a new C.E.O., with its current chief, Jes Staley, expected to step down by next year. (FT)

• Is there a bubble in so-called E.S.G. stocks? (FT)

Thanks for reading! We’ll see you tomorrow.

We’d love your feedback. Please email thoughts and suggestions to business@nytimes.com.