The Buffet "Rule" on Due Diligence

I was watching a documentary about Warren Buffet the other day and at one point they were reviewing the details of one of his more recent financial deals. They noted that in his purchase of some multimillion dollar business or other, he did not retain legal counsel to conduct due diligence of any kind nor to draft the purchase agreement. That raises an intesting question about the value of legal advice on a business deal.

I have read several books on Buffet and watched countless documentaries on the man; he’s a fascinating portrait of success and certainly only a fool would suggest that his business principles shouldn’t be adhered to – there are even a few MBA programs that seek to mimic his investing philosophy. The conclusion for some may be that legal advice may not be needed on a large acquisition – I’ve certainly had clients who believe that – some have even concluded their own large deals without legal assistance of any kind. I think that’s a huge mistake.

What the documentary didn’t cover in much detail was the fact that when Buffet did the particular deal in question, he’d had more than a half century of business experience at the highest levels. He had done hundreds of deals, had personally orchestrated dozens of major business purchases, had been intimately involved with the due diligence and legal negotiations on almost all of them and had spent years watching the target company in question with the eyes of a professional business analyst. Few business people, or even business lawyers, have the kind of eye for a deal that Warren Buffet has.

I think the takeway lesson should be that when you reach Warren Buffet’s level of sophistication, you can decide whether or not to involve legal counsel in a deal of any significant size. But until then, I firmly believe that only a fool would enter into any major business agreement without getting legal advice on it.

Scott R. Young