By Josh Funk, AP

OMAHA, Nebraska -- Billionaire Warren Buffett said Saturday that CEOs and the boards that hired them should pay a steep price if their companies get into trouble with risky investments.As part of his annual letter to Berkshire Hathaway Inc. shareholders, Buffett encouraged other corporations to develop meaningful penalties for top executives who misjudge risk so they will be more careful. Buffett lamented that shareholders, not chief executives and directors, have borne most of the burden of company failures during the economic crisis of the past two years.

"In my view a board of directors of a huge financial institution is derelict if it does not insist that its CEO bear full responsibility for risk control," Buffett wrote. "If he's incapable of handling that job, he should look for other employment. And if he fails at it -- with the government thereupon required to step in with funds or guarantees -- the financial consequences for him and his board should be severe."

Buffett told his shareholders he initiates and takes full responsibility for every derivative contract Berkshire writes. Those contracts helped deliver a largely unrealized US$787 million gain in investments in 2009 after a US$7.5 billion loss recorded in 2008.

That gain in the value of investments helped Berkshire post net income of US$8.055 billion, or US$5,193 per Class A share, for 2009. That's up 61 percent from the previous year's US$4.994 billion, or US$3,224 per share, and better than analysts expected. Revenue rose 4.4 percent to US$112.5 billion in 2009 from US$107.8 billion a year earlier.

But Buffett also acknowledged mistakes he made in the past year, including allowing debt and losses at fractional jet ownership unit NetJets to grow for too long, and suggesting a credit card through the Geico insurance unit that turned into a fiasco.

Some 98 percent of Buffett's net worth is tied up in Berkshire stock as part of the company's owner-manager philosophy, meaning he takes a personal hit if the company performs badly.Buffett devoted much of his annual letter to educating new shareholders about the company. Berkshire added about 65,000 stakeholders in February as part of its US$26.7 billion acquisition of railroad operator Burlington Northern Santa Fe Corp. So those new investors may not be familiar with Buffett's hands-off approach to managing its roughly 80 subsidiaries or just what's included in the Omaha-based company.

Berkshire's holdings include clothing, furniture and jewelry businesses, but its insurance and utility businesses typically account for more than half of the company's revenue. It also has major investments in companies such as Coca-Cola Co. and Wells Fargo & Co.

Buffett said he is "hoping to provide both a freshman orientation session for our BNSF newcomers and a refresher course for Berkshire veterans."

Much of the reason for the increase in profit in 2009 had to do with the value of Berkshire's investments and derivative contracts, some of which are tied to equity indexes. While Berkshire's annual profit exceeded what analysts expected, the company fell short of the growth posted by the Standard & Poor's 500 index, which is Buffett's preferred measure of performance.

Buffett said Berkshire's book value -- assets minus liabilities -- grew 19.8 percent to US$84,487 in 2009. The S&P 500, which Berkshire recently joined, gained 26.5 percent last year when dividends are factored in.

Three analysts surveyed by Thomson Reuters had estimated that Berkshire's book value per share at the end of 2009 would be US$83,391.44. They had expected full-year earnings per share of US$4,712.47.

Berkshire finished the year with US$30.6 billion in cash on hand, although it has since used about US$8 billion of that to complete the BNSF acquisition. The company's cash level is down 31 percent from the US$44.3 billion it held at the end of 2008 because it made a number of investments.

"It's been an ideal period for investors: a climate of fear is their best friend," Buffett wrote.

By Josh Funk, AP