“Isn’t Berkshire Hathaways’ (Buffet’s son is the director on Coke’s board) decision to abstain from approving Coke’s equity plan a material piece of information that Coke was obligated to publicly disclose to its shareholders before they voted on the plan? What do you think? What does the SEC think?”, Mike Perry
“…David Winters of Wintergreen Advisers, who led the charge against the Coke equity plan….told me that if Buffett had announced a month before the Coke annual meeting that he was going to abstain, it might well have been a factor. “If people had known that Buffett had agreed with us that the plan was excessive, the outcome of the vote might have been significantly different,” he said. As it was, 83 percent of the shares voted favored the plan, a number Coke has been trumpeting….”, Joe Nocera, New York Times
The Opinion Pages | Op-Ed Columnist
Buffett Bites Back
The first Saturday in May is always a great day for Warren Buffett. That’s the day his conglomerate, Berkshire Hathaway, holds its annual meeting in Omaha.
Thousands of shareholders descend on the city — there were more than 30,000 last year — where they eat ice cream at Dairy Queen (one of Berkshire Hathaway’s holdings), shop at Borsheims (the Omaha jewelry store Berkshire has long owned) and dine at Gorat’s and Piccolo’s (Buffett’s favorite restaurants). This year, according to his annual letter, the festivities will also include a newspaper-tossing contest, and a blindfolded chess player and an American table-tennis champion who will take on all comers.
Mostly, though, investors come to hear Buffett and his longtime partner, Charlie Munger, answer questions, which they’ll do for six hours on Saturday. Some of the questions will be about Berkshire Hathaway. Others will give Buffett a chance to talk about the buy-and-hold stock strategy that has made him, at 83, the second-wealthiest American behind Bill Gates. Buffett has long called his annual meeting “Woodstock for capitalists.” But it’s really more like a revival meeting.
I wonder, though, if anyone attending this year’s meeting is going to ask him about his decision to abstain from voting Berkshire Hathaway’s 400 million shares against Coca-Cola’s equity compensation plan, even though Buffett felt the plan was, in his own words, “excessive.”
I am returning to this subject because, on Monday, following widespread criticism of his decision, Buffett gave a remarkable interview to Fortune magazine’s Stephen Gandel, an interview that was strikingly different in tone from his remarks of last week. When he first acknowledged to Becky Quick of CNBC that he had declined to vote against the compensation plan, he seemed flustered and mildly embarrassed. His reason, he said, was that he loved Coke and its management and he didn’t want to do anything that might be viewed as disparaging them. Given Buffett’s previous statements about the importance of institutional investors speaking out against excessive executive compensation, I thought he had been both cowardly and hypocritical. So did a lot of other people.
But having had a few days to lick his wounds, Buffett went on the offensive with Fortune. In abstaining, he told Gandel, he was taking a stand. “That’s a very loud voice coming from Berkshire,” he said. “It obviously means we don’t approve of the plan.” He added that the Coke board was simply acting the way all boards do: “The other guys are doing it so we will do the same thing. The idea of fundamentally re-examining the whole thing doesn’t occur to these companies.” Nor was Buffett willing to try to bring about such a re-examination, even though he was in the perfect position to do so in this case.
In fact, Buffett had it right when he spoke to Quick: He should be embarrassed. It’s actually worse than I had realized. My original assumption was that Buffett didn’t want to offend his fellow board members, especially those on the compensation committee, who had vouched for the equity plan. But Buffett left the board in 2006. (His son Howard joined the Coke board four years later.) As the company’s largest shareholder, he should have felt duty-bound to vote against the plan — or at least to let it be known beforehand how he was going to vote.
Indeed, when I asked David Winters of Wintergreen Advisers, who had led the charge against the Coke equity plan, what he thought about Buffett’s latest statement, he told me that if Buffett had announced a month before the Coke annual meeting that he was going to abstain, it might well have been a factor. “If people had known that Buffett had agreed with us that the plan was excessive, the outcome of the vote might have been significantly different,” he said. As it was, 83 percent of the shares voted favored the plan, a number Coke has been trumpeting ever since the annual meeting.
(Coke added in a statement: “The Coca-Cola Company Board respects Mr. Buffett’s philosophical stance on equity-based compensation. As our largest shareholder, Mr. Buffett is an avid supporter of the Company and its management team, and has been a wonderful counselor through the years.” In other words, no harm, no foul.)
In his annual letter to shareholders this year, Buffett gives a lovely dissertation on buy-and-hold “value” investing. He explains to readers that they shouldn’t be distracted by the white noise of the market, and that while he and Munger may make stock-picking mistakes, they won’t be the kind of disasters “that occur, for example, when a long-rising market induces purchases that are based on anticipated price behavior and a desire to be where the action is.”
When it comes to buying stocks, everybody should follow Warren Buffett’s example. But, on the subject of executive compensation, do what he says, not what he does.