Buffett defends Coke, BNSF at Berkshire annual meeting
Monday, 5 May 2014 00:00
REUTERS: Warren Buffett on Saturday defended his recent controversial vote on executive pay at Coca-Cola Co and disappointing performance at railroad BNSF, as investors grilled him on his Berkshire Hathaway Inc conglomerate at its annual shareholder meeting.
The investment guru was peppered with questions at the meeting, part of a mostly festive weekend that Buffett calls “Woodstock for Capitalists,” following concerns that Berkshire last year missed Buffett’s five-year growth target for the first time in his 49 years at the helm.
Buffett, 83, and Vice Chairman Charlie Munger, 90, took the stage at a downtown Omaha arena as they faced off with the audience and a hand-picked panel often excusing recent worries at the sprawling conglomerate. “Over any cycle we will over-perform, but there’s no guarantee on that,” he said. Berkshire, he said, is designed to perform best when markets are at their worst, unlike in 2013 when the Standard & Poor’s 500 rose 30%.
Buffett was immediately questioned about Berkshire’s decision to abstain from the shareholder vote on Coca-Cola’s equity compensation plan for executives, even though Buffett thought the controversial plan was excessive.
That revelation drew sharp criticism in the run-up to the meeting - particularly since Buffett has in the past called options wasteful and akin to a free lottery ticket.
Seated with Munger at a table containing several bottles of Coke and Cherry Coke, Buffett said that “going to war” would likely not have been productive, and that Berkshire’s abstention sent an even more effective message.
“We made a very clear statement about the excessiveness of the plan and, at the same time, we in no way went to war with Coca-Cola,” Buffett said. “I don’t think going to war is a very good idea in most situations.”
Buffett said he had conversations with Coke’s Chief Executive, Muhtar Kent, including one in Omaha, where he said he thought the plan was excessive.
“I think the best result for the Coca-Cola Company was achieved by our abstention, and we will see what happens in terms of compensation between now and the next meeting of Coke,” he said. Wall Street also came under the spotlight from a person complaining about why more individuals were not being held criminally responsible for recent misconduct, such as from the 2008 financial crisis.
“I don’t think there’s anything that changes behaviour more than prosecuting individuals,” Munger said.
Buffett agreed, recalling his experience at Salomon Inc more than two decades ago, when he became Chairman to help clean up a Treasury auction rigging scandal. “I may be biased from my experiences at Salomon, but I lean more toward prosecution of individuals than corporations,” he said. “It’s way easier to prosecute corporations – it’s somebody else’s money, and the prosecution knows it’s going to get a win.
The corporation’s calculus is such that it just doesn’t make sense to fight if you can just write a check, while the individual is fighting to stay out of jail.”
Buffett added that Berkshire could spend “many, many billions” to improve operations at the railroad, which is the country’s largest player in the booming oil-by-rail business.
In contrast, he said a different business, Berkshire Hathaway Energy, was more able to grow through acquisitions.
Buffett signalled he would gladly partner again with Brazilian firm 3G Capital with which he teamed up to buy ketchup maker H.J. Heinz Co last year for $ 23.3 billion.
“We’re very likely to partner with them, perhaps on some things that are very large,” Buffett said. “I think 3G does a magnificent job of running businesses.”
Later, he added: “What we really want to do at our present size and scope (is) buy big businesses with good management and prices, and then build them over time.”
Last year, Berkshire underperformed for the first time in nearly 50 years by Buffett’s own preferred measure: gains in the company’s book value, or worth, lagged the S&P 500.
Shareholders at the meeting also rejected a proposal that Berkshire start paying a dividend, after having not made any cash payouts since 1967.