Legendary investor Warren Buffet, the CEO of Berkshire Hathaway, has been taking criticism for his approach to dealing with Coca-Cola’s executive pay. As Reuters’ Luciana Lopez reports from the Berkshire’s annual gathering:
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.
Activist investor Carl Icahn, Chairman of Icahn Enterprises, was also critical of Mr. Buffer in this weekend’s Barron’s, writing:
My colleagues and I have fought long and hard to change fellow board members’ attitudes and beliefs concerning their responsibility to shareholders, even if this change angers the CEO and some of his cronies sitting on the board. But if a man of Warren Buffett’s stature openly states he abstains from voting on plans he doesn’t agree with because he “loves” management and he doesn’t want to “express any disapproval,” how can we expect other board members in this country to voice their opinions, especially if they are opposed to the CEO’s interest?
Mr. Buffet, in his response to Mr. Icahn in Barron’s wrote:
Carl’s exposure to boards likely involves some adverse selection; he’s probably focused on companies he considers to be poor performers. But I agree that his observations about board behavior are correct in certain cases. I’ve certainly witnessed some of the behavior that he talks about in my 55 years of directorship, though I’ve also witnessed much excellent board behavior. I would suggest, however, that there’s more than one way to effect change.
Mr. Buffet expanded on this at the Berkshire gathering, as Reuters reports:
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.”
Two very different approaches:
Mr. Icahn’s public naming and shaming (some would say “bullying”) , versus Mr. Buffet’s non-confrontational, behind the scenes, friendly-nudge approach.
Barron’s, in an editor’s note, added at the end:
On Thursday, The Wall Street Journal reported that Warren Buffett had been working for several weeks behind the scenes, pressuring Coke CEO Muhtar Kent to alter the firm’s compensation plan to be less generous to executives. The story said Coke will probably revise the plan before it goes into effect next year but didn’t say exactly how much the plan will be changed.
A favorite saying of my good friend and the former FBI Agent, Ali Soufan, (CEO of The Soufan Group, my former employer), is: “You can catch more flies with honey than with vinegar.” He was one of the FBI’s most successful interrogators and special agents — so it certainly works. (Check out our book, the NYT top-10 bestseller, The Black Banners here).
Steve Jobs, the former CEO of Apple, was known for his more confrontational style (Walter Isaacson’s biography, entitled “Steve Jobs,” is excellent) and it worked for him – just look where Apple is today.
One can well argue, that different scenarios call for different actions. As Ecclesiastes wrote “there is a time for everything,” including:
a time to tear and a time to mend,
a time to be silent and a time to speak,
a time to love and a time to hate,
a time for war and a time for peace.
What’s your approach?