BlackRock at Odds With Warren Buffett's Berkshire Hathaway Over Disclosures
May 06 2021 - 9:29AM
Dow Jones News
By Dawn Lim and Geoffrey Rogow
The world's largest asset manager is in disagreement with the
world's most famous investor.
BlackRock Inc. voted for two shareholder proposals that would
require Warren Buffett's Berkshire Hathaway Inc. to publish
disclosures on how it manages climate risk and diversity efforts
across its many businesses. Berkshire's two shareholder-led
proposals didn't pass, but around a quarter of votes cast were in
favor of the two proposals, Berkshire said during its annual
meeting Saturday.
BlackRock's vote highlights the growing tension between asset
managers who are calling for companies to further emphasize ESG
issues and executives who are pushing back. Mr. Buffett has
defended the company's current policies.
"The company is not adapting to a world where environmental,
social, governance (ESG) considerations are becoming much more
material to performance," BlackRock wrote in a bulletin about its
Berkshire decision.
The $9 trillion asset manager has already said it would wield
votes it controls for investors more aggressively following
criticism that it defers too often to company executives. In recent
months it signaled it is more willing to support shareholder-led
proposals on environmental, social and governance issues.
BlackRock isn't alone in expressing discontent with Berkshire's
lack of disclosure. Institutional investors' willingness to take on
the company contrasts with the cult following of Mr. Buffett among
his legions of fans -- many of whom are professional investors
themselves.
The results from Saturday mark "significant and growing
disagreement" with the firm's disclosures, said Meyer Shields, an
analyst with Keefe, Bruyette & Woods.
Several large investors backed the demand for more disclosures.
Federated Hermes, California Public Employees' Retirement System
and Caisse de dépôt et placement du Québec co-sponsored the
proposal calling for climate risks reporting. Neuberger Berman
supported that proposal and also voted against some directors,
arguing Berkshire's board wasn't sufficiently independent.
In addition to its votes on shareholder-led proposals, BlackRock
also voted against the re-election of two Berkshire directors. It
said Berkshire didn't interact enough with institutional
shareholders, didn't have an adequate plan for addressing climate
risks and lacked a lead independent board director.
Mr. Buffett has been critical of independent board members in
the past.
Most recently, in his 2020 annual letter, Mr. Buffett said
independent board members are paid hundreds of thousands of dollars
for only a few days of work a year. He said they aren't vested in
the future of the company and too often side with whatever
management wants.
"I feel better when directors of our portfolio companies have
had the experience of purchasing shares with their savings, rather
than simply having been the recipients of grants," he wrote at the
time.
Berkshire's dual-share class structure leaves many shareholders
with little voting power compared with company insiders. Mr.
Buffett controls about a third of voting power at Berkshire.
So far, Berkshire executives have dismissed the votes by
institutional investors.
"Overwhelmingly the people that bought Berkshire with their own
money voted against those propositions," Mr. Buffett said Saturday.
"Most of the votes for it came from people who've never put a dime
of their own money into Berkshire."
He said making all the companies across Berkshire's sprawling
empire fill out a questionnaire because some outside organizations
asked for it was "asinine." It also went against the concept of
autonomy the company was built on. The company has made clear to
shareholders it recognizes that managing climate risks and a
diverse workforce are important to the success of the firm.
Legions of individual investors who are devotees of Mr. Buffett
traditionally vote in line with Berkshire's recommendations.
For Berkshire, this army of individuals is a powerful ballast
against professional investors. If this crucial base becomes less
loyal once the 90-year-old Mr. Buffett gives up leadership of
Berkshire, it could change the voting dynamics.
"I don't think his successor will be given the same latitude to
say, 'We don't want to do it, therefore we won't do it,' " Mr.
Shields said.
If fewer individual investors stick around with the stock when
Mr. Buffett steps down, it will be harder for Berkshire to refuse
the demands of professional investors, he added.
Berkshire has chosen Berkshire vice chairman Greg Abel to take
over as chief executive when Mr. Buffett retires.
Some longtime Berkshire shareholders have reiterated their
support for Berkshire, now that succession plans have become
clearer.
"We couldn't be more pleased," said Berkshire shareholder Thomas
Russo, managing partner of Gardner Russo & Quinn, of the
decision to have Mr. Abel take over someday.
Write to Dawn Lim at dawn.lim@wsj.com and Geoffrey Rogow at
geoffrey.rogow@wsj.com
(END) Dow Jones Newswires
May 06, 2021 09:14 ET (13:14 GMT)
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