Why Warren Buffett Runs Berkshire Hathaway His Way
Warren Buffett has long been known as a liberal executive. The Omaha billionaire has contributed millions to pro-choice organizations, he has raised money for Barack Obama and Hillary Clinton and he often calls for higher taxes on the wealthy.
Mr. Buffett’s recent annual letter to shareholders of Berkshire Hathaway, the conglomerate he has run for 58 years, boasted that Berkshire had paid $32 billion in taxes over the past decade. He said he hoped to pay more in the future: “We owe the country no less,” wrote Mr. Buffett, a Depression-era baby in his 93rd year.
Yet as the Berkshire faithful gather for their annual meeting in Omaha on Saturday, Mr. Buffett is decidedly out of step with the progressive orthodoxy in corporate boardrooms. To Mr. Buffett, boards’ rightful role is, as ever, to serve the shareholders who have risked their capital. Institutional investors such as BlackRock’s Larry Fink have pushed E.S.G. — or environmental, social and governance — investing to turn corporations into agents of progressive change.
Scores of corporations have in the last few years adopted climate and diversity policies. The Business Roundtable, a chief executives group, proclaimed it no longer believed that corporations exist principally to serve shareholders. This is a little like the Communist Party dropping its primary allegiance to workers.
Mr. Buffett is having none of it. He is socially conscious and over the years has expressed concerns on topics as varied as inflation and nuclear proliferation. But he is dismissive of social governance warriors seeking to hijack the corporate mission. Most such critics represent institutions. Mr. Fink, mutual fund groups like Vanguard and state pension funds manage other people’s money — they advocate their opinions, not their purses. Mr. Buffett feels a greater allegiance to shareholders who purchased stock as he did — with their own cash.
Not surprisingly, Mr. Buffett has become a target for progressive institutional investors. At last year’s annual meeting, shareholders solicited proxy votes to force Berkshire to adopt four new policies, mostly on climate and diversity. They lost handily. (A resolution calling for Mr. Buffett to step down as board chairman, though not as C.E.O., fared the worst.) This year, Mr. Buffett faces six proxy challenges related to climate, diversity and corporate governance.
CalPERS, which manages retirement funds in California, demands that Berkshire publish an annual “assessment” on how it manages climate risks. As You Sow, a nonprofit advocacy group, proposes that Berkshire issue a report disclosing how it intends to reduce emissions “associated” with its big insurance business.
In the proxy solicitation sent to shareholders, As You Sow charges that Berkshire “is not adequately reducing the climate footprint” from insurance. “Berkshire is a laggard,” the group writes, “scoring 0 of 10 in a survey of the 30 largest global insurers.” Whatever his feelings about climate change, Mr. Buffett regards surveys and checklist-style scorecards as wasteful sloth — the enemy of good management. He has advised shareholders to vote against all six proposals. (This is a good place to note: I’m not only a Warren Buffett biographer, I’m also a long-term Berkshire stockholder.)
How did Wall Street’s wealthiest liberal come to be a refusenik? The simple answer is that Mr. Buffett hasn’t changed even as the political climate has. Mr. Buffett was the son of a conservative Republican who served four terms in Congress. While he inherited his father’s sense of fiscal prudence, Mr. Buffett in the 1960s switched his primary allegiance to the Democrats because of their leadership on civil rights. For him, meritocracy is a transcendent value. He abhors discrimination; for not dissimilar reasons, he sneers at trust fund babies for receiving an undeserved head start and has pledged to give an overwhelming majority of his wealth to charity, not to his kids. He also has broken from his father’s small-government credo and often praises American democracy for creating the conditions for prosperity.
Mr. Buffett parts company from boardroom progressives for two reasons, one having to do with style, the other substance. He is fiercely independent, not surprisingly for a contrarian investor. He takes pains to control his agenda; over the years, friends who asked for even a token contribution to a pet cause were typically disappointed. In his mid-70s, Mr. Buffett announced he would leave the bulk of his estate to the foundation run by his friend Bill Gates. Other than that, he does not outsource his political or social convictions.
This inner-directed style colors everything about Berkshire. Unlike other C.E.O.s, Mr. Buffett does not employ handlers or spokespeople. Calls are typically answered in seconds, not hours. Even Berkshire’s proxy statement reflects Mr. Buffett’s minimalism (many are weighty tomes; Berkshire’s is 19 pages).
Although Berkshire is a corporate octopus with 383,000 employees and more than 60 operating groups — everything from energy and manufacturing to residential brokerage and a premium candy brand — only 26 employees work in the corporate office. It eschews corporatewide directives and procedures, letting the units run with near autonomy.
Two of its businesses, Berkshire Hathaway Energy and BNSF Railway, account for more than 90 percent of the company’s fossil fuels consumption; each discloses its carbon footprint and a timeline for reduction. Berkshire Energy, which serves 12 million customers, says half of its electricity stems from noncarbon fuels. (About 40 percent of electricity in the United States is generated using zero-carbon fuels.) Berkshire Energy has invested more than $30 billion in renewables, much of it on infrastructure to, as Mr. Buffett puts it, get power from where the wind blows to where people live. Meanwhile, it has been shuttering coal facilities.
But Mr. Buffett rejects what he regards as implausible deadlines, mocking with studied impartiality both “defenders of the old order” and “unrealistic visionaries desiring an instantly new world.” He rebuffs the idea that the insurance unit, for example, should monitor the carbon use of its customers. The insurance subsidiary, the proxy notes, is in the business of gauging risk. In terms of the potential effect on profits — the reason for securities disclosure — Mr. Buffett does not distinguish politically charged categories such as climate from other risks. He bristles at the idea of subjecting Berkshire’s operating groups, which have vastly different energy profiles, to a boilerplate.
“We don’t want to be preparing a lot of reports and asking 60 subsidiaries each to do something,” Mr. Buffett said at a past meeting. “We’re not going to spend the time of the people at Berkshire Hathaway Energy responding to questionnaires or trying to score better with somebody that is working on that.” He noted that corporate America is worried about activists stirring up controversy, but at Berkshire, where Mr. Buffett owns 31.6 percent of the voting stock, “we don’t have to worry about that.”
Mr. Buffett has said his critics do not read the company’s disclosures, and he has a point. While Berkshire is attacked for not disclosing enough on diversity, the company, as required, provides reams of data to the U.S. Equal Employment Opportunity Commission, which it makes public (58 percent of its insurance work force is female; 45 percent in service/retail/distribution identify as diverse). But it declines to issue a separate report on its diversity efforts. And few corporations would proclaim, as Berkshire does, that it “does not have a policy” on how diversity affects consideration of board nominees.
Since four directors are women and two are ethnically or racially diverse, this might seem a matter of semantics. But there is a genuine gulf between Mr. Buffett and progressive critics. Mr. Buffett’s liberalism is of the classic Adam Smith variety: Private initiative, properly regulated, leads to social good. That used to be just about everyone’s view, but no more.
Corporate boards are now assembled like political platforms, with consummate attention to satisfying multiple interests. Berkshire chooses directors on the basis of “business savvy” and owner — not “stakeholder” — orientation. In short, Mr. Buffett remains a full-throated believer that boards exist to represent shareholders.
In his 2021 letter to stockholders, he recalled that before he assumed control of Berkshire, which was then a struggling textile manufacturer, it contributed a “pathetic” $100 per day in federal taxes. After decades of growth and diversification (textiles are long gone), the tab has risen to $9 million per day — 1/1000th of all individual and business federal taxes paid, he calculated. Mr. Buffett’s message was that profitability is a social good, demonstrating the “often unrecognized financial partnership between government and American businesses.”
A small part of Berkshire’s profit, and thus its taxes, stemmed from share buybacks — a corporate tactic that progressives have taken dead aim at. In his most recent letter, Mr. Buffett came close to calling such critics anti-business know-nothings. He regards share repurchases as a perfectly valid tool for managing capital; when he labeled criticism of buybacks as coming from “either an economic illiterate or a silver-tongued demagogue,” he seemed to be targeting some congressional Democrats as well as President Biden, who have legislated taxes on buybacks.
Repurchasing (undervalued) shares conforms to Mr. Buffett’s belief that the C.E.O.’s duty is to protect, and over time enhance, per-share value. His reverence for guarding shareholders’ interests is seen in his asceticism on compensation. Many chief executives espouse progressive principles; few apply them to their own paychecks. Mr. Buffett has never taken a stock option nor more than $100,000 in salary. (He also is compensated for security services for the house he has lived in since the late 1950s.) Nor does Berkshire pay dividends; Mr. Buffett thinks he can do better for shareholders by retaining their capital. Since Mr. Buffett, personally, has never sold a share, his $100 billion in Berkshire stock is effectively being held in trust for future generations. He supports his lifestyle with assets outside of Berkshire.
If form holds, at Saturday’s meeting Mr. Buffett — and his sidekick, the curmudgeonly vice chairman Charlie Munger — will get plenty of questions related to corporate governance and even politics. Neither is likely to change his mind, and most shareholders seem to like it that way. Last year, assuming the dissident votes came from institutions, individual holders overwhelmingly backed management. Mr. Buffett may not conform to the fashionable standards of the Business Roundtable, but he is still in good graces with one group — individuals who trust him to manage their savings.
Roger Lowenstein is a financial journalist and the author of “Buffett: The Making of an American Capitalist.”
The Times is committed to publishing a diversity of letters to the editor. We’d like to hear what you think about this or any of our articles. Here are some tips. And here’s our email: firstname.lastname@example.org.
Follow The New York Times Opinion section on Facebook, Twitter (@NYTopinion) and Instagram.