BlackRock at Odds With Warren Buffett's Berkshire Hathaway Over Disclosures
|05/06/2021 | 07:14am|
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 firstname.lastname@example.org and Geoffrey Rogow at email@example.com
(END) Dow Jones Newswires