The Snowball_ Warren Buffett and the Business of Life - Alice Schroeder [474]
The rules of ISS, however, were based on a checklist, with no leeway whatsoever for common sense. CalPERS, the powerful California Public Employees’ Retirement System, also decided to withhold support for half of Coke’s directors, among them Buffett, in his case because the audit committee on which he sat had approved the auditors to do nonaudit work.9 While CalPERS was taking a principled stance on auditors, this recommendation was sort of like putting out the candles on a birthday cake with a fire extinguisher.
Buffett made a quasi-joke of it in public, saying that he was paying CalPERS and ISS to rally votes against him as an excuse to get off the board. But in fact he was mad, especially at ISS. It seemed obvious to him that the billions of dollars’ worth of Coca-Cola stock that Berkshire owned grossly outweighed the Coke products that Berkshire Hathaway bought.
“If I were a wino off the street, those amounts they’re talking about might be significant. But I own eight percent of Coca-Cola. We’ve got so many more dollars in Coke than anything else. How would I possibly favor Dairy Queen’s interests over Coke’s when I own so much more of Coke’s stock?”
Herbert Allen sent an emotional letter to the Wall Street Journal, citing the Salem witch trials, when “reasonably stupid people accused reasonably smart and gifted people of being witches and casting spells. Then they burned them…. Up until the geniuses at ISS said it, nobody knew that Warren was really a witch.”10
When corporate board members were surveyed, they unanimously thought Buffett was their dream director. “We would come and wash Buffett’s car to have him on our board…. There’s not a person in the world who wouldn’t take himon their board…. CalPERS’s action shows the stupidity of corporate governance run amok…analogous to an NFL coach preferring an unknown quarterback from a Division II college instead of a Super Bowl quarterback…. If you were a shareholder, given the choice to have Warren Buffett on that board or not, you’d want him.”11 The Financial Times referred to ISS as the Darth Vader of corporate governance, citing a position that “smacked of dogma.”12 With inkwells of backlash spilling all over them, CalPERS and ISS began to look foolish, “somewhere between hideous and self-promoting populists,” as one retired CEO put it on the survey. “How could you bring yourself to a position where you would vote against him as a director and think that was a pro-shareholder thing to do? What a ridiculous piece of advice.”13
Throwing Buffett off the board to improve the audit committee was like firing your doctor because you were still sick. What Coca-Cola needed was more Buffett, not less. ISS responded by saying that it was not advocating a vote against Buffett. Rather, it was saying to “withhold” votes from him because of his position on the audit committee.14 But withholding a vote was not voting for Buffett, no matter how you parsed the words or why you said you did it. The more ISS explained, the less anyone was convinced.
The bigger problem was that ISS was not just giving advice. Because so many investors had simply delegated their voting rights to it, ISS was more like a single behemoth shareholder that controlled as much as twenty percent of all the board votes for major corporations in the United States. The securities laws had not anticipated that a situation could arise in which one unregulated, magisterial “shareholder” held so much power over American businesses. But there it was.
Buffett had a passionate view of corporate board responsibilities, founded in his partnership