Professional money managers intensify the efforts of Berkshire Hathaway Inc. of Warren Buffett
The California Civil Service Retirement System and Neuberger Berman have asked the Omaha, Nebraska conglomerate to hire new directors and provide more information on climate risks and executives’ salaries.
During Berkshire’s annual meeting on Saturday, proxy advisors Glass Lewis & Co. and Institutional Shareholder Services Inc. advised investors to keep their votes for board members.
Although many of the complaints are not new and none of the shareholders̵
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The movement of shareholders to pressure companies on climate change, social progress and governance continues to gain momentum in the United States, emerging as a key selling point for money managers in their efforts to save customers’ money.
Under Mr. Buffett’s leadership, the company boasts 20% combined annual profits from 1965 to 2020, exceeding 10.2% of S&P 500 profits, including dividends over the period. Berkshire’s total return over the last three and five years is 12% and 14%, respectively, compared to 19% and 18% of the index.
“Berkshire received the omission in part because of its historically strong financial results,” said Simiso Nzima, head of corporate management at Calpers.
Berkshire continues to emphasize its constant focus on the long game. Mr. Buffett, CEO and chairman of the company, has created a diverse portfolio of predominantly American businesses and investments designed to perform for decades rather than compete with a volatile market backed by thriving technology stocks.
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Calpers, the country’s largest public pension fund with $ 444 billion in assets, co-financed a shareholder proposal asking Berkshire to provide more information on climate-related risks and opportunities.
The pension fund also withheld its vote to re-elect members of the audit and management committees on the grounds that it had not met shareholders’ requirements regarding climate risk disclosure. He said he was concerned that there were no new members on the board, did not engage with shareholders and did not allow investors to vote on executive directors’ pay plans.
“If you don’t refresh the board, you don’t have the next generation of directors who can learn from longtime directors before they leave the board,” Mr Nzima said.
Berkshire declined to comment before Saturday’s meeting of the company.
Neuberger, a private money manager with more than $ 429 billion in assets, also said he would vote on several shareholder-led proposals related to environmental, social and corporate issues, often abbreviated as ESG.
“One would think that if companies were responsible for caring for the environment or delivering good social and governance results, Berkshire could be a leader in these areas,” said Michel Giordano, a Neuberger analyst who follows the company. “But he doesn’t look like them.”
Berkshire said in its annual power of attorney that while agreeing that companies have a responsibility to manage climate risks, it prefers to allow its various operating units to engage in their own environmental policies. The mandates of a small corporate office, the company writes, would violate the autonomy that has helped these companies thrive under Berkshire’s ownership. For example, Berkshire Hathaway Energy is already preparing a sustainability report.
Calpers also pledged to support a proposal requiring the company to report on its efforts to diversify its staff.
Berkshire said the proposal for a diversity report incorrectly suggested that “there is a standardized technique for each of Berkshire’s more than 60 operating businesses to address diversity, equity and inclusion.”
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“It would be unreasonable to require uniform quantitative reporting for the purpose of comparing such different operations in different geographical locations,” Berkshire writes.
Glass Lewis and ISS advised shareholders to vote on ESG’s proposals and withhold votes for some directors.
“This year, much more attention is being paid by key investors to ESG,” said Courtney Keating, senior director of ESG research at Glass Lewis.
Another factor is at stake: Berkshire shares are slowly changing hands.
Mr Buffett’s long-standing plan to shrink his stake in the company over time has shifted more shares of Berkshire to large institutional investors, said Lawrence Cunningham, a law professor at George Washington University who writes extensively about the company.
About 70% of Berkshire’s shares are owned by individuals, many of whom are long-term owners loyal to Mr Buffett, Mr Cunningham said. And many don’t care if Berkshire lacks a corporate sustainability report or an investor relations team ready to answer their questions.
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“Berkshire’s unusual and valued family of individual shareholders may contribute to your understanding of our reluctance to court Wall Street analysts and institutional investors,” Mr Buffett wrote in his latest letter to shareholders. “We already have the investors we want, and we don’t think they will be upgraded in a balanced way with substitutes.”
However, the gradual increase in institutional ownership may already allow professional managers to put pressure on Berkshire on governance issues. When Mr. Buffett and his estate sell off their remaining shares, it is likely that these cash managers will have an even larger stake in the company, Mr Cunningham said.
“Significant leadership and structural change will emerge, and these owners are preparing for this battle,” Mr Cunningham said.