It’s Saturday, April 30th, and 40,000 shareholders are lined up for blocks outside the Berkshire Hathaway Annual Meeting, some since 3 a.m., hoping to get a front row seat. At the Qwest Center, a marquee for upcoming events shows rock stars and superheroes, which seems appropriate for the world’s largest gathering of shareholder capitalists. Once inside the arena, people stumble over themselves to shake hands and bask in the aura of Warren Buffett, 80, and his partner, Charlie Munger, 87, as they step smartly onto the floor. They look impossibly vigorous and energized. For board directors at large, the distilled wisdom of Buffett and Munger is the Berkshire equivalent of a Harvard MBA.
Boardroom Etiquette
The Berkshire Annual Meeting will be open, provocative and orderly. Unlike other public companies’ AGM, there will be no gadflies or noisy activists. Nor will there be protestors unless you consider those spouses who skipped the chance to buy jewelry directly from Warren Buffett at Borsheim’s. Why aren’t protestors and activist rabble-rousers here? Because Berkshire’s shareholders would rally for the company. Courtesy prevails, aided by the fact that no other company is so focused on ethical behavior and corporate performance, and so not focused on personal enrichment or compensation, yet is so very rich and very well compensated.
No other company is so transparent— even on issues such as executive compensation, scandal and succession. Yet it is notoriously private. Therein lies the irony. For Berkshire shareholders, irony is preferable to the agony that greets so many public company annual meetings.
What makes the Berkshire meeting so riveting is the chance to watch Buffett and Munger spend as many as nine hours answering unrehearsed questions from shareholders that have been selected by three outstanding financial journalists— Carol Loomis of Fortune magazine, Andrew Ross Sorkin of The New York Times and Becky Quick of CNBC. The meeting and its full-day questionand- answer format requires the Berkshire leaders to have unfathomable resources of energy for one purpose: to demonstrate their total commitment to the shareholder. There is a reason why See’s Peanut Brittle shares the dais with their microphones.
What’s in it for these two billionaires? It’s how they learn. The prodding and questioning sharpen them and focus their attention. Nothing is opaque and transparency rules. Finally, Buffett has an unshakable faith that telling the complete truth is the only way to ensure you won’t be testifying against someone else’s version years later.
Opening Lines
“Good morning, I’m Warren, he’s Charlie. I can see, he can hear, that’s why we work together.” And so we have the basic requirements for a visionary and his sounding board.
Then Buffett makes a short announcement: “We ask that you not use any devices to record this meeting. Participants in our film [Steve Carell and the cast of The Office] have contributed their time as individuals—without pay, of course— and we want to respect their rights to their work. If you happen to see anyone making a recording, please ask them to stop.”
He is pure Old Testament, relies on the rule of law and respect for ownership. He’s a bit cynical, too. And, like the rest of us, he likes things for free.
Sokol and Other Questions
After his opening remarks, Buffett launches into the Q&A focused on the one thing on everyone’s mind: David Sokol. The media have been circling the wagons and shareholders are wondering: Could this be the iceberg that dents, if not sinks, the Berkshire succession plan?
David Sokol, once thought to be a possible successor to Warren Buffett, talks to a shareholder at the 2010 annual meeting.
Buffett reveals his hand by playing a clip from the Salomon Brothers testimony he gave before Congress in 1991. His words then echo his belief today. In his testimony then, Buffett promised “full cooperation” to the committee and offered a fig leaf as well as a sharp-edged sword to his new employees: “Lose money for the firm, and I will be understanding. Lose a shred of reputation for the firm, and I will be ruthless.” As the clip ends, the shareholder audience cheers. They, like their chairman, want to do the right thing. This is what their company stands for. This is how their CEO thinks and lives. This is their annual meeting.
‘Inexplicable and Inexcusable’
Buffett gets down to the details of the Sokol story—he takes it as his duty to explain how psychology and executive behavior could lead a Berkshire executive to violate the company’s code of ethics, although he admits the matter is still incomprehensible to him. And with that, Buffett moves closer to the microphone and relates the details of the matter to his shareholders, skipping none of the embarrassing facts, and not without some sadness (which he then posts verbatim on the Berkshire website).
“In looking at what happened a few months ago with Dave Sokol’s failure to notify me at all that he’d had any kind of contact with Citigroup, in fact, he directed my attention to the fact that they represented Lubrizol and never said a word about any contact with them, and then the purchase of stock immediately prior to recommending Lubrizol to Berkshire…I don’t think there’s any question about the inexcusable part. The inexplicable part is somewhat—well, it’s inexplicable, but I’d like to talk about it a little bit because I will tell you what goes through my mind.
A great read and just as much common sense on how to deal with ethical crises, governance, pay for performance and succession.