Deciphering Berkshire Hathaway's 2023 Proxy Statement
Some thoughts on share repurchases, executive compensation, shareholder proposals, and more...
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On Friday evening, Berkshire Hathaway released its 2023 proxy statement — which contains executive compensation data, shareholder proposals, and other relevant information ahead of the upcoming annual shareholders meeting.
While others were out carousing on St. Patrick’s Day, I instead hunkered down to read and digest this latest filing from Warren Buffett and co. (Truth be told, it wasn’t much of a sacrifice.)
A lot of people’s eyes glaze over when confronted with an SEC filing — and for good reason. Companies seemingly go out of their way to drown readers in a sea of jargon and legalese.
Berkshire Hathaway is (way) better than most in this regard, but many of its shareholders still drag their feet instead of reading the proxy.
So, in the spirit of public service, I’ve gone through Berkshire’s proxy statement several times, pulled out the most important details and information, and tried to summarize them in plain English. I hope it proves helpful.
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BOARD OF DIRECTORS: A spot on any company’s board is a prestigious honor. And, typically, comes along with a nice paycheck. We’re talking many tens of thousands of dollars — and, in some cases, well beyond that — in annual fees paid to each director.
Not at Berkshire, though. These fifteen directors certainly don’t do it for the money.
Non-employee directors receive:
$900 for each in-person meeting
$300 for each phone meeting
Members of the Audit Committee also get $1,000 per quarter.
And that’s it.
In 2022, Susan Decker, Christopher Davis, and Meryl Witmer each made $7,000 in director fees. The others were all between $2,700 and $4,000.
Obviously, this is no sinecure to enrich powerful people. But, rather, a group of carefully-selected stewards who care deeply about the future of Berkshire.
How to find such stewards?
The Governance Committee looks for individuals who have very high integrity, business savvy, an owner-oriented attitude, a deep genuine interest in Berkshire, and have had a significant investment in Berkshire shares relative to their resources for at least three years. These are the same attributes that Warren Buffett, Berkshire’s Chairman and CEO, believes to be essential … to be an effective member of the Board of Directors.
Last year was one of change on the Berkshire board. Two long-time directors, Tom Murphy and David “Sandy” Gottesman, passed away — leaving a void of experience and trust.
Wallace Weitz joined after Murphy’s resignation in February 2022 and, later, Tom Murphy Jr. replaced the departed Gottesman.
In A Song of Ice and Fire (which inspired HBO’s smash-hit Game of Thrones), the Northmen often remark that, “There must always be a Stark in Winterfell.”
I guess the Buffett version of that adage is, “There must always be a Tom Murphy on Berkshire Hathaway’s board of directors.”
SHARE REPURCHASES: Berkshire bought back about $8 billion of its own stock in 2022. A nice chunk, but far below the $50+ billion spent on repurchases across 2020 and 2021. Happily, the just-released proxy statement reveals that Berkshire’s buyback pace is picking up steam once again.
In last month’s 10-K, we learned that Berkshire had already spent about $700 million on share repurchases in the first six weeks of the year.
Since February 13, though, the outstanding share count (Class A equivalent) has dropped from 1,458,235 to 1,455,698. It’s tough to put an exact number on these repurchases, but a safe approximation would be $1.1 to $1.2 billion. In all, Berkshire appears to have spent about $1.8-1.9 billion on buybacks through March 8, 2023.
And, with the share price falling even further this month, there might still be more to come.
I try not to predict Warren Buffett’s future moves — because I usually end up being wrong — but it seems a safe bet that there will be more repurchases in Q1 2023.
RISK DISCLOSURES: One of the odder news stories from last week was a Reuters report that the SEC asked Berkshire to provide more risk disclosures in this year’s proxy statement.
Talk about barking up the wrong tree.
I can’t think of any other company that takes risk management and oversight more seriously than Berkshire Hathaway. But regulators gonna regulate, I guess.
(The SEC’s request arrived in Omaha last September, so it’s not even related to Silicon Valley Bank’s recent risk-induced meltdown.)
Nevertheless, Berkshire complied with the SEC’s handwringing and added a short statement to its proxy.
Berkshire’s chief risk officer is its Chairman and CEO, Warren Buffett. Mr. Buffett and the members of the Audit Committee believe it is important that the full Board have overall responsibility for risk oversight. Berkshire rarely utilizes outside advisors and experts to anticipate future threats and trends. Mr. Buffett, along with Berkshire’s three Vice Chairmen, are continually assessing risks.
Hopefully, that’s the end of that.
EXECUTIVE COMPENSATION: I think we can all agree that Warren Buffett and Charlie Munger are drastically underpaid. Each has kept his annual salary at $100,000 for more than twenty-five years — and specifically told Berkshire’s compensation committee not to raise it.
Buffett opens up the pursestrings for Greg Abel and Ajit Jain, though. The vice chairmen, who oversee much of Berkshire’s day-to-day operations, each received $19 million in total compensation ($16 million salary plus $3 million in bonuses) in 2022.
The proxy also states that the factors considered by Buffett for Abel and Jain’s compensation are subjective “such as his perception of each of their performance and any changes in functional responsibility”.
Unlike at most companies, top executives like Abel and Jain receive no stock-based compensation. If they want to purchase Berkshire stock — and, as directors, Buffett certainly encourages it — they’ll need to use their paycheck to do so. No dilution for current shareholders and a big financial commitment from the executives in question.
Anyway, I bet Buffett considers those salaries to be a relative bargain. Not necessarily cheap, but providing great value to the Berkshire empire.
“You’ll never pay a really top-notch executive … as much as they are worth,” he said in 1990. “$1 million, $3 million, or $10 million, it’s still peanuts. The problem is, executive compensation is too homogeneous. We’re paying the .200 hitters too close to the .350 hitters.”
And, as executives, Greg Abel and Ajit Jain boast Cooperstown-worthy track records.
BERKSHIRE HATHAWAY ENERGY: Walter Scott, the late Berkshire director, owned approximately 8% of Berkshire Hathaway Energy. After his death in September 2021, that interest passed to his estate.
As the matter currently stands, Berkshire has first dibs on the Scott estate’s BHE shares if they are ever put up for sale. Likewise, the Scott estate can “put the shares” to Berkshire at any time — and receive its payment in Berkshire stock.
If the two sides cannot agree on a price, a fair market value will be determined by independent appraisal.
To put the potential price into perspective, Greg Abel sold his 1% interest in BHE for $870 million last June. That implies a total value of $87 billion for the energy company. (At that level, the Scott estate’s stake would be worth about $6.96 billion.)
Presumably, the price tag has only gone up since then.
SHAREHOLDER PROPOSALS: This year, shareholders are bringing six proposals to be voted on at the annual meeting. And Warren Buffett would like to see all six go down in flames.
One asks Berkshire “to avoid supporting or taking a public position on any controversial social or political issues”.
Which, to be fair, is basically already the company’s modus operandi. “You can make a whole lot more people sustainably mad than you can make temporarily happy by speaking on any subject,” Buffett said last year. Nonetheless, he urges a “No” vote all the same.
Another proposal seeks to mandate that two separate people hold the positions of Chairman and CEO. Currently, Buffett is both.
Of all the shareholder proposals, this one puzzles me the most. I can’t even begin to understand why anyone would call into question Buffett’s leadership or management acumen. Or imply that a better job could be done by someone else. Crazy stuff.
And, anyway, this arrangement will end once Buffett is gone. Greg Abel will become CEO and Howard Buffett will likely ascend to non-executive chairman of the board. The Chairman and CEO positions will be separated soon enough. No need to rush it.
The other four are the typical climate and ESG stuff.
I’ll leave it up to each of you to reach your own conclusions on these proposals and their respective merits (or lack thereof), but Berkshire’s position is clear: Agreeing to any of the six would betray and destabilize the conglomerate’s carefully-constructed decentralized structure.
To me, the answer to anyone agitating for change is a simple one. Why mess with a good thing?
“To me, the answer to anyone agitating for change is a simple one. Why mess with a good thing?”
A growing number of people in society wish to use enterprises like Berkshire to promote political and social issues. And most boards meekly agree. I hope Berkshire resists the pressure after Buffett and Munger leave the scene. This is certainly not assured.
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