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10th May 2022

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Berkshire directors rebuked over pay for likely Buffett successors

The shareholder adviser ISS is recommending investors withhold their votes from four directors at Warren Buffett’s Berkshire Hathaway in a rebuke of the company’s executive pay policies.

The refusal to back the re-election of four members of Berkshire’s compensation committee reflects concern over the pay packages awarded to vice-chairs Greg Abel and Ajit Jain, who ISS said earn some of the largest base salaries of any executives at US public companies.

Several large money managers are already planning to withhold votes from directors on the company’s governance and audit committees at Berkshire’s annual meeting in May.

The moves amount to the biggest sign yet of investor disquiet over governance at Buffett’s sprawling conglomerate, whose holdings include the insurer Geico, the BNSF railroad and electric utilities across the US, among many more.

It remains unclear if any portion of [executive] pay is tied to company performance

Abel and Jain have been positioned as the two front-runners to one day take over from Buffett as chief executive. The pair earned base salaries of $16m in each of the past three years, with bonuses and other perks swelling the figure above $19m in 2019 and 2020.

“It remains unclear if any portion of [executive] pay is tied to company performance,” ISS said. “The continued lack of transparency raises concern as to whether the compensation committee is providing adequate oversight.”

ISS disclosed its recommendations to investors on Friday, saying they should withhold votes from Susan Decker, David Gottesman, Walter Scott Jr and Meryl Witmer, who make up the compensation committee.

In the past six years ISS has recommended a withhold vote only once — in 2019 for Scott, again due to executive pay concerns.

Separately, Berkshire is girded for a fight over two shareholder proposals that would require it to disclose the work it is doing to address climate change and diversity and inclusion across its 360,000 person strong workforce. Berkshire has urged investors to reject the two proposals, drawing criticism.

The California employee pension fund Calpers and asset manager Neuberger Berman have both said they plan to vote for the two proposals and that they would vote against four directors on Berkshire’s governance committee, which has the same make-up as the compensation committee. Calpers also plans to withhold its votes from the directors on Berkshire’s audit committee.

Calpers said it had come to the decision given Berkshire was “failing to provide accurate and timely disclosure of environmental risks and opportunities, such as those associated with climate change”.

“We as a country and as a society are at an inflection point and that’s being mirrored in the investment community,” said Cathy Seifert, an analyst who covers the company at CFRA Research. “Unfortunately Berkshire does not seem to be willing to climb aboard that train that’s leaving the station.”

Glass Lewis, the second-largest proxy adviser, has recommended Berkshire investors withhold support for board member Thomas Murphy, pointing to concerns about the company’s climate change disclosures.

Through its holdings, Berkshire Hathaway had “significant exposure to climate-related impacts and regulations”, Glass Lewis said, adding that “shareholders should express dissatisfaction” with the board’s climate change efforts.

Berkshire did not respond to a request for comment.

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2021-04-20 10:00:26

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