Berkshire-Comments on Corporate Governance
When asked about the upside or downside of plurality versus majority voting, Buffett and Munger expressed the view that these sorts of minor issues have little effect on corporate governance. These minor changes in fashion of governance will not fix the troubles of American corporations.
Buffett alluded to the recent "crop" of activists, referring to them as a "mixed crowd." He questioned to what extent they act like owners.
Expressing my own views rather than Buffett's, I believe there is a tremendous difference between activists like ValuAct Capital Partners who have long term ownership horizons, and those of "investors" such as Trian and Nelson Peltz.
Ultimately, the degree to which activists think and act like long term owners of the business is what we must judge.
Buffett further articulated the role of a board:
- To get the right CEO.
- To prevent the CEO from over-reaching.
- To exercise independent judgment when acquisitions are made.
He further articulated the role of large institutional investors. He said the only cure for better corporate governance will occur when really large shareholders (8-10 largest institutional groups) tackle these issues. He said that many of the largest shareholders have farmed out their votes and don't want to think like owners.
When compensation packages do not make sense, it is the responsibility of the largest shareholders, not haphazardly organized small shareholders to effectively demand change.
Speaking personally, I applaud those minority shareholders that do speak out, that do propose shareholder proposals in proxies. The egregious excesses of compensation that occur without commentary or effort to effect change by the owners demonstrate an incredible laissez-faire attitude. Institutional investors have a fiduciary obligation, in my view, to monitor and protect the interests that they represent, that is, the mutual fund unitholders and the participants in 401-K and other retirement plans.
In fact, in my view, it is the responsibility of all shareholders both large and small to monitor the managements that are hired to serve their ownership interests.