Practical analysis for investment professionals
01 May 2014

Poll: Little Support for Buffett’s Abstention from Coca-Cola Vote

Thomas Piketty’s popular new book, Capital in the Twenty-First Century, has struck a chord with the public in part because of a growing disenchantment with the generous compensation packages lavished on corporate executives, so it was not without irony that last week 83% of Coca-Cola’s (KO) shareholders approved a controversial equity compensation plan for approximately 6,500 employees that has been widely panned as excessive. The plan, when combined with previous equity award plans, could result in shareholder dilution of up to 16.8%.

Prior to the vote, several prominent institutional investors, including Wintergreen Advisers, the Florida State Board of Administration, and the Ontario Teachers’ Pension Plan, publicly opposed the plan or actively lobbied against it. Coke’s biggest shareholder, Berkshire Hathaway, abstained from the vote, and its longtime chairman and CEO Warren Buffett afterwards expressed his opposition to the plan, calling it “excessive,” but explaining that he “didn’t want to express any disapproval of management” by voting against it. He also maintained that his abstention sent a clear message of disapproval of the plan. Perhaps, but a “no” vote would have removed any ambiguity.

Buffett’s rationale for his abstention prompted us to ask readers of the CFA Institute Financial NewsBrief for their opinion of Buffett’s decision not to back up his disapproval with a “No” vote.


What’s your view on Warren Buffett’s decision to publicly express disapproval of Coca-Cola’s proposed executive compensation plan but abstain from the shareholder vote?
Poll: What's your view on Warren Buffett's decision to publicly express disapproval of Coca-Cola's proposed executive compensation plan but abstain from the shareholder vote?


Not surprisingly, nearly two-thirds of 725 respondents, 64%, disagreed with Buffett’s abstention vote, while 22% presumably saw no contradiction between Buffett’s words and actions.

Importantly, Buffett used to sit on Coke’s board and his son Howard Buffett has been a board member since 2010, prompting some critics to suggest that Buffett’s vote was unduly influenced by his personal relationships. Buffett himself has been a frequent critic of excessive executive compensation over the years. In his 2005 letter to Berkshire Hathaway shareholders, he said, “Too often, executive compensation in the U.S. is ridiculously out of line with performance. That won’t change, moreover, because the deck is stacked against investors when it comes to the CEO’s pay.” Indeed, when it comes to over the top compensation packages, meaningful reform is unlikely to come as long as major shareholders and directors act as rubber stamps.


Please note that the content of this site should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute.

About the Author(s)
David Larrabee, CFA

David Larrabee, CFA, is director of Member and Corporate Products at CFA Institute and serves as the subject matter expert in portfolio management and equity investments. Previously, he spent two decades in the asset management industry as a portfolio manager and analyst. He holds a BA in economics from Colgate University and an MBA in finance from Fordham University. Topical Expertise: Equity Investments · Portfolio Management

3 thoughts on “Poll: Little Support for Buffett’s Abstention from Coca-Cola Vote”

  1. ‘m a small shareholder of KO but I had no trouble seeing why this was a bad plan and I voted against it. Warren Buffett abstained which is the same as saying YES. In fact its often worse then saying YES because you are simply trying to appease everyone when you vote this way. It’s a lame thing to do and just another reason why Buffett doesn’t deserve our admiration and respect, but rather our disdain. To suggest now that his private converstions with the CEO of KO and his son (a KO director) are grounds to feel differently is to miss the point: he said he often voted for compensation plans that he disagreed with while on company boards. Which is to say that he cares more about his well-being ($) then he does the public good or the the myriad of small investors that follow his every word like sheep.

    1. Dave Larrabee says:

      Andrew,

      Thanks for visiting Enterprising Investor and weighing in on the Buffett story. I suspect many other investors in KO and Buffett followers share your views.

      Dave

Leave a Reply

Your email address will not be published. Required fields are marked *



By continuing to use the site, you agree to the use of cookies. more information

The cookie settings on this website are set to "allow cookies" to give you the best browsing experience possible. If you continue to use this website without changing your cookie settings or you click "Accept" below then you are consenting to this.

Close