Source: Yahoo Finance
“We are a very young country. What we’ve accomplished is miraculous…
We have made progress. And we are a better society…
You would think that with the level of prosperity that we have, we would do better taking care of people…We’ve been going in the right direction in the country, but it’s been awfully slow.”
Berkshire Hathaway Annual Shareholders Meeting 2020, Warren Buffet, May 2, 2020
Warren Buffett, the iconic leader of Berkshire Hathaway, clearly cares deeply about people. Buffett clearly cares about creating a robust, just, and prosperous society. Yet, when it comes to diversity, Buffett is also clearly opposed to translating his lofty aspirations into specific policy statements or directives.
Promoting diversity is one of the ways in which the people in a society can broadly participate in and contribute to that society’s success. Four years ago, I criticized Buffett for being tone deaf on diversity, and I expressed my frustration at Buffett’s refusal to set a definitive example in both words and actions for the rest of corporate America on the issue of diversity. At the time, Buffett and his partner Charlie Munger answered a shareholder question about the diversity policies at Berkshire with an absolute refusal to consider an affirmative policy statement. In summary, Buffett seemed to say “Just trust us. With our decades of experience, we know what we are doing. We do not want or need anyone telling us what to do.”
Fast forward to this year’s shareholder meeting, and I am heartened to see signs of progress at Berkshire with apparent changes to Buffett’s public approach to the topic of diversity. While Buffett maintains his refusal to enact a policy statement on diversity, I can at least now point to tangibly affirmative statements that support and promote diversity in employment practices. These two-track dynamics were on display in the handling of a shareholder proposal presented by the Comptroller of the City of New York who acted on behalf of the boards of trustees of the New York City Employees’ Retirement System, the New York City Teachers’ Retirement System, the New York City Police Pension Fund and the New York City Fire Pension Fund. In total, they own 3,461,795 shares of Class B Common Stock. From the proxy statement:
“Resolved: Shareholders request that the Board of Directors of Berkshire Hathaway Inc. (“Berkshire”) adopt a policy for improving board and top management diversity (the “Policy”) requiring that the initial lists of candidates from which new management supported director nominees and chief executive officers (“CEOs”) recruited from outside the company are chosen by the board or relevant committee (each, an “Initial List”) should include qualified female and racially/ethnically diverse candidates. The Policy should provide that any third-party consultant asked to furnish an Initial List will be requested to include such candidates.”
The Berkshire Board of Directors unanimously opposed this proposal. Accordingly, shareholders soundly defeated the proposal with the following vote count:
- For: 65,925
- Against: 485,824
- Abstain: 3,766
While opposing the proposal, the Board encouraged discussion about the diversity issue. This willingness alone represented a huge leap forward from four years ago. Indeed, during the shareholder meeting, Buffett was deliberate in allocating considerable time to clarifying his support for an open discussion. He expressed regret that the coronavirus pandemic prevented the NYC Comptroller from presenting the proposal in person. Buffett had the proposal and supporting statement read in full. He could have easily dismissed the proposal out of hand and completely buried the supporting statement; such behavior would have been consistent with the prevailing attitude I witnessed four years ago.
The Board opposed the proposal for familiar reasons. Berkshire insisted that a focus on integrity, “business savvy, an owner-responsive mindset and a deep personal interest in Berkshire” is both necessary and sufficient. Yet, the Board went on to give a specific account of the resulting diversity in its hiring practices by starting with this encouraging statement (emphasis mine): “In furthering the interest of Berkshire’s owners, our directors encourage behavior by managers that leads to delighted customers, fair employment practices and regard for both community and national concerns.” This is the kind of affirming statement I sought four years ago.
Berkshire has only hired five new directors in the last 14 years. The company described the results in diversity terms (again, more progress):
“Two male managers (of whom one is ethnically diverse) were
promoted to Vice Chairmen of Berkshire and added to the Board in 2018. In 2007 and 2013, two talented and qualified women became directors, and in 2009, an equally qualified male joined the Board.”
Berkshire also announced the selection of Ken Chenault as “a standout and unanimous choice” for its board of directors. The proxy described Chenault as “…a hugely successful CEO of American Express, now 18.7% owned by Berkshire. In effect, we have had a front-row seat in observing his talents and character.” The statement did not refer to Chenault’s ethnic identification as an African-American.
Chenault is widely admired. Starting at the 1:29 mark in the video below, Buffett showers praise on Chenault including explaining why he calls Chenault the “gold standard of CEO leadership.”
Berkshire’s explicit statements supporting equitable employment practices stood out as even more important to me:
- All five of the directors just described possess the four qualities we seek. Each was selected without regard to gender or race/ethnicity. For anyone to suggest otherwise would be both wrong and demeaning.
- It’s likely that changes will be very few and we welcome all races/ethnicities and genders to the pool of qualified candidates [for CEO].
I also saw the hints of changing momentum in Berkshire’s public stance in the letters to shareholders. From 2016 to 2018 the shareholder letters said absolutely nothing about the diversity of Berkshire’s workforce. The 2019 shareholder letter, published February 22, 2020, referenced gender imbalances on corporate boards:
“During the first 30 or so years of my services [on corporate boards], it was rare to find a woman in the room unless she represented a family controlling the enterprise. This year, it should be noted, marks the 100th anniversary of the 19th Amendment, which guaranteed American women the right to have their voices heard in a voting booth. Their attaining similar status in a board room remains a work in progress.”
In my opinion, one of the many reasons board room diversity remains a work in progress is that there remain too few people of Buffett’s level of influence making definitive, explicit, and affirmative statements in support of diversity goals. The latest shareholder letter reads like a baby step in the right direction. The latest shareholder meeting was like an elementary step in the right direction. I look forward to next year’s shareholder meeting where I hope Buffett (or the Board more generally) follows through on the promise to hold an open, two-way discussion on the diversity issue.
I fully recognize that the topic of diversity can generate discomfort. However, efforts like Buffett’s can normalize such discussions. Buffett and Berkshire can make diversity and equity a natural outcome of a fair interview and selection process. Buffett could include in his legacy being one of the few corporate titans who helped speed up the necessary progress America is making on corporate diversity.