There needs to be more belching in corporate boardrooms.
Not literally, I mean. In fact, you shouldn't blame me for this metaphor at all. It's legendary investor Warren Buffett who used the phrase. Unfortunately, he was comparing the act of voting "no" on a corporate board to the rather untoward emission of gas.
"It's a little bit like belching at the dinner table," Mr. Buffett told CNBC's Becky Quick. "I mean, you can't do it too often. If you do, you find you're eating in the kitchen pretty soon."
Mr. Buffett was discussing his Berkshire Hathaway's decision, as a 9-per-cent holder of the stock in the Coca-Cola Co., to abstain from a shareholder vote rather than vote against the company's new equity-compensation plan for its executives. Activist investor David Winters has argued the amount of shares Coke plans to give to management will massively dilute shareholders. While the plan passed overwhelmingly, the company still may reconsider its scope, according to The Wall Street Journal, suggesting Mr. Buffett may have achieved his aims rather tactfully.
It was Mr. Buffett's discussion of the philosophy of a "no" vote, and how it might apply to the workings of a corporate board, rather than a shareholder election, that troubled many, however. Mr. Buffett told CNBC that he'd been on 19 public company boards over 55 years and never heard of a "no" vote on a compensation plan. And he himself had voted for compensation plans – and mergers – that he disagreed with.
"There's only so many bullets you can use in the gun," he said in another CNBC interview. "If you start objecting to this, and this, and this, pretty soon people don't pay any attention to you. You want to save your bullets for when they really count."
The problem, to use the gun metaphor, is that nearly every corporate director seems to have disarmed.
Certainly, we shouldn't expect, or even want, corporate boards to behave like dysfunctional city councils with endless 4-3 votes cast by preening politicians, always angling for attention. There should be more collegiality and more consensus in a corporate boardroom.
But not so much, one would think, that nearly every vote is unanimous. Think of all the crummy mergers that have taken place over the years – and whether you've ever seen a deal announcement that said anything other than "the boards of both companies approved the merger unanimously." We often think that the conduct of Canadian business is overly polite, compared with the rough-and-tumble U.S. world. But apparently there's an inherent docility in all North American boardrooms.
Mr. Buffett says corporate boards are "in part business organizations and in part social organizations," and the kind of people who get selected for board service have reached a certain level of social standing because "they have learned how to get along with other people. They don't suddenly change stripes when coming into a board meeting, so there's a great tendency to behave in a socially acceptable way and not necessarily in a business maximization way. The motives are good."
Perhaps, but the end result is not necessarily so. Nell Minow, a former president of New York-based Institutional Shareholder Services and a longtime specialist in corporate governance, says board members who vote "no" are going on "a suicide mission." Sometimes, even a "yes" with reservations is not enough: "I had lunch last week with a director who was recently taken off a board because she questioned a CEO's pay," she says.
"It's got to fall to the shareholders, and that's why we need a more robust system for shareholder input on pay," Ms. Minow says. "It's ridiculous – just in the last couple of weeks we've had a $4-billion [U.S.] correction at Bank of America with no announcement of a [pay] clawback, the CEO of Target fired with a $70-million goodbye package, and the CEO of Cheniere Energy getting $142-million before the company has made a dime. Unless shareholders are allowed to play more of a role, and that includes getting rid of directors who pay too much, I don't expect to see any progress in this."
Mr. Buffett concluded his thoughts on the matter by saying "generally you don't get invited on boards if you are a person who loves a fight." With this kind of peace, however, shareholders are losing the war.