Berkshire Hathaway’s approach to corporate governance is notably traditional and differs from the practices of many other large companies. The company’s 14-member board of directors does not consider diversity when composing its members, nor does it provide directors and officers insurance. Additionally, directors are compensated with a relatively modest sum of $900 per board meeting.
The board consists of individuals with backgrounds in finance, including former American Express CEO Ken Chenault, money managers Chris Davis, Wally Weitz, and Meryl Witmer, as well as Warren Buffett’s children, Susan and Howard Buffett.
In its proxy statement, Berkshire explicitly states its lack of policy regarding diversity in director nominations. Instead, the company prioritizes qualities such as high integrity, business acumen, an owner-oriented mindset, a genuine interest in the company, and a significant investment in Berkshire shares over the past three years.
This approach to board composition and diversity reflects Warren Buffett’s philosophy, which emphasizes autonomy for the CEO and prioritizes shareholder interests. Berkshire’s board is urging shareholders to reject a proposal requesting more information on workforce diversity, noting that while some directors are women and racially or ethnically diverse, they were not selected for diversity purposes.
Critics, including MSCI, have raised concerns about Berkshire’s governance practices, citing an aging board, long tenures, and concentrated power in the CEO. Despite this criticism, Berkshire maintains its commitment to its traditional approach to governance, which aligns with Buffett’s long-standing principles.
MSCI’s critique of Berkshire also highlighted concerns about the lack of diversity on the board, noting that less than 30% of its members were women and that a majority of the board was not independent of management. Despite these criticisms, Berkshire’s governance model, with Warren Buffett at the helm, has historically been effective and well-received by shareholders.
In contrast to Berkshire’s approach, companies like Apple prioritize diversity in board selection. Apple’s Nominating Committee actively seeks out individuals from diverse backgrounds to contribute to the overall diversity of the board, reflecting a more modern approach to corporate governance.
Berkshire’s board compensation structure appears outdated compared to industry norms, with members receiving relatively low compensation and lacking liability insurance. However, serving on the Berkshire board is seen as a prestigious opportunity due to the company’s transparency, integrity, long-term orientation, and stewardship culture, all qualities attributed to Buffett’s leadership.
Despite the modest compensation and absence of liability insurance, individuals are drawn to serve on Berkshire’s board due to the opportunity to work alongside Buffett, whom many regard as the greatest investor in history. The company’s unique structure, characterized by long-lived assets and a focus on generating cash flow for decades to come, is viewed as worth defending by those who believe in Buffett’s vision for the future of Berkshire.