Even Buffett Gets Criticism on Governance

A rule’s a rule, for saints and sinners alike.

That’s why Institutional Shareholder Services, which advises big investors such as pension funds on corporate governance issues, says it is urging Coca-Cola Co. shareholders to withhold their votes from billionaire investor Warren E. Buffett for reelection to Coke’s board of directors.

The issue comes to a vote at the Coca-Cola annual shareholders meeting April 21 in Wilmington, Del.

Buffett, who owns 8.16% of Coke’s stock -- more than 200 million shares -- through his Berkshire Hathaway Inc. holding company, is regarded as one of America’s most brilliant business minds as well as a strong voice on many of the corporate governance issues that Institutional Shareholder holds dear. He is one of the leading scolds on bloated executive pay, for example.

Buffett “is a great director for Coke, given his expertise and stock ownership,” Institutional Shareholder general counsel Patrick McGurn acknowledged Friday.

But Buffett shouldn’t be serving on Coke’s audit committee, McGurn added, because several Berkshire subsidiaries have substantial business ties with Coca-Cola.

McLane Co., a grocery distributor that Berkshire bought last year from Wal-Mart Stores Inc., paid Coca-Cola $103.9 million for fountain syrup in 2003 and received $11 million in agency commissions for selling Coke products, according to the most recent Coca-Cola proxy statement. International Dairy Queen Inc., NetJets Inc. and FlightSafety International Inc. -- other Berkshire units -- also do business with Coke.

These relationships make Buffett an “affiliated outsider” on Coke’s board, and Institutional Shareholder guidelines call for directors who serve on such key panels as the audit and compensation committees to be “independent outsiders” with no business ties.

There was no reason to make a “special exception” for Buffett, McGurn said.

Coca-Cola dismissed the advisor’s recommendation in a letter to shareholders dated Thursday.

“Mr. Buffett is a man with an eminent reputation for integrity, and his effectiveness as an audit committee member is widely regarded,” Coca-Cola said.

“Given his substantial ownership in our company, there are few people more closely aligned with the interests of our shareholders.

“We think our investors would seriously question our judgment if we were to forfeit Mr. Buffett’s counsel,” the company concluded.

Though it may seem odd to oppose so revered a figure as Buffett, Institutional Shareholder is simply trying to apply its standards consistently, said Ann Yerger, deputy director of the Council of Institutional Investors, another corporate governance group.

“It’s a very slippery slope to say, ‘Well, we like this person, so we’ll make an exemption,’ ” she said Friday.

In any case, the recommendation is merely “a communication mechanism” for making a point about corporate governance, McGurn said, because Buffett will automatically be reelected no matter how many votes are withheld. The ballot has no provision for voting against a director; the choices are “for” or “withhold,” McGurn explained.

Buffett was traveling and was not available for comment, a spokeswoman at Berkshire’s Omaha headquarters said Friday.

Separately, the Wall Street Journal reported Friday that Robert Eckert, the 49-year-old chairman and chief executive of El Segundo-based Mattel Inc., was on the short list of candidates to succeed Coca-Cola Chairman and CEO Douglas N. Daft.

Eckert could not be reached for comment.