Turn the tables on the greedy big shots

IT seems even Warren Buffett can’t embarrass “big shots” into changing their behaviour when it comes to remuneration. It may just be that at 83, Buffett, one of the richest men in the world and one of the most powerful investors, is getting a little tired of it all.

His recent reaction to Coca-Cola management’s plan to grab as much as $24-billion (R249-billion) in remuneration smacks of the jadedness to be expected of an octogenarian, even a brilliant and energetic one, unable to even dent the executive pay grab.

Buffett, who in the past has been outspoken in his opposition to generous and unearned levels of executive pay, decided not to vote Berkshire Hathaway’s 9% stake on the pay resolution at the Coca-Cola annual general meeting. He did undertake to have a quiet word in private with management.

The development appears to have unsettled hardcore Buffett followers as much as Ronnie Kasrils’s Vote No campaign unsettled ANC diehards. Although he gave no undertaking to have a quiet word with Jacob Zuma, Kasrils’s move did at least reflect some engagement with the political democratic process.

Perhaps the most depressing aspect of Buffett’s tactic was how passive and disengaged it was.

Here was someone with 9% of the company declaring there was absolutely no point exercising his corporate democratic rights because of the extreme levels of cronyism that pervade the top echelons of the corporate world.

It had echoes of the South African trade union movement bleating about executive pay in an external locus of control sort of way, oblivious to the fact that the labour movement, whose funds account for as much as 20% of the JSE, could have a significant say in the matter if it could get organised.

As it happens, more than 50% of Coca-Cola’s shareholders abstained from voting on the issue — or didn’t bother to attend the meeting. So, despite much protestation about the $24-billion grab, the low turnout meant the resolution received 83% of the votes at the AGM. No doubt historians will look back, see the 83% support and assume there was widespread support for excessive remuneration in the early part of the 21st century.

Things got worse. Following his surprisingly measly response to Coca-Cola’s extreme pay, Buffett suggested that in future details of executive pay should be kept under wraps. This is a dramatic turnaround from someone who said on the topic of executive pay as recently as 2009: “The way to get big shots to change their behaviour is to embarrass them.”

The embarrassment factor certainly drove thinking 10 or 15 years ago when regulations were introduced across the globe, including South Africa, requiring public disclosure of executive pay. The naive belief was that disclosure would act as a restraint on levels of pay.

The unintended consequence was, of course, that far from embarrassing executives into restraint, disclosure merely served to alert those in the middle and bottom of the pay pile to the extremely rich pickings that were available.

Disclosure sparked a frenzy of ratcheting, which has seen the most pedestrian of executives secure topof-the-range packages. The job of armies of remuneration consultants is to defy statistical logic by securing “top quartile” pay for 100% of chief executives.

It seems Buffett has come to realise executives are beyond being embarrassed. Their ingrained sense of entitlement trumps any sense of shame they might be expected to feel. In their defence, executives are playing the game they’re conditioned to play, which is maximising short-term returns on every asset, including “me”.

It is now time for government, labour and ordinary citizens, who are the beneficial shareholders who are funding this excess, to engage more effectively in this game.

To date, we have handed over our ownership rights and obligations to fund managers whose interests are closely aligned with those of corporate executives. This level of abstention would be unheard of in the political system.

There is enough democracy in the corporate system to allow the millions of beneficial owners to exercise their rights and push back against the unrelenting power-grab by executives.

Far from weakening it, such engagement would lead to a more vigorous and sustainable system.