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Coke Monopoly with Warren Buffett

Over the past few weeks, Coke has been the subject of a very public outcry over its executive compensation plan.Why US-Investor Warren Buffett opposes Coke’s compensation plan but did not vote against it.

Foto: sia
Coca-Cola is one of the world’s most valuable brands. Foto: sia

Mr Buffett wasn’t going to do anything about the Coca-Cola executive compensation plan, which, according to some detractors, might dilute Coke’s shareholders up to 16.6 percent and hand Coke’s executives up to USD 24 billion worth of stock at today’s share price.

Over the past few weeks, Coke has been the subject of a very public outcry over its executive compensation plan. Specifically, the equity piece of it, which is huge, has drawn the criticism of Wintergreen Advisors, a Coke shareholder, who went public with its distaste over this plan.

Interestingly, at Coke’s annual shareholders meeting on 23 April 2014 the controversial plan passed with 83 percent of the vote in favour, but less than half the shareholders voted, media say.

Billionaire Warren Buffett, whose Berkshire Hathaway holding has a 9 percent stake in Coke and is the beverage giant’s largest shareholder, spent the weekend of 3 and 4 May 2014 meeting with his shareholders, where he defended his decision to abstain from voting on Coke’s compensation plan.

Mr Buffett said Coke can easily adjust the compensation plan he has called “excessive”, and he explained the quiet way he handled his objections.

“It was the most effective way to behave for Berkshire,” Mr Buffett told investors, pointing out that he withheld his vote for two reasons: one, he didn’t want to “go to war” with the beverage maker’s management, which he supports, and, two, he didn’t want to endorse a public campaign against the equity plan by a smaller Coke shareholder by voting “no”.

Mr Buffett indirectly responded to criticism by fellow Coke shareholder Carl Icahn, another veteran investor, who had slammed Mr Buffett in an article in Barron’s magazine on 3 May 2014 (“Why Buffett is wrong on Coke”) for not standing up for what’s right.

Mr Icahn wrote: “My colleagues and I have fought long and hard to change fellow board members‘ attitudes and beliefs concerning their responsibility to shareholders, even if this change angers the CEO and some of his cronies sitting on the board. But if a man of Warren Buffett’s stature openly states he abstains from voting on plans he doesn’t agree with because he ‘loves’ management and he doesn’t want to ‘express any disapproval’, how can we expect other board members in this country to voice their opinions, especially if they are opposed to the CEO’s interest?”

Mr Buffett replied by saying: “I think our style actually would be more effective than the style that might be proposed by Carl.”

Meanwhile, Coke has said it will likely revise its executive compensation plan before it takes hold next year. Mr Buffett also said that Coke can make the compensation plan acceptable by spreading the stock options over more years than the four initially proposed.

Still, this does not change the fact that Coke’s management is winning at the expense of shareholders.


Veröffentlicht am 8. Mai 2014 auf

Ina Verstl is a freelance journalist and  a special feature writer and commentator for Brauwelt International.
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