Yesterday, Berkshire Hathaway released its annual (2003) report:
http://www.berkshirehathaway.com/2003ar/2003ar.pdf
Among Warrren Buffett's pithier comments were these:
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ON CORPORATE TAXES
Corporate income taxes in fiscal 2003 accounted for 7.4% of all federal tax
receipts, down from a post-war peak of 32% in 1952. With one exception (1983),
last year's percentage is the lowest recorded since data was first published
in 1934.
Even so, tax breaks for corporations (and their investors, particularly large
ones) were a major part of the Administration's 2002 and 2003 initiatives. If
class warfare is being waged in America, my class is clearly winning. Today,
many large corporations -- run by CEOs whose fiddle-playing talents make your
Chairman look like he is all thumbs -- pay nothing close to the stated federal
tax rate of 35%.
In 1985, Berkshire paid $132 million in federal income taxes, and all
corporations paid $61 billion. The comparable amounts in 1995 were $286 million and
$157 billion respectively. And, as mentioned, we will pay about $3.3 billion
for 2003, a year when all corporations paid $132 billion. We hope our taxes
continue to rise in the future -- it will mean we are prospering but we also hope
that the rest of Corporate America antes up along with us.
ON CORPORATE GOVERNANCE
In judging whether Corporate America is serious about reforming itself, CEO
pay remains the acid test. To date, the results aren't encouraging. A few CEOs,
such as Jeff Immelt of General Electric, have led the way in initiating
programs that are fair to managers and shareholders alike. Generally, however, his
example has been more admired than followed.
It's understandable how pay got out of hand. When management hires employees,
or when companies bargain with a vendor, the intensity of interest is equal
on both sides of the table. One party's gain is the other party's loss, and the
money involved has real meaning to both. The result is an honest-to-God
negotiation.
But when CEOs (or their representatives) have met with compensation
committees, too often one side -- the CEO's -- has cared far more than the other about
what bargain is struck. A CEO, for example, will always regard the difference
between receiving options for 100,000 shares or for 500,000 as monumental. To
a comp committee, however, the difference may seem unimportant -- particularly
if, as has been the case at most companies, neither grant will have any
effect on reported earnings. Under these conditions, the negotiation often has a
"play-money" quality.
Overreaching by CEOs greatly accelerated in the 1990s as compensation
packages gained by the most avaricious -- a title for which there was vigorous
competition -- were promptly replicated elsewhere. The couriers for this epidemic of
greed were usually consultants and human relations departments, which had no
trouble perceiving who buttered their bread. As one compensation consultant
commented: "There are two classes of clients you don't want to offend -- actual
and potential."
In proposals for reforming this malfunctioning system, the cry has been for
"independent" directors. But the question of what truly motivates independence
has largely been neglected....
It does not seem unreasonable for shareholders to expect fund directors who
are often receiving fees that exceed $100,000 annually to declare themselves
on these points. Certainly these directors would satisfy themselves on both
matters were they handing over a large chunk of their own money to the manager.
If directors are unwilling to make these two declarations, shareholders should
heed the maxim
"If you don't know whose side someone is on, he's probably not on yours."...
I am on my soapbox now only because the blatant wrongdoing that has occurred
has betrayed the trust of so many millions of shareholders. Hundreds of
industry insiders had to know what was going on, yet none publicly said a word. It
took Eliot Spitzer, and the whistleblowers who aided him, to initiate a
housecleaning. We urge fund directors to continue the job. Like directors throughout
Corporate America, these fiduciaries must now decide whether their job is to
work for owners or for managers.
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Wirt Atmar
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