Once I sat next to former Fed chair Paul Volker on a flight as he paged through the Forbes 400 rich list (I was the magazine’s publisher). That was the only time the subject of CEO compensation up socially outside of the news media.
As if to prove my point, Joe Nocera, the well-known business columnist for the New York Times and now Bloomberg, took aim at Warren Buffett over the subject. He wasn’t the first to go after the “sage of Omaha,” although maybe the first who didn't bother to check his facts. That's like going bear hunting without ammunition.
The fact that Buffett is among the lowest paid and best-performing CEOs in history only add rich irony. During my interview with Buffett, I asked for his take. “Warren, you were quoted as being wishy-washy on executive comp by Joe Nocera of the New York Times.”
Buffett looks pained. The backstory is that Nocera wrote that Buffett was cowardly for abstaining on the Coca-Cola executive compensation plan (instead of voting “no”).
Buffett gave me the backstory.
In his NYT column of April 25, 2014, Nocera quoted Buffett, “The way to get big shots to change their behavior is to embarrass them.” But Nocera believed Buffett was bluffing. His take was that when the chips were down, Warren Buffett was hiding in the corner.
Nocera added, “Buffett doesn’t believe in the adage that you should practice what you preach. At least not based on what we saw this week. Given a chance to embarrass some major big shots — namely his fellow board members at Coca-Cola, a company where he is the largest shareholder, and whose equity compensation plan he felt was unjustifiably rich — he chose instead to punt.”
Nocera blamed compensation for all that ails the country, and Buffett was his #1 perp.
Buffett said the Coca-Cola plan was rich, by anyone’s standards. It included, according to David Winters of Wintergreen Advisers, in a letter he wrote to the Coca-Cola directors, “The Company expects that the 2014 Plan will award a mix of 60% options, 40% full-value shares, resulting in the issuance of 340,000,000 Coca-Cola shares.” The way Winters saw things, the plan would shift $13 billion from shareholders to management, and “combined with previous awards, this figure rises to $24 billion.”
Winters felt the scheme was an “outrageous grab.”
Contrary to what many journalists and anti-business activists believe, management does not vote itself a raise. If management wishes to improve compensation, they must seek board and shareholder approval. Winter took this as an opportunity to reach out to Warren Buffett, saying, “We thought Buffett would be a natural supporter of our position.” He wrote Buffett a letter saying: “Like Jiminy Cricket,” you sit on our shoulders reminding us to do what is right.”
He asked Buffett for a “no vote.”
Buffett was inspired to look more closely at the compensation package. As he later told Becky Quick of CNBC, “you can give away too much of a company.” Then he did something that Nocera and others following the story did not understand. Buffett didn’t vote “no” on his 400 million shares of Coca-Cola.
He abstained. Nocera called it “cowardice.”
He also called on a reliable quote getter, the head of GMI Ratings. It was like asking your dog if he might be interested in cheese. “He could have shown that you can separate feelings of liking management with disagreeing with something management does,” said Gary Hewitt, the head of research at GMI Ratings. Nocera summed up the conventional wisdom:
“Buffett showed how impossible it is for directors — even billionaires are known for speaking their minds — to rock the boat.”
(Note — Buffett was not a Coca-Cola director).
What Really Happened?
What Buffett was steamed about wasn’t the reported facts but the misconstrued opinion. Nocera took the lazy man’s way out and pirated a Becky Quick column without doing the legwork. He pasted Becky Quick’s question and conclusions into his own work and signed off on an “instant journo” column.
The Nocera flip began to unravel when the Times issued a correction on May 3, 2014,
“Joe Nocera’s column last Saturday misstated Warren E. Buffett’s response to a controversial executive compensation plan at Coca-Cola. Mr. Buffett told (Coca Cola) chairman, Muhtar Kent, of his reservations about the plan; it was not the case that “he didn’t divulge his views to anyone on the Coca-Cola board.”
Buffett was plain-spoken: “I disagreed with the level of options being authorized, which the Coca‑Cola Company stated in the proxy material would likely be issued within four years. I thought it was excessive. I abstained from voting. Then I revealed my abstention after the vote.”
And as the Times correction noted, he brought it to the chairman’s attention. Nocera ignored this because he wanted to tie a ribbon around his article aimed at Buffett.
Interestingly, the source for the clarification was from the NYT’s own “Public Editor,” an ombudsman role the paper used to keep its reporters honest. They recently discontinued the role, unfortunately. It means Nocera-type mistakes go unnoticed these days.
The Times Public Editor, Elizabeth Spayd, was described as “the sixth public editor appointed by The New York Times. The public editor works outside of the reporting and editing structure of the newspaper and receives and answers questions or comments from readers and the public, principally about news and other coverage in The Times. Her opinions and conclusions are her own.”
She wrote after the Nocera column: “Joe Nocera and ’Fessing Up to Readers.”
- Mistakes are inevitable. So, too, are newspaper corrections, since newspapers are full of those pesky things known as facts and are produced by human beings, who tend to get things wrong sometimes. But some mistakes are bigger than others, and this was the case in two related columns by Joe Nocera about Warren Buffett, chairman of Berkshire Hathaway, concerning sky-high executive compensation at Coca-Cola, where Mr. Buffett is the largest shareholder.
- In short, Mr. Buffett thinks executive compensation is out of whack; he abstained from voting to approve it at Coca-Cola but did not vote against it, as some thought he should have done, including Mr. Nocera.
- Mr. Nocera made some serious factual errors in those columns, particularly in the second one, in which he also took Mr. Buffett to task, calling him “cowardly and hypocritical.”
- After a complaint from Mr. Buffett, which I was sent a copy of, corrections were appended to the columns and published in print.
- In his first column, Mr. Nocera referred to Mr. Buffett as a member of the Coca-Cola board; that hasn’t been true for eight years. That error was never formally corrected, although it gets a mention in the second column, in which, remarkably, Mr. Nocera uses his own original error to bash Mr. Buffett further: “He should be embarrassed. It’s actually worse than I had realized. My original assumption was that Buffett didn’t want to offend his fellow board members, especially those on the compensation committee, who had vouched for the equity plan. But Buffett left the board in 2006.”)
- But there’s a much bigger problem. The entire premise of the second column is built on a mistake: that Mr. Buffett had changed his tone after “licking his wounds” over the reaction to statements he made on April 23, including Mr. Nocera’s criticism.
- As Mr. Nocera told it in the second column, after several days of this embarrassment passed, Mr. Buffett decided to “bite back” by going on the offensive in a Fortune interview on April 28.
- I asked Mr. Nocera if he planned to write anything in his column about the errors; he said he thought “the corrections were sufficient since they did not gloss over the seriousness of the errors.”
- Nocera sniffed, “I don’t really see how I would have much to add in another column that goes beyond the correction.”
- Buffett also noted: “The whole column is based on an incorrect fact — one that could easily have been checked and wasn’t.” He said he thought that Mr. Nocera’s readers should know this and that the columnist should take responsibility by addressing his readers directly. I agree.
Updated, Tuesday, 4:28 p.m.
“In his May 13th column, Mr. Nocera apologized for the error.”
Buffett related the story to me and added, “I did not want to be leading a proxy contest. I think the management of Coca‑Cola is first‑class. I think they got some difficult problems to take on, but I think they’ve got some tremendous assets as well. I thought they’re very decent people, and I thought if they were reasoned with and talked to that they might well change things — and they have.
“In this instance, because the second column is intrinsically flawed, a standard correction didn’t get the job done. Nocera should have devoted at least part of another column to telling his readers what happened and why. In his email to me, Mr. Nocera referred to the second column’s fundamental mistake as “bad/dumb/embarrassing.’”
The key to Buffett’s thinking is that mistakes can be made and corrected. If every flame is doused with a firehose, all that is left is debris. Buffett chose to go about this calmly, a very different sort of approach. The result was far more satisfying than a vicious headline. It was the ‘abstention heard round the world.
Buffett certainly has the last word:
“Coca-Cola has dramatically changed (the compensation) plan…cutting it by two‑thirds. The chairman of the compensation committee is a very first‑class person, very smart. She picked up on all the points on it and made the changes. The abstention accomplished something very significant for Coca‑Cola shareholders.”
Nocera has never had another interview with Warren Buffett.