Buffett fields tough questions at Berkshire meeting
OMAHA, Neb. — Berkshire Hathaway Chairman Warren Buffett and Vice Chairman Charlie Munger answered tough questions about how vulnerable the company would be to activist investors after the two are no longer there, whether a Berkshire company practiced predatory lending, and what responsibilities the business leaders have to address pay inequity.
An estimated 45,000 shareholders packed an Omaha arena on Saturday, marking the 50th anniversary of the conglomerate that holds major investments in such companies as Coca-Cola Co., Wells Fargo & Co., IBM and American Express. Buffett said the meeting's viewing "overflow rooms" were overflowing and sent shareholders to a nearby hotel to watch the meeting.
Buffett, 84, and Munger, 91, fielded questions for about five hours from journalists and shareholders. They peppered investment, tax and economic insight with wry comments.
When a shareholder raised concerns about the amount of sugar Americans are consuming through products like Coca-Cola, Buffett said one-quarter of his calories come from the soda.
He said food and beverage companies like Coca-Cola and Kraft Heinz Co. must respond to changing consumer concerns. "No one does well ignoring consumers," Buffett said.
But Buffett, taking a piece of See's Candies from Munger, added he wouldn't have lived as long "eating broccoli and Brussels sprouts" and concluded "I wouldn't be happy."
Munger said sugar "prevents premature softening of the arteries. ... The way I look at it, it means leaving a few months early from the nursing home."
Tough questions came early and often throughout the day. Among them: Buffett and Munger were asked how well the company they built could withstand an attack by activist investors after the two are gone.
Investors often push conglomerates to spin off companies for a better return to shareholders.
"If run right, the company won't provide a premium if it's broken up," said Buffett, adding that Berkshire's corporate overhead is minuscule and it gains tax advantages filing as one company.
"It's unlikely on any long-term basis that the parts would be greater than the value of its whole," he said.
Buffett said the best defense against activist investors is strong performance.
But Buffett and Munger acknowledged that large amounts of money continue to flow into activist investment funds. "In many cases, it's not constructive," Munger said. "It's not a desirable change."
Munger added: "There aren't many activists I'd like to marry into the family."
A shareholder questioned whether Berkshire subsidiary Clayton Homes, a maker of manufactured homes, was using predatory lending practices.
Clayton's lending was questioned last month in a story by The Seattle Times and The Center for Public Integrity.
Buffett said he makes "no apologies about Clayton's lending" practices.
Out of 300,000 loans, Buffett said he's never received a call from a customer complaining about Clayton Homes. He said the company has been reviewed by regulators with few violations.
Buffett said Clayton retains most of its mortgages after it lends to buyers, so it loses money if buyers default. Buffett says only about 3% of Clayton's loans default each year.
He credited the company with making homeownership affordable to low-income families.
Buffett and Munger also were questioned about their support for raising the minimum wage and wage inequality.
Buffett said he has no problems with driving the minimum wage higher. But it needs to be large enough to be meaningful, he said. And that would likely cost jobs.
A better answer might be in expanding the earned income tax credit, he said. "I don't have the answers, but everyone who is willing to work" should have a shot at decent life in the U.S., he said.
On other topics:
• Buffett and said he and Munger don't seek to "talk their book" — or pump up companies they've invested in.
"Why would we want the stock to go up if we're going to be buying" more in a year or next year, Buffett said. "People don't seem to get that point."
• Asked by a young man how to get the kids at school to like him, Buffett encouraged him to watch the students at school he likes and those who rub him wrong. Figure out the characteristics he likes and those he doesn't.
"If you find things you don't like in others, get rid of them in yourself," he said.
Like in marriage, Munger said, "it's easier to change yourself than your spouse."
Munger's advice for improved popularity: "Get very rich and be very generous."
• Buffett called out Berkshire Hathaway Energy CEO Greg Abel during the Q&A to update shareholders about how much energy MidAmerican Energy will get from wind after the Des Moines utility completes its latest project.
Abel said the $900 million investment, announced Friday, will push the amount of energy MidAmerican customers get from wind to 58%.
Munger said distributed generation — wind and solar generated at homes, businesses and nearby "gardens" — will be disruptive to energy markets. But the nation has no other option, he said. "What do you do when you run out of fossil fuels?"