Warren Buffett Wasn't Wrong About Coca-Cola. Here's Why

Warren Buffett was widely criticized for not taking a stronger stance on the Coca-Cola compensation plan. But the outcry may have been overdone.

May 26, 2014 at 7:00AM

Warren Buffett may have missed the perfect opportunity with Coca-Cola (NYSE:KO). Or, at least, that's what many contended after he took a pass on voting against Coke's new compensation plan.

Since Berkshire Hathaway (NYSE:BRK-A)(NYSE:BRK-B) is a major Coca-Cola shareholder, Buffett had a very real seat at the table for this issue -- not to mention that his son, Howard Buffett, is on the Coke board. But for an outspoken critic of excessive executive compensation, it appeared that Buffett whiffed on the chance to drop the hammer on Coke's plan to lavish insiders with share compensation. 

But what seemed obvious on first blush may not be the case.

Hedge fund manager Whitney Tilson was initially critical of Buffett's response to the Coke plan. But as he discusses in the video below, Tilson changed his mind after hearing Buffett's explanation of his position during the Berkshire Hathaway shareholder meeting.

A transcript follows the video.

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Tilson: This is, I think, my 16th or 17th consecutive meeting, so ...

Koppenheffer: It's hard to surprise you.

Tilson: Hard to get a lot of new stuff. As someone who owns a little bit of Fannie Mae stock, I thought their commentary near the end about the GSEs was interesting. I'd say, really, the very first question right out of the box this morning was about Coke, and Buffett abstaining for the compensation package. He got a lot of criticism, "Why didn't you vote against it?"

I came into the meeting thinking, "You know what I wish? I wish he had voted against it. It would have sent a good, strong signal about the excesses of corporate comp in America and all." But after hearing them explain it, I'm satisfied that they did the right thing -- that he did send a very strong signal.

For Warren Buffett to abstain is a big deal, and they also clarified that the compensation package ... there were reports out there that management was getting like 16% of the company over five years or something, that it would be horribly dilutive. Buffett went through some math that explained it was sort of 2.5% dilution.

Koppenheffer: Not quite the same.

Tilson: Yes. If it were 16%, Buffett would have voted against it. At 2.5%, he abstained -- and Coke, he has personal relationships there. He's obviously by far the most influential shareholder, and so forth, so he quietly and privately communicated with Coke's management, and I think they are going to clean up that comp plan.

I think they did the right thing. It's a very interesting commentary he and Munger had, about the difficulties of trying to bring about change when you're on a board, or a shareholder, and how a board of directors is partly a business entity, but it's also a social club.

As Charlie has said in the past, and said again today, "You belch too many times at the dinner table, you'll be eating dinner in the kitchen." There's a lot of social pressure to get along, and it makes it difficult to really bring about change and rein in comp, and so forth.

It was interesting to hear the most powerful, respected, influential businessmen on Earth say that even their ability to try and change the way things are, is very limited.

Matt Koppenheffer owns shares of Berkshire Hathaway. The Motley Fool recommends Berkshire Hathaway and Coca-Cola. The Motley Fool owns shares of Berkshire Hathaway and has the following options: long January 2016 $37 calls on Coca-Cola and short January 2016 $37 puts on Coca-Cola. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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