Warren Buffett and Berkshire Hathaway (BRK.A 2.73%) (BRK.B 2.45%) go hand in hand. It's hard to think about one without the other.
However, Berkshire shareholders will vote on a proposal at the company's annual meeting this weekend that would take a step toward reducing Buffett's role. The National Legal and Policy Center wants to replace Buffett with an independent chairman of the board of directors. Could Buffett really be booted as Berkshire Hathaway's chairman?
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Bye-bye, Buffett?
The National Legal & Policy Center believes that Buffett shouldn't serve as both CEO and chairman of Berkshire Hathaway. The organization maintains that the different positions "are greatly diminished when held by a singular company official." It also believes that having the same person hold both roles weakens Berkshire's governance structure.
You might think that any proposal to push Buffett aside as Berkshire chairman wouldn't gain any traction. After all, he's served in the position for 52 years and is without question one of the most famous investors of all time. Most people would probably agree that he's performed quite well as chairman.
But last week, the California Public Employees Retirement System (CalPERS) revealed in a filing to the U.S. Securities and Exchange Commission (SEC) that it plans to support the proposal to name a new independent board chairman for Berkshire. CalPERS is the nation's largest public pension, with over $450 billion in assets under management.
More importantly, CalPERS owns around 800 shares of Berkshire's Class A stock and over 5.5 million shares of its Class B stock. The pension fund sent a letter to Berkshire shareholders informing them of its planned votes on several proposals, including the one to name an independent board chairman.
Much ado about nothing
Should the Oracle of Omaha be worried? Probably not. For one thing, CalPERS' stake in Berkshire represents only a fraction of a percent of the company's outstanding shares.
Berkshire's stance is that Buffett should remain board chairman as long as he's CEO. However, the company agrees with Buffett's own view that a non-management director should take his place as board chairman whenever the time comes that Buffett isn't CEO.
It seems likely that most Berkshire shareholders will go along with the company's position to vote against the proposal for an independent board chairman. Buffett has a 32% voting interest in Berkshire. He has an easier task of convincing shareholders than CalPERS and the National Legal & Policy Center do.
Berkshire can also simply point to Buffett's track record. Under his leadership, the stock has handily beaten the S&P 500 both over the long term and so far in 2022. It's hard to make a compelling argument that Buffett's dual role as CEO and chairman has negatively affected Berkshire.
Of course, even if the shareholder proposal passes, no one is pushing for Buffett to step down as CEO. He would still effectively lead the company regardless of whether another person took over as board chairman.
The day is coming
Everyone knows, though, that Buffett won't remain at the helm of Berkshire Hathaway forever -- including Buffett himself. The impending vote on his potential ouster as board chairman could stoke concerns about the inevitable future.
However, Buffett is still active and in good health at the ripe young age of 91. There won't be a succession crisis when the day comes when he's no longer CEO, either. Both Buffett and his longtime business partner Charlie Munger have indicated publicly that Vice Chairman Greg Abel will take over down the road.
Sure, some of Berkshire's valuation is tied to Buffett's legendary status. But he has entrusted the actual operations of the company's various businesses to capable executives for a long time. He has also allowed investment managers Todd Combs and Ted Weschler to make many of the decisions about how to invest Berkshire's massive cash stockpile.
For now, Buffett and Berkshire still do go hand in hand. That's not likely to change one bit after the company's shareholder meeting.
