Diversity and sustainability: Is Warren Buffett behind the times?

It goes without saying that companies should embrace diverse workforces. Not only is it the right thing to do, but there is a strong business case for employing individuals with diversity of backgrounds, opinions and approaches.

Research suggests that companies with equal numbers of women and men in its workforce produce 41% higher revenue. Further to this, 43% of companies with diverse management had higher profits.

In addition, companies with racially and ethically diverse workers are 35% more likely to perform better and have improved returns on investment – with highly inclusive companies 120% more likely to hit their financial target goals.

Finally, 78% of people believe that successful diversity and inclusion efforts offer a competitive advantage in attracting talent and business – with 39% believing this advantage to significant.

However, in this regard, Berkshire Hathaway CEO Warren Buffett – who is known as the ‘Oracle of Omaha’ because of his investment success over the past four decades – seems, for once, to perhaps be out of step with progress.

This is because he has refused to disclose the diversity and inclusion efforts of Berkshire Hathaway – and its operating companies – as requested by shareholder advocacy group As You Sow. The group acted on behalf of Handlery Hotels and the proposal was submitted in advance of Berkshire Hathaway’s annual shareholder meeting, which will be held online on 1 May.

Diversity proposal from As You Sow

As You Sow called on Warren Buffett and Berkshire Hathaway to annually publish reports assessing its diversity and inclusion efforts.

It said the reports should contain “the process that the board follows for assessing the effectiveness of diversity, equity and inclusion programs” and “the board’s assessment of program effectiveness, as reflected in any goals, metrics, and trends related to its promotion, recruitment and retention of protected classes of employees”.

In its supporting statement for the proposal, As You Sow noted that there is significant investor interest in Berkshire Hathaway doing this; with investors with $1.9trn in assets releasing a statement on the importance of transparency around workplace equity data in October 2020.

Berkshire Hathaway board rejects the proposal

However, Berkshire Hathaway’s board unanimously favored a vote against As You Sow’s proposal.

In response, the board wrote: “Berkshire agrees that a diverse, equitable and inclusive workforce has been and will continue to be an important aspect of the success and long-term sustainability of companies.

“Berkshire’s commitment to diversity, equity and inclusion and the effectiveness of our companies’ related programs starts with our leaders, including our board of directors on which three female and two ethnically diverse members serve.

“Mr. Buffett, Berkshire’s Chairman and CEO has set the “tone at the top” for Berkshire and its employees for over 50 years. During this period of time, Mr. Buffett has a record of opposing efforts, seen or unseen, to suppress diversity or religious inclusion.

“All of Berkshire’s leaders – whether in our operating businesses or on our board – are extraordinarily qualified, committed to our culture and focused on ensuring long-term success for shareholders.”

The board added that “Berkshire manages its operating businesses on an unusually decentralized basis and has minimal involvement in these businesses’ day-to-day activities”.

Therefore, the company supports “the long-standing business model that each of the businesses is individually responsible for developing and implementing policies, programs and results”.

The board further noted tha because its operating business “represent dissimilar industries operating in multiple locations throughout the world” “it would be unreasonable to ask for uniform, quantitative reporting for the purposes of comparing such dissimilar operations in different geographic locations”.

Sustainability shareholder proposals

Berkshire Hathaway decision to push responsibility for diversity and inclusion efforts and disclosure onto individual companies was echoed in its rejection of another shareholder proposal linked to sustainability commitments.

California Public Employees Retirement System, Federated Hermes and Caisse Et Placement Du Quebec called on Berkshire Hathaway to publish an annual assessment “addressing how the Company manages physical and transitional climate-related risks and opportunities”.

Despite these concerns and rumblings about the high salaries of Buffett’s potential successors, the New York Times reports that Berkshire Hathaway shareholders are still expected to support Buffett and the board’s view at an annual meeting, which is to be held on Saturday 1 May. This is also not surprising since Buffett himself controls almost one third of the company’s voting power.

But, in the long term, is Berkshire missing the mark, given growing consumer and governmental interest in sustainability, diversity and executive pay?