All directors should act as if there is a single absentee owner and do everything reasonably possible to advance that owner's long-term interest, Buffett advises.
They need to think independently to tighten the wiggle room that "long term" gives to CEOs — while corporate leaders should think in terms of years, not quarters, they must not rationalize sustained subpar performance by perpetual pleas to shareholder patience. To that end, it is desirable for directors to buy and hold sizable personal stakes in the companies they serve so that they truly walk in the shoes of owners. Buffett's board service has almost always involved companies where Berkshire owns a significant stake. Prominent examples: Cap Cities/ABC (1986–1996); The Coca-Cola Co. (1989–2006); Gillette (1989–2003); Kraft Heinz (2013–present); Salomon Brothers (1987–1997); US Airways (1993–1995); and The Washington Post (1974–1986 and 1996–2011).
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There is a sub-commandment in this lesson — call it Commandment 3.5: Directors can and should sometimes replace themselves.
In 2005, despite Berkshire's longtime substantial stake in Coca-Cola — worth $8 billion then and $18 billion now — CalPERS as well as Institutional Shareholder Services challenged Buffett's independence as a director. They cited business relationships between various Berkshire subsidiaries and Coca-Cola, including Dairy Queen, a customer. Buffett objected, stressing how Berkshire's large and lengthy stock ownership dwarfed the modest and routine business transactions of its subsidiaries.
In the ensuing board election, 16 percent of Coca-Cola's shares were cast as withhold votes on Buffett, so he was reelected, but he nevertheless opted to stand down. While I disagreed with those doubting Buffett's independence, he responded to the shareholder ballot and set an example: Any director receiving a non-trivial level of withhold votes should withdraw from the board.