Risk & Compliance

ISS Opposes Buffett for Coke Board

The legendary investor, who has served on the Coca-Cola's board since 1989, received 16 percent ''no'' votes last year after the proxy advisory fir...
Stephen TaubApril 6, 2005

Institutional Shareholder Services is recommending that Coca-Cola Co. shareholders vote against the election of Warren Buffett to the board of directors because his business ties pose a conflict of interest, according to Bloomberg.

The legendary investor, who has served on the Coca-Cola’s board since 1989, received 16 percent “no” votes after ISS issued a similar recommendation. This year’s annual meeting is scheduled for April 19.

In its proxy, Coca-Cola pointed out that in 2004, McLane Co. Inc. — a wholly owned subsidiary of Berkshire Hathaway — paid about $170.2 million to the soft-drink maker to purchase fountain syrup and other products “in the ordinary course of business.” Last year, Coca-Cola paid McLane about $9.8 million in agency commissions, about $298,000 in freight costs, and about $140,000 for advertising and marketing payments and other fees. “This business relationship was in place prior to Berkshire Hathaway’s acquisition of McLane in 2003 and is on terms similar to the company’s relationships with other customers,” the proxy asserted.

Coke’s proxy also stated that in 2004, International Dairy Queen Inc. (IDQ) — another wholly owned subsidiary of Berkshire Hathaway — and IDQ subsidiaries made payments totaling about $2.1 million to Coke, directly and through bottlers and other agents, to purchase fountain syrup and other products. IDQ and its subsidiaries received promotional and marketing incentives for corporate and franchised stores totaling approximately $1.1 million from Coca-Cola and its subsidiaries. “This business relationship was in place for many years prior to Berkshire Hathaway’s acquisition of IDQ and is on terms substantially similar to the company’s relationships with other customers,” Coke added.

FlightSafety International Inc., also a wholly owned subsidiary of Berkshire Hathaway, in 2002 entered into a four-year agreement with Coke to provide training services for pilots, flight attendants and mechanics. Last year the soft-drink maker paid FlightSafety about $592,000 for these services.

Coke also pointed out that Berkshire holds a “significant equity interest” in Moody’s Corp., to which Coke paid fees of $99,000 in 2004 for rating Coke’s commercial paper programs.

Berkshire also holds a “significant equity interest” in The Finova Group Inc. Coke notes that one of its subsidiaries paid roughly $79,000 to a subsidiary of Finova for the lease of coolers “in the ordinary course of business” and approximately $123,000 to purchase leased coolers.

The original lease was entered into prior to Berkshire Hathaway’s acquisition of its interest in Finova, Coke stated in its proxy. “In the opinion of management, the terms of the Flight Safety contract and the [Finova] lease are fair and reasonable and as favorable to the company as those which could have been obtained from unrelated third parties at the time of their execution,” the company added.

Also in 2004, Coke shelled out about $235,000 to Berkshire subsidiary XTRA Corp. to lease trailers used to transport and store product.

And finally, Coca-Cola noted that Berkshire Hathaway also holds a significant equity interest in American Express Co. Last year, Coke paid fees for credit-card memberships, business travel and other services to American Express or its subsidiaries, and those entities made payments totaling about $99,000 to Coke to purchase fountain syrup.

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