Strategic CSR - Warren Buffett

I am not normally a fan of Warren Buffett as I think many of the companies he invests in (e.g., Wells Fargo, Coca-Cola, Kraft/Heinz, Dairy Queen, See's Candies, etc., etc.) and even the companies he partners with (e.g., 3G Capital) are hurting, rather than helping, society progress. I also think his investment decisions are luck as much as anything else, given his ill-judged support for CEO pay policies at Coke (that do not reflect performance), his strong support for the train company BNSF (when some 40% of rail freight in the U.S. is coal), or his aversion to investing in IT stock (he only got into Apple by mistake). All of this might somewhat explain why the WSJ recently noted that "Berkshire Hathaway Inc. has underperformed the S&P 500 for a decade … during a historic bull market." Like many executives that have run out of ideas, his main response appears to be to buy back his own firm's shares. But, that is not to say that the man has no idea what he is talking about. In the article in the url below, at least, he is on solid ground by proudly advocating in favor of capitalism:

 

"The most prominent face of capitalism — Warren Buffett, the avuncular founder of Berkshire and the fourth wealthiest person in the world, worth some $89 billion — appeared to distance himself from many of his peers, who have been apologizing for capitalism of late. 'I'm a card-carrying capitalist,' Mr. Buffett said. 'I believe we wouldn't be sitting here except for the market system,' he added, extolling the state of the economy. 'I don't think the country will go into socialism in 2020 or 2040 or 2060.'"

 

The author notes that this frank statement stands in contrast to some business leaders who profess statements on controversial issues that go with popular sentiment, only to quickly reverse their position when the spotlight has moved on:

 

"Some billionaires agonize about inequality and the education system, for example, but don't push for higher taxes on the wealthy to help pay for fixes (one of Mr. Buffett's preferred remedies). A raft of chief executives who boycotted going to Saudi Arabia after the murder of Jamal Khashoggi last year quickly returned to doing business with the kingdom when the headlines died down."

 

I am not convinced that Buffett thinks any more about the detail of advancing society than other business leaders—he is simply convinced that capitalism is the most direct way of getting there:

 

"… at his core, [Buffett] believes that the pursuit of capitalism is fundamentally moral — that it creates and produces prosperity and progress even when there are immoral actors and even when it creates inequality."

 

In this sense, he is following a strategic CSR perspective. In his investment decisions, however, he consistently veers off-track.

 

Take care

David

 

David Chandler

Strategic Corporate Social Responsibility: Sustainable Value Creation (5e)

© Sage Publications, 2020

 

Instructor Teaching and Student Study Site: http://studysites.sagepub.comstudy.sagepub.com/chandler5e 

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The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/

Warren Buffett's Case for Capitalism

By Andrew Ross Sorkin

May 6, 2019

The New York Times

Late Edition – Final

B1

https://www.nytimes.com/2019/05/05/business/warren-buffett-capitalism.html

 

Strategic CSR - Warren Buffett

If you are an active investor, you are likely aware that Warren Buffett releases an annual letter to Berkshire Hathaway's shareholders. In this year's letter (released in March), he addressed the issue of climate change. In particular, he analyzed the issue in relation to Berkshire Hathaway's sizeable holdings in the insurance industry. Perhaps surprisingly, he was very bullish on the prospect of widespread environmental degradation:

 

"As a citizen, you may understandably find climate change keeping you up nights. As a homeowner in a low-lying area, you may wish to consider moving. But when you are thinking only as a shareholder of a major insurer, climate change should not be on your list of worries."

 

His reasoning rests on the somewhat ignorant argument that climate change has yet to produce any change in the number of extreme weather events:

 

"Up to now, climate change has not produced more frequent nor more costly hurricanes nor other weather-related events covered by insurance. As a consequence, U.S. super-cat rates have fallen steadily in recent years, which is why we have backed away from that business. If super-cats become costlier and more frequent, the likely – though far from certain – effect on Berkshire's insurance business would be to make it larger and more profitable."

 

As the article in the url below notes, however, this view contradicts the current scientific consensus. I imagine it is also not consistent with those in the north-east of the U.S. who were standing in the way of Hurricane Sandy when it hit in 2012:

 

"This claim flies in the face of growing scientific evidence. In 2014, the federally funded National Climate Assessment stated that: 'Certain types of extreme weather events with links to climate change have become more frequent and/or intense, including prolonged periods of heat, heavy downpours, and, in some regions, floods and droughts.'"

 

Moreover:

 

"Other insurers have already expressed concern about these changes. Carl Hedde, head of risk accumulation for insurer Munich Re America, says: 'The number of loss-relevant, weather-related natural catastrophes worldwide has almost tripled since 1980 […] we do think that the warming climate – depending on region and peril concerned – does play a certain role.'"

 

What is even more striking is the contrast between what Buffett said in this year's letter and what he has said in previous year's letters (as noted in the article in the second url below):

 

"Buffett certainly understands the danger of miscalculating risks. In his 2007 shareholder letter, he wrote that 'devastating storms' like Hurricane Katrina could 'rock the insurance industry.' 'We do know it would be a huge mistake to bet that evolving atmospheric changes are benign in their implications for insurers,' Buffett said then."

 

Buffett has demonstrated similar insensitivity to shifts that are occurring in other industries, too. He has recently reiterated his strong support for the railroad industry (in particular, Burlington Northern Santa Fe), even though between 30 and 40% of revenues in this industry come from the transportation of coal. In banking, I have not seen or heard any demonstrable comments about the recent behavior at Wells Fargo, which has now resulted in the CEO's resignation. And in the food industry, by doubling down on his support for Coca-Cola, not to mention Dairy Queen and last year's merger between Kraft and Heinz, he appears willing to squeeze as much revenue out of these fading brands, irrespective of the healthcare consequences of the salt, sugar, and fat that are stuffed into each of the company's products.

 

As a European living in the U.S., it seems counter-intuitive to me that Buffett should be praised for doing so much good with the fortune he has amassed (by pledging it to the Gates Foundation), without some comment on the social consequences incurred during the accumulation of that fortune. To me at least, doing good with a fortune once you have it does not justify the methods used to build that fortune.

 

Take care

David

 

David Chandler

Strategic Corporate Social Responsibility: Sustainable Value Creation (4e)

© Sage Publications, 2017

 

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler4e

Strategic CSR Simulation: http://www.strategiccsrsim.com/

The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/


The big flaw in Warren Buffett's view of climate change

By Thomas P Lyon

March 7, 2016

The Guardian

http://www.theguardian.com/sustainable-business/2016/mar/07/warren-buffett-climate-change-insurance-policy-berkshire-hathaway-shareholder-letter

Warren Buffett to shareholders: Climate change is nothing to worry about

By Alison Moodie

March 2, 2016

The Guardian

http://www.theguardian.com/sustainable-business/2016/mar/02/warren-buffett-shareholders-climate-change-insurance-berkshire-hathaway

 

Strategic CSR - Organic food

This will be the last CSR Newsletter of the Fall semester. Have a great holiday season and I will see you in 2013!

The article in the url below charts the evolution of the organic food industry in the U.S. from the perspective of one of its founders—Michael Potter, founder of Eden Foods (http://www.edenfoods.com/). The article reports that, in many respects, the terms “organic” and “big food” are becoming synonymous:

“The fact is, organic food has become a wildly lucrative business for Big Food and a premium-price-means-premium-profit section of the grocery store. The industry’s image — contented cows grazing on the green hills of family-owned farms — is mostly pure fantasy. Or rather, pure marketing. Big Food, it turns out, has spawned what might be called Big Organic.”

Many of the small and local brands, which many consumers probably believe remain ‘small and local,’ are now ‘big and remote’:

“Bear Naked, Wholesome & Hearty, Kashi: all three and more actually belong to the cereals giant Kellogg. Naked Juice? That would be PepsiCo of Pepsi and Fritos fame. And behind the pastoral-sounding Walnut Acres, Health Valley and Spectrum Organics is none other than Hain Celestial, once affiliated with Heinz, the grand old name in ketchup. Over the last decade, since federal organic standards have come to the fore, giant agri-food corporations like these and others — Coca-Cola, Cargill, ConAgra, General Mills, Kraft and M&M Mars among them — have gobbled up most of the nation’s organic food industry. Pure, locally produced ingredients from small family farms? Not so much anymore.”

The result of all this consolidation and commercial interest, according to Potter, is the dilution of the meaning associated with the organic label and all the health benefits that he believes stem from good, wholesome food. One example of how the influence of agri-business is affecting the final product is in the compilation of the National Organic Standards Board (http://www.ams.usda.gov/AMSv1.0/NOSB) (increasingly corporate) and the Board’s list of what substances can be included in organic foods and still continue to call the final product ‘organic’ (increasingly long):

“As corporate membership on the board has increased, so, too, has the number of nonorganic materials approved for organic foods on what is called the National List. At first, the list was largely made up of things like baking soda, which is nonorganic but essential to making things like organic bread. Today, more than 250 nonorganic substances are on the list, up from 77 in 2002.”

Take care

David

Bill Werther & David Chandler

Strategic Corporate Social Responsibility: Stakeholders in a Global Environment (2e)

© Sage Publications, 2011

http://www.sagepub.com/strategiccsr2e/

Instructor Teaching Site: http://www.sagepub.com/strategiccsr/

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Has ‘Organic’ Been Oversized?

By Stephanie Strom

July 8, 2012

The New York Times

Late Edition – Final

BU1

http://www.nytimes.com/2012/07/08/business/organic-food-purists-worry-about-big-companies-influence.html