Berkshire Hathaway 2007 Annual Meeting Transcript
Transcript of the 2007 Berkshire Hathaway Annual Meeting held on May 5, 2007 on Omaha, Nebraska:
(Click here to skip to the Q&A section)
(To see the full transcripts of all Berkshire Hathaway Annual Meetings on record, click here)
Jimmy Buffett entertains Berkshire shareholders with a song and introduces his “junior partners” Warren and Charlie.
And now, please welcome the charming, insightful, witty, rather brilliant, debonair, influential, well-heeled yet down-to-earth, talented, surprisingly modest, handsome, and refined exemplar of unflappable character, Mr. Buffett.
Who were you expecting? My junior partner?
For those of you who don’t know, I’m the distant cousin, Jimmy Buffett.
This would be a good day to rob a bank in Omaha. Everybody’s here, you know, so…
I couldn’t be around for the game with LeBron James. I was busy working on my wardrobe for this surprise appearance.
This is my first time in the Qwest Center, so I feel very at home in large spaces like this. It’s great to be back in Omaha.
That’s the good news.
The disturbing news is, as a long-time Berkshire Hathaway stockholder and shareholder, the big question is, you know, those guys are getting up in age, you know, Charlie and Warren.
Who are they going to leave it to?
Well… I got news for you. We did a genetic test, Warren and I did. You won’t see that in your program or in the shareholders report. And somewhere back about 6,000 years ago, in some ancient village in Scandinavia, they were trading Buffett genes, and
I got the talent. He got the business.
So, later on in life, after Doris introduced us… I don’t know, 30 years ago… I started figuring out, so I better get that business thing going as well.
So, since blood is thicker than water, I am your new chairman. So, I hope you like that.
Don’t run out to sell. I’m keeping my mine.
So, on the way out here on the plane, I figured… it was an interesting day, if you read The New York Times business section yesterday. There was a lot going on.
So, I thought I would… this song has done very well for me, so I thought I would bring this for my first appearance in Omaha at the Qwest Center… I would rewrite a little “Margaritaville” with a little Berkshire… well, actually we’re wasting away in Berkshire Hathaway-ville this… today.
I’ve never sung this early in the morning, except on the “Today” show, so you’re not paying, so don’t worry about it, so…
Don’t worry, I’m a semi-professional. This is OK.
I will be looking at these notes. As you can tell, Warren gave me a really big budget for a teleprompter here.
All right. So, you can sing along if… but you will not know… you’ll know a few of the words to these songs. But then I’ll try to do this slowly, and I have my bifocals, so I think we’re in good shape here, so…
We’ll start the morning off with a little hymn.
(Jimmy sang this to the tune of “Margaritaville”)
Nibblin’ on sponge cake,
And Omaha beef steak,
Watchin’ you stockholders buying the rounds.
The Qwest Center’s rockin’,
The press is all blockin’.
There isn’t a doubt
Warren’s big in this town.
Wastin’ away in Berkshire Hathaway-a-ville,
Searchin’ for my lost box of See’s.
Some people claim that Charlie Munger’s to blame,
And you know, Rupert Murdoch is peeved.
From World Books to sofas,
Jet planes, diamonds, and (the audio on this part of the video is inaudible),
(the audio on this part of the video is inaudible) in euros,
Let’s not forget euros.
Uh oh. I made a mistake here. All right. Hold on.
You won’t pay for that, OK?
Are you going anywhere? We’ll start again.
Let me get these bifocals off here.
From World Books to sofas,
(the audio on this part of the video is inaudible) and (the audio on this part of the video is inaudible),
Jet planes, diamonds, and underwear cover the floor.
It was the Fruit of the Loom that got me.
Tool books (the audio on this part of the video is inaudible).
Let’s don’t forget euro,
Make all those…
Oh, this is a good line. I got to…
Make all those hedge funders
Want to go and buy stores.
Wastin’ away again in Berkshire Hathaway-ville,
Searchin’ for some good companies to buy.
Some people claim privatization’s to blame,
But we know, this holding company’s on fire.
So, who was the wizard,
Who thought up the lizard,
To sell car insurance to humans while making some jokes?
Projects we’ll surmount,
But I still want that discount.
Can someone show me where they’re sitting those rich Geico bulbs?
Wastin’ away again in Berkshire Hathaway-ville,
Searchin’ for my lost shaker of salt.
And some people claim that Doris Buffett’s to blame,
But I know this is all Warren’s fault.
And some people claim that ukulele’s to blame,
If there’s a God, he’ll turn that thing into (the audio on this part of the video is inaudible).
So you thought I was kidding about that running the company stuff, didn’t you?
So… I was.
That’s a big relief there. So, with a great bit of pride and admiration, please welcome my junior partners, Warren and Charlie.
Separated at birth. Separated at birth.
I actually had asked Charlie to do that number…
Appreciation for Jimmy and everyone who helped organize the annual meeting
Got a lot of people to thank, starting off with Jimmy. Wonderful.
We hid him out… came in last night kind of late and we… to be sure it was a surprise, we stashed him away over at the Hilton, and I just want to say thanks to him.
We both got the commercial gene, but unfortunately, he got the singing gene. I got this voice you’re hearing.
We… the movie, as we mentioned, we get a lot of help from a lot of people. They all do it just for the fun of it.
I particularly want to thank Andy Heyward of DIC who did that cartoon. He’s done them now for a number of years. They come back here to get my voice recorded and to get Bill’s voice and Charlie’s voice. They do it all themselves just to participate in the movie.
Andy and I… I’m working with Andy on a cartoon series that will be out pretty soon, which we’re aiming toward younger people to try and work a little financial education into a good time on Saturday morning for kids.
And we’ll see how that all comes out. But Andy is wonderful to work with. It’s been…
My daughter Suze puts that movie together. It’s a lot of work and it’s a labor of love. She does a terrific job, and I just want to thank her for… as usual. Thank you.
Then finally I want to particularly thank the grand impresario of this whole affair is Kelly Broz.
And Kelly puts this all together, the exhibition hall. I just turn it over to her. I forget about it, and Charlie and I just show up on Saturday morning.
And Kelly is having her 50th birthday tomorrow. So, Kelly, would you stand up and take a bow, please. Yeah.
Happy birthday to you. Happy birthday to you. Happy birthday, dear Kelly. Happy birthday to you.
Now, today we’re going to follow the usual format. We have a number of microphones placed around this room and we have overflow rooms. We will go from one station to the other, keep going until about noon or thereabouts, and then we’ll break for 30 or 45 minutes for lunch.
We’ll come back here, and we will then go until about 3 o’clock, continuing the same routine.
We don’t prescreen the questions or the questioners. It’s whoever got in line first for the microphones.
At 3 we will take a break for a few minutes. We will reconvene at 3:15 for the official business meeting.
We have an item of business… normally we take care of business in about five minutes, re- elect the directors. But today we have an item on the proxy relative to our holdings of PetroChina.
We were not required to put that on the ballot. The SEC told us we didn’t have to, but we really thought it would be a good idea to do it so that all of you that are interested can hear about our reasoning and the reasoning of the people who disagree with us.
We’ll give them plenty of time to tell you why they think we’re wrong and we’ll respond.
And I hope anybody that’s interested at all on the subject, I hope you stay right until 4 o’clock when we will adjourn, because Charlie and I are then going to greet, perhaps, as many as 600 shareholders who have come from outside of North America.
We have a record number. I think we have a hundred or so from Australia, and we have close to that number from South Africa.
We have shareholders from all over the world. So we feel if they come all the way to Omaha, Charlie and I would at least like to shake their hands, and we have that from about 4 till 6:00 o’clock, and then we’ll be doing some other things this evening.
But that is the drill for this meeting. We won’t elect the directors until the regular meeting, which commences at 3:15, but I would like to introduce them at this time and we have a few special announcements in that connection.
Warren introduces Berkshire’s board of directors
But we start off… this is Charlie, this fellow that’s been making all the noise over here.
He’s quite hyperkinetic. But we seem… I think he’s on his medicine.
Charlie, incidentally, can hear quite well and I can see, so we work together. I have a little… I thought I was doing pretty well when I remembered his name, actually.
But our combined ages are 159 for those of you who can’t work with big numbers.
So Charlie. And then we have… and if you’ll stand as I read your name… Howard Buffett.
A former Omahan, Don Keough.
And a lifetime Omahan, Walter Scott.
Now, in addition, we have with us a director whose family has been involved with Berkshire Hathaway and its predecessor companies for over a hundred years. His father played a very key role in Buffett partnership obtaining control of Berkshire Hathaway in 1965.
He was supportive in every possible way, as his father, and now his son. And Kim Chace has been on our board for a great number of years. He’s been a… just like his father before him, he’s been a wonderful director.
He’s been a great friend. He will be leaving the board this year, but Kim is here with his family and, Kim and the family, if you would stand up, I’d like the shareholders to recognize you.
And then finally we will have a new director get elected, and I’ve got the votes in my pocket so there’s no question about it, and that is Sue Decker. And, Sue, if you will, please stand.
Berkshire’s first quarter earnings
Just one or two items of business the… before we start the questioning.
We did report our earnings yesterday after the close, and I can’t see the… are they up on the monitor?
But it was a good first quarter. We had a good year last year. The insurance earnings are going to go down. There’s no question about that. How much they go down depends on Mother Nature and a few other factors.
But it’s been an extraordinary period for insurance. I mean, nothing bad happened last year, and the same was true in the first quarter.
As you might expect, that favorable experience has caused people to lower prices in some areas quite dramatically. And the nature of insurance, if you write a one-year contract, say, six months ago, you were still getting premium at the old rate, if you write at a one-year policy, for another six months.
So there’s a lag effect when things are getting either better or worse. And the lag effect from this point forward, we will… our insurance rates results will show the effect of lower prices.
They will probably show… certainly we have the most benign hurricane season imaginable last year. We have less hurricane exposure that we’ve written this year but, nevertheless, as natural catastrophes occur we will be paying out lots of money if and when they occur.
It couldn’t get any better than it was last year from our standpoint. So things in the insurance world, our insurance earnings, underwriting earnings, are bound to decrease.
Now, what we really hope over time is more or less to break even on the underwriting of insurance. So when you see a significant profit like last year or underwriting profit this year, just look at that as kind of the good side of what will later be an offset to it in a way of an underwriting loss.
But if we break even in insurance on underwriting, we do very, very well because we generate lots of float and we earn money on that float and our float is at an all-time high.
So this is really the frosting on the cake when we have an underwriting profit, and it’s not to be expected to necessarily… well, it won’t occur year after year. Ever since we’ve been in the insurance business, about half the years we’ve made money underwriting and half we haven’t.
I think our mix of business now is such that we’ll even maybe do a touch better than that in the future, but we won’t do anything like what we did in the last year and in the first quarter this year.
There’s one unusual item in our balance sheet that you should be aware of. March 31, you’ll see our receivables went up by about $7 billion. That was because of the Equitas transaction I described in the annual report.
On March 31st, the deal, basically, was closed at the end of the quarter. So we had a receivable of 7 billion, and then a couple of days later we were given 7 billion of cash and securities. So that receivable very quickly turned into liquid assets, cash.
And we sold all those securities we got. So we had 7 billion transferred from receivables to cash very early in April.
Other than that, most of our noninsurance businesses did fine. The residential construction- related businesses are getting hit, in some cases getting hit very hard, and in some cases getting just… but still reflecting decreases in their business.
And my guess is that that continues, perhaps, for quite a while. So you will see lower earnings coming from the companies that are related to residential construction such as Shaw, Johns Manville, ACME Brick, and that group.
But overall, compared to the companies they compete with, our managers continue to do an absolutely sensational job.
We have the greatest group of managers and, for that matter, we’ve got the greatest group of stockholders, of any company I know of in the world, and Charlie and I are very grateful.
You saw in the movie Charlie and I going over there to give the fellows in Israel a lot of advice on how to run their operation better.
And Charlie might want to… you might want to comment on ISCAR.
Well, that was a great experience, and ISCAR is a very great company. I have never seen anything as automated as that ISCAR operation. I think they regard it as a disgrace if any human hand has to do anything.
We bought it without looking at it, but after we looked at it, we really liked it.
For those of you who won’t be around for the 3:15… and I hope everybody that’s interested sticks around for that… it will be an interesting discussion.
But we do have a preliminary vote. Again, I can’t see the vote up there. But, Marc, is the vote up there? Unable to hear anything there, but I assume it.
The… basically, I can’t see it from here, but it’s about 2 percent are in favor of the resolution and about 98 percent opposed. And that was true of both the A and the B stock.
So there really wasn’t any great difference in the way people voted on the proposal. And even if you leave out my personal vote, which was against, it’s about a 25-to-one margin that voted in opposition to it.
And anybody that wishes to vote in person or to change their vote, be sure and stay for the meeting at 3:15, and I think you’ll find the discussion very interesting if you care to stay.
Q&A – Morning Session
(Click on a link below to skip to a particular topic)
- The nature of the private equity activity is such that it really isn’t a bubble that bursts.
- Why Berkshire haven’t invested outside the United States in a big way.
- On the problem of unfair executive compensation and its effects on investors.
- Corporate jets can be a valuable business tool but like all corporate benefits, it can be misused.
- Warren and Charlie talks about a major credit contraction and how it would affect Berkshire’s activities.
- Charlie thinks he reminds many people “too much of John Adams and too little of Ben Franklin”.
- Corporate profits cannot stay at eight and fraction percent of GDP, on average, in the future.
- On the so-called fail to deliver and naked shorting. To see an explanation of what they are, click here and here.
- Gambling companies will have a terrific future if they’re legal.
- Warren and Charlie’s advice on how to be a better investor.
- You don’t need a huge margin of safety if you’re buying a great business with management that treat their shareholders right.
- The health care mess is too tough for both Warren and Charlie.
- How to calculate Berkshire’s intrinsic value.
- The introduction of derivatives and index futures has totally made any regulation on margin requirements “a joke”.
- Trying to beat the currency, bond or stock markets day by day is a “fool’s game”.
- There’s no one easy method that can be applied mechanically to determine intrinsic value or margin of safety.
- What Warren and Charlie is looking for in potential managers that will help Warren invest Berkshire’s money.
- Warren and Charlie’s thoughts on global warming.
- On China’s growth and banking system.
- What Warren would do if put into a new role with a clean slate as manager of a $10 billion pension fund.
- Other than buying and selling silver too early, Warren thinks he has made the “perfect trade”.
- Warren’s advice for someone who plans to give away his wealth after 20 or 30 or 40 years.
- If Warren was working with a very small sum he would be “doing almost entirely different things than I do”.
- The people, the institutions and in some cases the intermediaries involved in subprime lending are going to suffer in various degrees.
Q&A – Afternoon Session
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- What Warren and Charlie thinks about managed future funds. To know more about managed future funds, click here.
- How to be a successful investor.
- Should the insurance industry be concerned about the recent government interference in Florida?
- Berkshire is as prepared as it ever been to make a big acquisition.
- Warren shares his opinion of Planned Parenthood. To know more about this organization, click here.
- Beta, a measure of volatility, is nice and mathematical and wrong in terms of measuring risk.
- How to determine the quality and integrity of management.
- Warren would rather own equities than bonds.
- PacifiCorp, as a public utility, will do exactly what the public policy says.
- Warren and Charlie has no opinion on the merger of the New York Stock Exchange with Euronext.
- How can one learn who to trust and who not to trust?
- Make your decision based on opportunity costs.
- Some problems are not optional and should not be ignored just because they are “too difficult” or “too hard”.
- Warren used to look at his stocks “all the time”.
- There are huge difficulties to managing great, big, common stock portfolios.
- Warren reiterates that PacifiCorp, a Berkshire subsidiary, will follow the public policies set by the Federal Energy Regulatory Commission (FERC).
- How a recent legislation passed in Florida would affect Berkshire’s insurance businesses.
- You are going to gravitate toward the behavior of those around you.
- A shareholder offers to give Warren, Charlie and Bill Gates a shirt with his resume printed on it.
- Charlie doesn’t think making ethanol with corn is a good idea.
- Warren endorses a classic and a good book.
- The best protection against inflation.
- On the future profitability of the railroad industry.
- Warren and Charlie’s financial advice for a 10-year-old.
- Warren and Charlie doesn’t take world trends into consideration when buying businesses.
- How a declining dollar value is going to impact individual investors in the United States.
- For a long time, directors were sort of “potted plants”.
- Why Berkshire normally don’t do deals with partners.
- Berkshire is going to invest in businesses, not commodities.
- The dual-class share structure should not blamed for anyone’s investment losses in the New York Times.
- Omaha can no longer accommodate the growing number of shareholders coming to the annual meeting.
End of Q&A
We’re now going to take a ten-minute recess, and then we’ll reconvene. Thank you.
Start of formal business meeting
If you’ll please take your seats? We want to finish by 4, so we’d like to move quickly through the rest of the business, and we’ll get on to the PetroChina question.
And let’s see. Here we are. The meeting will now come to order. I’m Warren Buffett, chairman of the board of directors of the company. I welcome you to this 2007 annual meeting of shareholders.
I will first introduce the Berkshire directors… I’ve already done that.
So, also today with us are partners in the firm of Deloitte & Touche, our auditors. They are available to respond to appropriate questions you might have concerning the firm’s audit of the accounts of Berkshire.
Mr. Forrest Krutter is secretary of Berkshire. He will make a written record of the proceedings.
Miss Becki Amick has been appointed inspector of elections at this meeting. She will certify to the count of votes cast in the election for directors.
The named proxy holders for this meeting are Walter Scott and Marc Hamburg.
Does the secretary have a report of the number of Berkshire shares outstanding, entitled to vote, and represented at this meeting? Forrest?
Yes, I do. As indicated in the proxy statement that accompanied the notice of this meeting that was sent to all shareholders of record on March 6, 2007, being the record date of this meeting, there were 1,113,240 shares of Class A Berkshire stock outstanding, with each share entitled to one vote on motions considered at the meeting, and 12,888,424 shares of Class B
Berkshire Hathaway common stock outstanding, with each share entitled to one two- hundredth of one vote on motions considered at the meeting.
Of that number, 955,276 Class A shares, and enough… 11,301,274 Class B shares are represented at this meeting by proxies returned through Thursday, May 3rd.
Thank you. That number represents a quorum, and we will therefore directly proceed with the meeting.
The first order of business will be a reading of the minutes of the last meeting of shareholders. I recognize Mr. Walter Scott, who will place a motion before the meeting.
I move that the reading of the minutes of the last meeting of the shareholders be dispensed with and the minutes be approved.
Do I hear a second?
I guess I heard a second.
The motion has been moved and seconded. Are there any comments or questions? We will vote on this question by voice vote.
All those in favor say “aye.”
Voice from Audience:
Opposed? The motion is carried.
Election of Berkshire’s board of directors
The first item of business is to elect directors.
If a shareholder is present who wishes to withdraw a proxy previously sent in and vote in person on the election of directors, he or she may do so.
Also, if any shareholder that is present has not turned in a proxy and desires a ballot in order to vote in person, you may do so.
If you wish to do this, please identify yourself to meeting officials in the aisles, and we’ll furnish a ballot to you.
Would those persons desiring ballots please identify themselves so that we may distribute them.
I now recognize Mr. Walter Scott to place a motion before the meeting with respect to election of directors.
I move that Warren Buffett, Charles Munger, Howard Buffett, Susan Decker, William Gates, David Gottesman, Charlotte Guyman, Don Keough, Tom Murphy, Ron Olson, and Walter Scott be elected as directors.
Is there a second?
Voice from Audience:
It’s been moved and seconded that Warren Buffett, Charles Munger, Howard Buffett, Susan Decker, William Gates, David Gottesman, Charlotte Guyman, Donald Keough, Thomas Murphy, Ronald Olson, and Walter Scott be elected as directors.
Are there any other nominations? Is there any discussion?
The nominations are ready to be acted upon. If there are any shareholders voting in person, they should now mark their ballots on the election of directors and allow the ballots to be delivered to the inspector of elections.
Would the proxy holders please also submit to the inspector of elections a ballot on the election of directors voting the proxies in accordance with the instructions they have received.
Miss Amick, when you are ready, you may give your report.
My report is ready. The ballot of the proxy holders in response to proxies that were received through last Thursday evening cast not less than 1,008,564 votes for each nominee.
That number far exceeds a majority of the number of the total votes related to all Class A and Class B shares outstanding.
The certification required by Delaware law of the precise count of the votes, including the additional votes to be cast by the proxy holders in response to proxies delivered at this meeting, as well as any cast in person at is this meeting, will be given to the secretary to be placed with the minutes of this meeting.
Thank you, Miss Amick. Warren Buffett, Charles Munger, Howard Buffett, Susan Decker, William Gates, David Gottesman, Charlotte Guyman, Donald Keough, Thomas Murphy, Ronald Olson, and Walter Scott have been elected as directors.
A shareholder proposes that Berkshire divest its shares in PetroChina
Now, the next item of business we’ll spend more time on, and that is a proposal put by… forth by Berkshire shareholder Judith Porter, the owner of ten Class B shares.
Miss Porter’s motion, as set forth in the proxy statement, provides that Berkshire Hathaway not invest in the securities of any foreign corporation, or subsidiary thereof, that engages in activities that would be prohibited for U.S. corporations by executive order of the President of the United States.
The directors have recommended that the shareholders vote against the proposal.
The microphones at zone 1 and 7 are available for those wishing to speak for or against Miss Porter’s motion.
These are the only microphone zones in operation; so I ask that you go to either 1 or 7 if you’d like to talk on this.
I ask that you confine your remarks solely to Miss Porter’s motion.
Now, we have a number of shareholders who want to the talk about this, and we will let shareholders speak.
If there’s sufficient time at the end of that… and we’re willing to… certainly willing to… have them speak for half an hour, and Charlie and I will give them, maybe, a couple minutes’ response after that.
But you’ve got a half an hour. Different shareholders can speak. I hope you tailor the length of your remarks, the early ones, so that it gives other people a chance.
And if we have time after the shareholders have spoken and there are other people that are in attendance as visitors that wish to speak, we’ll have them also.
But if the shareholders use up the full time until almost 4 o’clock, then we’ll have to finish at that time.
So, Miss Porter, if you’re available… if we can turn the light on there at station 1… to speak, you have the floor.
Thank you. Mr. Buffett, my name is Judith Porter, and I’m the shareholder who introduced the proxy resolution involving Berkshire Hathaway’s divestment of PetroChina.
PetroChina is implicated in the genocide in Darfur, Sudan.
I want to thank you for allowing us to speak to this resolution. In many countries it would be impossible for us to do so, but we are indeed fortunate to live in a country where we can express our opinion without fear or without recrimination.
Before my husband formally presents the resolution, I want to explain to you why I have introduced it.
My family is no stranger to genocide. My grandparents were murdered in 1941 in the Nazi genocide, as were other members of my family.
I will never forget the despair my father expressed when my aunt, who was released from Bergen-Belsen concentration camp, sent him a letter telling him what happened to his family.
It deeply affected him for the rest of his life. And I was raised to believe that genocide should never, ever again happen, never again.
The world was silent when my grandparents were murdered. But genocide has continued.
In the genocide in Cambodia, the world was silent. In the genocide in Bosnia, the world was silent until late in the slaughter. The world was again silent in the horrible genocide in Rwanda.
How many times must we say, “Never again?”
Now, there’s the first genocide of the 21st century in Darfur. Two and a half million civilians have been driven from their homes.
More than 400,000 have been killed, and 1,600 villages have been destroyed.
Berkshire Hathaway can play a role in ending this slaughter by divesting in PetroChina, as we’ll shortly describe. As an exemplar of both business ethics and personal integrity, your support of divestment will send a signal to China and to the Sudan that there are costs to continuing this destruction, and it will lead other corporations to follow your ethical actions.
Genocide is never a good investment. I can think of no greater tribute to my grandparents than introducing this resolution. As Elie Wiesel said in his Nobel Peace Prize speech, “We must take sides. Neutrality helps the oppressor, never the victim. Silence encourages the tormenter, never the tormented. Sometimes, sometimes we must interfere.”
My husband will now present the proxy resolution. He will be followed by Jason Miller, who will speak about the relationship between CNPC and PetroChina. Abdul Makjid, who is from Sudan, will speak about the genocide taking place. And Bob Edgar, Secretary General of the National Council of Churches, will conclude our discussion of this resolution. Thank you.
Thank you. Mr. Buffett. Since you’ve read the resolution, I will not repeat the resolution. I will speak about the resolution, though.
On November 3rd, 1997, President Bill Clinton issued Executive Order 13067, which imposed a trade embargo prohibiting most American businesses from operating in the Sudan.
This executive order was expanded on April 27th, 2006, by President George W. Bush. While it is true that American companies cannot do business in the Sudan, Americans can invest in Asian and European companies that do business in the Sudan.
Such investments do not violate the letter of this law, but they certainly do violate the spirit of the law and are counter to the stated policy of the United States.
We believe there is general agreement that the Chinese National Petroleum Company, CNPC, plays a major role in funding the genocide, in providing weapons to the Sudanese, in cooperating with the Sudanese military, in forcibly displacing local populations, and in myriad other ways, facilitating the killing of hundreds of thousands of Darfuris.
CNPC is the largest foreign investor in Sudan’s oil industry, and fully 70 percent of the revenues Khartoum generates from CNPC’s operations go to its military, which, in turn, conducts the genocide in Darfur.
We are here today because Berkshire Hathaway is the major non-Chinese investor in CNPC’s subsidiary, PetroChina.
You, Mr. Buffett, have stated that you believe that we are wrong, both in our analysis of PetroChina’s connection to the genocide and the belief that divesting the company’s PetroChina holdings would in any way have a beneficial effect on Sudanese behavior.
We disagree. You are correct in stating that PetroChina does not do business in the Sudan. However, as you agree, its parent company, CNPC, is a major investor in the Sudan, and funds from that relationship help provide the instrumentalities of genocide.
Managements claim that the relationship between PetroChina and CNPC is similar to that between Fannie Mae and the U.S. government. That argument is fallacious.
The Harvard University Advisory Committee on Social Responsibility examined the management of the two companies. The results of that review were striking.
There was almost total management overlap between the two companies. Andrew Leonard, writing for Salon.com commented, “To declare that a subsidiary has no ability to control the policies of the parent when the two entities are run by exactly the same people is an exercise in specious obfuscation.”
In short, PetroChina is an artifact created for the sole purpose of allowing some shareholders to distance themselves from the action of its parents, CNPC.
In China, the companies share the same brand name and the same logo. If you look at a coin, the images on the two sides are different, but the coin is a unity. You cannot spend one side of a dime or own one side of a quarter.
It’s the same with PetroChina and with CNPC. They look different, but they are simply two faces of the same corporation.
Two U.S. presidents have stated clearly that it’s against the national interests of the United States for U.S. companies to do business in Sudan.
It is the position of the U.S. government that a targeted economic boycott of the Sudan will help end the genocide in Darfur.
For a U.S. company to invest in a subsidiary of a foreign company, such as PetroChina, that engages in business in the Sudan is a circumvention of Executive Order 13067 and weakens the U.S. sanctions.
Economic sanctions against the Sudan have worked in the past. For example, Talisman Oil’s sale of its assets in the Sudan helped bring about the end of the civil war in the Sudan.
Sudan’s main protector in the United Nations is the government of China. China will be hosting the 2008 Olympics and is very sensitive about negative publicity that could be aimed at that event.
In response to the recent criticism of the Chinese support of Sudan by Mia Farrow and Steven Spielberg, a senior Chinese official traveled to Sudan to push the Sudanese government to accept a United Nations peacekeeping force.
You and the company are viewed as exemplars of ethical behavior. If Berkshire were to take the lead and divest, others would follow. If Mia Farrow can cause change to occur, then so, too, can Warren Buffett.
No one divestment in South Africa brought about the end of apartheid. But if we all act together, we have tremendous power to bring pressure on the Sudanese government to stop the killing of innocent people.
During the last two decades, beginning with the tearing down of the Berlin Wall in October 1989, we have seen events that no person could ever have anticipated: The breakup of the Soviet Union, the democratization of Eastern Europe, and an unbelievable transition in South Africa.
What we have learned is that all things are possible. There are important issues in our society that desperately need our attention.
Remember the words of Hillel: “If I am not for myself, who will be for me? If I am for myself alone, what am I? If not now, when?”
Thank you. And I’m pleased to introduce Jason Miller.
I’m Jason Miller, the National Policy Director for the Sudan Divestment Task Force and also an owner of three shares of Berkshire Class B stock.
I’d like to echo the Porters’ comments that CNPC is by far and away the most irresponsible and abusive oil operator in Sudan.
They’ve participated with the government in forced displacements and other human rights violations, and 70 percent of the revenue that they provide to Sudan gets funneled into the military that prosecutes the genocide at Darfur. But what does that have to do with PetroChina?
Currently, the chairman of PetroChina’s board is the immediate past president of CNPC. The president of CNPC is the president of PetroChina and vice chair of the PetroChina board. The CFO of CNPC is the CFO of PetroChina. The chairman of the
PetroChina supervisory board is the chief of discipline and inspection at CNPC.
Eight of the nine PetroChina directors have a current or immediate past connection to CNPC. Four of the five PetroChina supervisors have a current or immediate past connection to CNPC. All PetroChina senior executives are currently or formerly connected to CNPC.
We’ve also documented a slew of other management irregularities. Furthermore, asset transfers between the two are fluid and often cross-subsidized. After PetroChina’s IPO, it took on $15 billion in debt from CNPC, which freed up cash flows for CNPC to spend on Sudan.
Ten percent of IPO revenue from PetroChina went to CNPC’s operations in Sudan. Fifty percent of CNPC’s profits come from PetroChina dividends.
PetroChina, in 2005, provided $3.15 billion in cash for CNPC’s finance arm to provide to other CNPC subsidiaries like those in Sudan. And 64 percent of CNPC’s assets are represented by PetroChina stock.
If this isn’t management overlap and two manifestations of the same entity, I would challenge people to find one that is more overlapping.
As a result, and because of the huge magnitude of the atrocities in Darfur, even a whiff of this type of overlap between PetroChina and CNPC, and the lack of strong corporate governing structures there, would suggest that engagement with PetroChina by Berkshire Hathaway is a minimum requirement in order to investigate these connections and their potential contributions to the Darfur genocide.
I’d very quickly also like to mention the important question that Berkshire Hathaway was asked, which is what’s next? If we engage PetroChina, ask them about these questions, what happens?
The answer by unanimous consent with all foreign policy experts we interact with and those international organizations working in Sudan is that China would change its behavior in Sudan.
Sudan is too important to China as an energy policy for China for it to abdicate those assets. And, as a result, we’ve already seen changes in China’s behavior.
And taking leadership from the queues of Berkshire Hathaway would be one more in the line of Mia Farrows and Steven Spielbergs that could help catalyze the important sea change that’s necessary to bring an end to the genocide.
I’d now like to introduce a Darfurian who’s from Des Moines and would like to speak…
I would… I would…
Is he a shareholder or not? I want to be sure all the shareholders have a…
He has the proxy of Etta and James Friend, who are the shareholders of three shares…
I just want to make sure. Are there other shareholders at 7 that want to talk too or not? I want to make sure that all the time isn’t taken.
We will not take all the time.
OK. That’s fine. I just want to make sure that the shareholders aren’t shut up.
Good afternoon, and thank you for inviting me to speak about Darfur. My name is Abdamide Jusef, and I am speaking today as a proxy of Etta, Freta, and James Friend, who are the holder of four shares of Class B stocks.
I am from western Darfur, and my parents still live in Darfur. I fled from Sudan to Egypt in September 2002 after being expelled from Sudan University in Khartoum for speaking out in (the audio on this part of the video is inaudible) of Darfur.
We are detained for a few week and we suffered from abuse physically and psychologically every day until they released and told us we are not allowed to go to any university and we had to stay away from any activity for that student association. I get refugee status in the United States, and I move to Des Moines, Iowa, on March 2005.
The Janjaweed attack my family… my family’s home… in Darfur in January 8, 2007. Four Arab men from the Janjaweed attack our home in the early morning.
At that time, there was a guest in my family home. The Janjaweed left him without attention; so he run away to get help from our neighbors. The Janjaweed started by taking all the money and jewelry from my family.
When the Janjaweed found out that someone had run to get help, they left my family, but they promised them they were going to come back.
Even that my family escaped injury, my neighbor (the audio on this part of the video is inaudible) and his entire family of five were murdered by the Janjaweed. The Janjaweed also took their horses, and these activities were ongoing in my town for a while.
And everybody in my community or someone was murdered, have someone was murdered and raided by the Janjaweed. My mom told me everybody wake up every day, and the first thing they do is check their neighbor and their relative to see if they are alive or not, and so do I.
The Janjaweed are stealing my town. Now they work as gangs who kill and rape. Every family is affected, and nobody can stop them.
Even though I live in safety and peace there… here in United States, I still worry about my family back home in Darfur.
Please try to do anything to help my family and all people in Darfur. I need your help. If you do the simple thing like tell your friend about the genocide in Darfur or join an organization, or talk or send letters to your member of Congress, or don’t invest in any companies that’s helped genocide in Darfur.
Please, Mr. Buffett and Berkshire Hathaway shareholders, get involved to bring the hope and peace to the children and women and all of us in Darfur. Whatever you do to stop the genocide in Darfur is saving life of human being.
Thank you for listening, and now I would like to introduce Bob Edgar, the General Secretary of the National Council of the Church.
As we close, I’m Bob Edgar, General Secretary of the National Council of Churches and a former member of the United States Congress. I’m here in support of the resolution and a proxy for Doris Gluck, who holds ten shares in the company Class B stock.
In February of 1968, I had the privilege of meeting Dr. Martin Luther King five weeks before he was assassinated. Later, as a member of Congress, I served on the Select Committee on Assassinations, looking into both the death of Dr. King and John F. Kennedy. I come here today in honor of the kind of dream that Dr. King had.
He said this: “Our lives begin and end the day we have become silent about the things that matter. We will not be silent.”
I am here today representing millions of faithful Americans… Christians, Jews, Muslims, and others… who have stood up and said no to this genocide. Just 11 or 12 or 13 years ago, 800,000 people were killed in Rwanda in 90 days, and we were silent. We will be silent no more.
Mr. Buffett, this morning you said a great thing, and I quote, “I find it reprehensible when a government preys on the weaknesses of its citizens rather than protecting them.” I wholeheartedly agree. You were talking about gambling. We urge you to think the same way about genocide.
On the document in opposition to this resolution, you said this: “Proponents of the Chinese government’s divesting should ask the most important question in economics, ‘And then what?’”
We are prepared to answer that question, “And then what? And then what?” Then the world will finally focus on the issue of genocide in Darfur.
Then the international investors all over the world in many companies would follow the ethical actions of Berkshire Hathaway’s moral leadership, moral leadership, and call for all governments of the world to stop the genocide.
“And then what?” Children would be saved, women would not be raped, fathers would not be killed, and we would find our way in this human family to care for one another.
Jesus said, “We should love our neighbors as ourselves.” I think he meant, “We should probably try every means available to stop those neighbors from being killed.” This is just one way we can follow those words of Jesus.
And, finally, the former pope, John Paul, said, “I dream of a world where none will be so poor they have nothing to give and none will be so rich they have nothing to receive.” I urge support of this resolution.
Are there other shareholders that would like to talk before we respond?
Mr. Buffett, my name is Aaron Frank. Thank you for hearing us on this matter. I’m from Atlanta, Georgia. And along with being a… along with being a Berkshire shareholder, I also independently own shares of PetroChina.
And this issue is something I’ve struggled with for years, in terms of whether to divest or not. What I’ve done personally is given the dividends that I receive from PetroChina to organizations that help in Darfur, but this is mostly symbolic.
What is clear to me is if I had the opportunity to engage the management of PetroChina in a meaningful way as I do with you here today, that I would be compelled to do so ethically.
As owners of Berkshire Hathaway, we have a unique opportunity to engage the management of PetroChina in a way that will be heard not only by the management of PetroChina but by CNPC, China, and the international community due to your standing.
That’s a unique opportunity, and this is an incredibly… this is an incredibly important matter. I think we have an ethical obligation to do so. Thank you for listening.
OK. Thank you.
Is there anyone…
My name is Bill Rosenfeld from Lexington, Massachusetts. In your web posting you claim that a subsidiary can’t control the actions of its parent, so actions against PetroChina will have no impact on CNPC.
Suppose that millions of Americans boycotted GEICO Insurance or other Berkshire companies because of a policy at Berkshire Hathaway. Wouldn’t that make you reconsider that policy even though your subsidiaries are voiceless in Berkshire Hathaway management?
How does targeting PetroChina to influence CNPC differ from this situation?
Well, I actually would say it’s quite different. If a shareholder of Wesco… you might… Marc, you might put up the chart that shows the flow of ownership both with China and with…
OK. Wesco does not control Berkshire Hathaway. We can have all the… we can have lots of overlap in management and everything.
Berkshire Hathaway controls Wesco. If a shareholder of Wesco were to complain to the management of Wesco, which is analogous to PetroChina, about the fact that, let’s say, that Berkshire bought ISCAR or any other activity or anything I was doing personally, they would have no ability to control me.
If somebody controlled… complained to Berkshire about something that was going on at Wesco, we could certainly introduce action. So the… it flows downward.
The overlap means nothing. I mean, obviously the Chinese government controls PetroChina. They own 88 percent of the stock.
We control MiTek. We own 90 percent of the stock. We control Wesco. We own 80 percent of the stock. We can tell MiTek what to do. We can tell Wesco what to do. But MiTek and Wesco cannot tell Berkshire what to do.
I think there’s a fundamental misunderstanding on that. The Chinese government controls 20… 32 of the largest 33 publicly-owned companies in China. And the Chinese government, in effect, is in charge of all of those companies.
The Chinese government does business with the Sudan. PetroChina does not. PetroChina in no way tells the Chinese government what to do. And we’ve seen evidence of that in a lot of ways.
So it seems to me it’s backwards. If it was PetroChina following a policy that the Chinese government disagreed with, believe me, there would be a change in a hurry.
We have no disagreement at all about what’s going on in Darfur. There’s two questions.
One is PetroChina influence the Chinese government. And, secondly, if we don’t agree with what the Chinese government is doing, should we sell our stock in PetroChina?
The people here who are come, who own stock in Berkshire Hathaway, have obviously made the choice, even though they disagree with what our policy is, to continue as shareholders.
And I agree with them… with that… a hundred percent. And we, in turn, elect to continue to hold our shares in PetroChina because we have no disagreement with what PetroChina is doing.
If there’s a disagreement, it may be with what the Chinese government is doing. Now, in terms of what the Chinese government is doing, you know, we’ve heard talk about divesture by China.
If the Chinese left the Sudan tomorrow, 400,000 barrels of oil would be being produced, a good bit with the money that China has invested in the Sudan.
You can’t take the assets. You can’t the refinery. You can’t take pipelines. You can’t take the oil out of it.
They can sell their interest. They can sell it to other people who are doing business in the Sudan. They can sell it to the Sudanese government.
But, believe me, they would probably sell it very cheap. The Sudanese government would get a bargain, or the Sudanese government might very well renegotiate terms in their favor, if they allowed a third party to buy.
Believe me, you know, they would be in a position if they… assuming they could affect the transfer… and I think there’s a lack of understanding of what really would happen if China said tomorrow, “We’re going to get… we’re going to take our interest away from our activities in Sudan.”
They would have to sell them or they’d have to give them up one way or the other. And, like I say, I think the Sudanese government would probably end up better off financially if they had a half-decent adviser in the question than they are presently.
I might mention one other thing which is kind of interesting in this. We buy about… currently about $250 billion worth more of goods from China than we sell to them, and we give them little pieces of paper in exchange.
And we say to them, “We want your goods, and you should work hard and send us your goods, and we’ll send you these little piece of paper called American dollars.”
Two years ago, China wanted to use some of those American dollar… we’d use their goods… to want to buy a company called Unocal. Unocal was a (the audio on this part of the video is inaudible) U.S. company.
The majority of their production of oil and gas came from outside the United States… a substantial majority… came from places like Thailand, Indonesia.
And the Chinese wanted to buy that company, and by a vote of 395 to 18, the U.S. House of Representatives sent their message to President Bush that it would be against the national interest to let this company be sold, which, as I say, produced very little oil and gas in the United States. Got most of it from the rest of the world.
So, in effect, we snubbed the Chinese in a big way on something important to them: energy.
And I might mention that we import perhaps four times as much energy from all the countries around the world as the Chinese do, even though they have four times the population.
So we have, in a sense, told the Chinese a couple of years ago “Don’t even think about buying the small U.S. company with a lot of production… fair amount of production… abroad to satisfy your energy needs.”
And I think it’s understandable to some extent that the Chinese are looking for energy around the world just as we have for the last century. They are buying significant amounts of oil from Sudan. They put money in there, and the… they are going to buy four or… they are going to buy that 400,000… they’re not taking the whole 400,000 barrels a day from the Sudan, but they’re taking significant amounts.
They’re going to buy that oil in the world market. That oil is going to get produced. Revenue is going to flow to the Sudan. The question is how much the Sudanese keep themselves and how much gets disbursed to the Chinese because of the investment they’ve made.
So I see no effect whatsoever in Berkshire Hathaway trying to tell the Chinese government how to conduct their business.
I agree a hundred percent with the fact that what is happening in the Sudan should not be happening, and I… there are other parts of the world where say some… that same situation may exist, although not to the same degree.
But I don’t think you can… I don’t think it’s proper for us to divest our shares in PetroChina. They would be sold to somebody else. I think the proponents of the motion probably would like the idea that the price of the stock would go down.
But we don’t sell stocks, you know, basically to try and drive them down in price. We might sell PetroChina if it went up enough, but we would not be selling it to try and drive down the price, because all that would be doing is giving a bargain to somebody else who is buying the stock of PetroChina.
It doesn’t change the funds available to them at all.
One of the speakers mentioned the amount of money that goes from PetroChina up to its parent. Well, money from Wesco comes up to Berkshire from our subsidiaries. You know, that’s the nature of having a major ownership in a subsidiary is that you get money from MiTek, you get money from Nebraska Furniture Mart, which we own 80 percent of.
But that really has nothing to do… in my view, at least… it has nothing to do with the fact that it is China that has a policy in respect to being partners in Sudan, and it is not PetroChina at all. Selling our stock would not change one thing.
If we would have any communications, as a practical matter, the communications should be with Chinese government… and actually people here have had a chance because we have a lot of media here… they’ve had a chance to express their views to the Chinese government.
Believe me, unless the opinions get expressed to the Chinese government, expressing them to PetroChina means nothing.
I mean, PetroChina is controlled by the Chinese government, and they are not… if you were an official of PetroChina, you are not going to tell the Chinese government what to do. They are going to tell you what to do.
Well, the issue also is China is a rapidly rising nuclear power, and who should decide how the federal government… or how the Americans… should react to China?
There’s a lot to be said for letting the policy flow through the U.S. government instead of sort of a vigilante effort of various citizens.
Now, I would also point out that there’s a lot wrong all over the Earth, and there’s a lot of cruelty and there always has been, and there will always be a lot of oil produced in a lot of lands with a lot of cruelty.
And nobody is in favor of cruelty, but there’s a limit to how much you can fix. And so I’m very skeptical of the idea that Berkshire should become an instrument of telling… of setting United States policies vis-a-vis China.
Yeah. Charlie and I have our own views, for example, on reproductive freedom, but we don’t have a Berkshire Hathaway policy on reproductive freedom nor do we finance from Berkshire Hathaway funds… the funds of our shareholders… we do not finance any activities that relate to our personal beliefs, although we may, obviously, fund them by ourselves or speak out on them by themselves, but we do not have a Berkshire Hathaway funding just because we believe that women should have the right to choose or questions of that sort.
I think reasonable minds can disagree on these subjects.
At Berkshire, there’s all kinds of businesses we won’t buy and control individually, but we’re willing to own stock in the same businesses.
Is that the correct moral line to draw? I don’t know. We do our best, and we make the decisions, and we make the calls.
I would say… I wonder really whether when the Unocal question was being determined here, were the Chinese to whom we’d given lots of little tickets in exchange for taking their goods, and they came along with a perfectly decent offer to the shareholders of Unocal, 18 1/2 billion dollars.
They wanted to buy a little more oil and gas production around the world. And the U.S. Congress overwhelmingly said this is a terrible thing and we want the United States to oppose it and we want it sold to Chevron for less money.
And I really don’t recall a lot of people speaking up on behalf of the Chinese right to buy oil companies over here, just like we’ve bought oil companies around the world for many decades.
So to the extent that they may feel themselves somewhat alienated from the rest of the world in this respect, I think we’ve actually contributed our share.
Another thing in the complexity of life, the woman who lost her family to the Holocaust, we clobbered the people that committed that genocide by joining genocidal Joe Stalin. These issues are complicated.
OK. If there are any shareholders that want to vote in person in this… on this… matter or to change their proxies, we have monitors. If you just raise your hand.
And if there are none of those, Miss Amick, are you ready to give your report?
My report is ready. The ballot of the proxy holders in response to proxies that were received through last Thursday evening cast 15,740 votes for the motion and 830,598 votes against the motion.
As the number of votes against the motion exceeds a majority of the number of votes related to all Class A and Class B shares outstanding, the motion has failed.
Certification required by Delaware law of the precise count of the votes will be given to the secretary to be placed with the minutes of this meeting.
Thank you, Ms. Amick. The proposal fails.
End of formal business meeting
Does anyone have any further business to come before this meeting before we adjourn?
If not, I recognize Mr. Scott to place a motion before the meeting.
I move this meeting be adjourned.
Is there a second?
Voice from Audience:
All those in favor say “aye.”
Voice from Audience:
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