Here’s what Warren Buffet said at the Annual General Meeting.
Warren Buffett, the chairman of Berkshire Hathaway Inc, has come down hard to Wells Fargo & Co for wantonly allowing employees to sign up customers for bogus accounts.
Although Wells Fargo & Co knew that the action of its employees will cause a scandal, it nevertheless allowed them to sign up news customers for bogus accounts.
Warren Buffet through Berkshire holds a 10% stake in Wells Fargo. Berkshire is Wells Fargo’s biggest shareholder..
Buffet criticized Wells Fargo saying it gave its employees way too much autonomy, which resulted in them “cross-selling” multiple products and meet their respective sales targets.
John Stumpf, Wells Fargo’s former chief executive who lost his job over the scandal since he was too slow to provide fox the problem, said this “incentivized the wrong type of behavior”.
“If there’s a major problem, the CEO will get wind of it. At that moment, that’s the key to everything. The CEO has to act. The main problem was they didn’t act when they learned about it,” said Buffet.
Mark Folk, Wells Fargo’s spokesman stated, “we agree” with Buffett’s comments and have taken “decisive actions” to fix the problems and “make things right for customers.”
Buffett has likened Well Fargo’s situation to the one prevailing at Salomon Brothers Inc in 1991 where he was installed as chairman to clean up the mess after the company’s former chief executive failed to disclose to regulators that a trader was submitting fake bids at Treasury auctions.
When asked whether Berkshire’s decentralized structure could lead to a similar scandal, Buffett said “as we sit here, somebody is doing something wrong at Berkshire”. He however said Berkshire has an internal “hotline” to flag such potential behavior. Incidentally, the hotline gets 4,000 calls a year.
On Berkshire’s succession plans and regarding its controversial partnership with 3G Capital and whether it will make another humongous acquisition or whether Berkshire will start paying dividends, Buffett disclosed, in the event of his death or his inability to continue, Berkshire will have a new chief executive within twenty four hours.
He also underscored the fact that nothing has changed just because he praised fewer managers in his February shareholder letter.
It was harder for him to single any one person since “we have never had more good managers.” Nevertheless, Buffet lavishly praised top executive Ajit Jain, who some investors believe could be his successor, stating “nobody could possibly replace Ajit. You can’t come close.”
On a note of warning, he said, it would be a “terrible mistake” if capital allocation were not the “main talent” of his successor.
On the 3G merger issue, Buffet acknowledged his dislike for the cost-cutting for which the Brazilian firm is known for however, he underscored the fact that this is essential.
“It is absolutely essential to America that we become more productive, and 3G was “very good at making a business productive with fewer people,” said Buffet.
Berkshire’s AGM, which Buffett calls “Woodstock for Capitalists”, is expected to draw more than last year’s estimated 37,000 shareholders.
Many shareholders had lined up early outside downtown Omaha’s CenturyLink Center for the AGM with several of them saying they had got there nearly 5 hours before the doors opened around 6:45 a.m.
“Every year it seems I have to come earlier,” said Chris Tesari, a retired businessman from Pacific Palisades, California who said he arrived at 3:20 a.m. for his 21st meeting. “It’s a pilgrimage.”
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