Remgro versus Berkshire Hathaway – a board debate

There is a big difference between Johann Rupert’s Remgro and Warren Buffet’s Berkshire Hathaway’s board members – skin in the game.

Berkshire Hathaway is an American holding company with a market cap of $886 billion. Its share price increased by 222% over the last ten years.

Warren Buffett, widely regarded as the most successful investor globally, is behind Berkshire Hathaway’s success.

Buffett acquired the Omaha-based Berkshire Hathaway in the sixties when it was a struggling textile manufacturer.

He transformed the company into a conglomerate holding company through which he invested in some of the world’s most successful companies.

Berkshire Hathaway owns shares in Apple, Bank of America, American Express, Coca-Cola, Chevron, Kraft Heinz, and numerous other top brands.

The company’s performance is impressive. If you had invested $100 in Berkshire in 1978, you would have over $400,000 today.

Over the last ten years, the company’s share price increased by 222% – from $127 to $409 per share.

Buffett’s success is based on his strong ethical corporate governance, with management teams prioritising the long-term interests of shareholders over short-term gains.

He ensures the alignment of incentives between management and shareholders, as well as a commitment to ethical business practices.

At the centre of Berkshire Hathaway is the board, chaired by Buffett. What sets this board apart from most other companies is ‘skin in the game’.

There is not a single board member who does not own a significant interest in Berkshire Hathaway. Even more important – they used their money to buy the shares.

This is not a coincidence. It is by design. The Rational Walk highlighted that Berkshire lists this criterion for considering new directors.

“Any recommended candidate should own Berkshire stock that has represented a substantial portion of the candidate’s investment portfolio for at least three years.”

Berkshire Hathaway also does not pay its directors much. It is a fraction of what South African directors at big companies get paid.

This policy makes it easy to ensure the directors prioritise the long-term interests of shareholders over short-term gains.

Remgro versus Berkshire Hathaway

Remgro chairman Johann Rupert

The best comparison of a South African company with similar roots to Berkshire Hathaway is Remgro.

Like Berkshire Hathaway, Remgro is an investment holding company. It also has an iconic billionaire chairman, Johann Rupert.

However, its performance is dismal when compared to Berkshire Hathaway’s. Over the last ten years, Remgro’s share price declined by 37%.

Part of the problem is that investors have lost trust in Remgro’s ability to make good investments – and ensure its current investments perform well.

For example, Remgro’s investment decisions regarding Heineken Beverages and Mediclinic drew sharp criticism from many analysts.

Remgro recently suffered a big loss from its investment in Heineken Beverages due to slow industry growth and poor performance of its premium brands. 

This raises the question of why Remgro is struggling while Berkshire Hathaway is booming. One reason is Remgro’s board.

Buffett warns against director nomination processes which incentivise ‘yes men’ rather than board members who will challenge the CEO and chairman.

Remgro’s board members are not all big shareholders, and a large percentage of their wealth does not sit in the company.

The directors also get paid well, so disrupting the boardroom is not in their interest. Basically, nod and collect your check on your way out.

If a deal does not work out – like with Heineken Beverages and Mediclinic – shareholders suffer. However, board members still get paid.

One would imagine that the Remgro board would look very different if all directors had to have ‘skin in the game’, where they bought the shares with their own money.

They would also react very differently to deals which could cost the company and its shareholders billions.

How much directors were paid

The table below compares how much non-executive directors at Berkshire Hathaway and Remgro were paid. Warren Buffet, Johann Rupert, and their kids were not included.

Berkshire Hathaway directorsAnnual paymentRemgro directorsAnnual payment
Susan DeckerR112 926S E N De BruynR1 094 000
Charlotte GuymanR112 926F RobertsonR721 000
Meryl WitmerR112 926M MorobeR678 000
Thomas MurphyR90 711N P MagezaR657 000
Stephen BurkeR38 876PJ MoleketiR657 000
Ronald OlsonR38 876K M S RantloaneR604 000
Kenneth ChenaultR16 661J MahlherbeR477 000
David GottesmanR16 661T LeokaR103 000
Walter Scott JrR5 554P J NeethlingR0
Christopher DavisR0

Directors’ shareholding

The table below shows the direct and indirect shareholding of Berkshire Hathaway and Remgro directors.

Berkshire Hathaway DirectorsValue of holdingsDirect
David GottesmanR267 945 094 53228%
Ronald OlsonR1 877 349 09382%
Walter ScottR1 218 628 716100%
Thomas MurphyR1 114 174 826100%
Charlotte GuymanR324 967 658100%
Christopher DavisR235 868 32861%
Stephen BurkeR324 967 658 100%
Meryl WitmerR235 868 328100%
Kenneth ChenaultR49 059 318100%
Susan Decker R23 991 501100%
Remgro non-executive directorsValue of holdingsDirect
P J NeethlingR976 292 4220%
J MahlherbeR145 361 1400%
J J DurantR109 021 3804%
M LubbeR3 977 942100%
PJ MoleketiR2 590 7806%
F RobertsonR679 8000%
S E N De BruynR61 429100%
N P MagezaR36 5860%
K M S RantloaneR7 045100%
T LeokaR00%
M MorobeR00%