Warren Buffett Is Still Setting Berkshire’s Direction. For How Much Longer?

The National Legal and Policy Center—which filed proposals calling for board independence not just at Berkshire but also at

Goldman Sachs Group Inc.,

The Coca-Cola Co.

,

Mondelez International Inc.

and

Salesforce.com Inc.

—argues that a corporation’s governance structure is stronger when the two roles are held by different individuals.

It has support from a retirement system, known by its acronym Calpers, that oversees more than $450 billion in investments for more than 2 million current or retired public employees across California. Calpers said it generally supports a separate chair and chief executive at all of the companies where it owns stock because corporate governance is more effective that way.

“Our position is not a reflection on Mr. Buffett’s acumen as an investor,” said Simiso Nzima, managing investment director of global equity at Calpers, in emailed comments.

Berkshire’s board said in its response to the proposal that it agrees the two roles should be split—just not while Mr. Buffett is chief executive. Once Mr. Buffett steps aside, the board intends on naming a nonmanagement director to be its chair. Mr. Buffett has said his son, Howard, will succeed him as chairman.

Companies have increasingly moved toward making their boards more independent, making Berkshire an outlier—though by no means the only one. Last year, 59% of the companies in the S&P 500 had a separate chair and chief executive, according to Spencer Stuart, an executive and board recruiting firm. That is up from 55% in 2021 and 41% in 2011.

Academic research on the matter has been mixed. One study from Indiana University’s Kelley School of Business, for instance, found splitting the roles helped companies if they were struggling but actually hurt them if they were already doing well.

Mr. Buffett’s longtime followers have seen variations of this fight play out before. They are familiar with complaints that Berkshire—whose head office counts roughly two dozen employees and has no formal press or investor relations employees—is too opaque. Mr. Buffett doesn’t hold meetings with institutional investors to try to curry favor with them. Nor does he set aside special time with sell-side analysts covering the company.

But investors say their faith in Mr. Buffett runs so deep that they couldn’t care less about all that.

The first stock Paul Lountzis, president of Lountzis Asset Management, bought when he founded his firm in 2000 was Berkshire. This weekend will mark what he estimates is his 32nd or 33rd Berkshire shareholder meeting. (It is hard to keep count.) When he spoke to The Journal from his office, he sat facing bobbleheads of Mr. Buffett and right-hand-man

Charlie Munger

and in front of a portrait of the two men together.

“I think they’re smoking too much cannabis out there,” he said in jest about Calpers, the pension fund pushing for an independent board chair.

To Berkshire’s longtime investors, Mr. Buffett’s track record speaks for itself. Between 1965 and 2000, Berkshire produced 20% compounded annualized gains. The S&P 500 returned 10.2% including dividends over the same period.

That is why, Mr. Lountzis said, Berkshire remains his firm’s biggest equity holding—and why he thinks that, even at 91 years old, Mr. Buffett is completely capable of continuing to wear both hats.

“What Warren has done so well over so many years is create shareholder value. And that’s ultimately the most important thing,” said Ryan Kelley, chief investment officer of Hennessy Funds, which holds Berkshire shares in its large-cap financial fund.

What to do with all that cash

A more pressing issue for Berkshire? What to do with its enormous pile of cash.

Berkshire had a near-record $144 billion of cash and equivalents at the end of last year, excluding what it held at its freight railroad and utilities businesses. That’s far more than Mr. Buffett and his investors would prefer. In fact, Mr. Buffett wrote to shareholders in February, he’d prefer to keep 100% of his net worth in equities.

The problem? He was struggling to find anything he felt was worth buying and holding for the long run.

“These periods are never pleasant,” Mr. Buffett said in his letter, adding that in such periods, he has sometimes found repurchasing Berkshire shares to be attractive.

Since the February letter, Berkshire has put some of its cash to work. In March, it reached an agreement with

Alleghany Corp.

to acquire the insurer for $11.6 billion. In April, Berkshire unveiled it had built a roughly $4.2 billion stake in

HP Inc.

But by and large, it has been a relatively quiet period for Berkshire. Investors are itching to see Mr. Buffett make some big moves.

“Are there still places Warren can find value? I’m curious to hear his thoughts,” Mr. Kelley said.

Hot-button issue

Another pressure point for Berkshire: how it is handling climate change. Two separate shareholder proposals ask Berkshire to disclose how it manages climate-related risks across all of its businesses, as well as share whether it will begin measuring and publishing the greenhouse gas emissions associated with its insurance operations.

It is far from the only company that activist investors are targeting. Investor advocacy groups say climate change is the No. 1 issue among the record number of shareholder proposals that have been filed so far this year.

“Shareholder proponents want specific plans for carbon neutrality,” Heidi Welsh, executive director of the Sustainable Investments Institute, said in a statement.

Berkshire’s board said in its response to the shareholder proposal that the vast majority of its greenhouse gas emissions are generated by two businesses, Berkshire Hathaway Energy and freight railroad BNSF. The energy business provides electricity and transports and stores natural gas. It sees no need to disclose information about all of its units, which include businesses as varied as jewelry retailer Borsheims, clothing manufacturer Fruit of the Loom, paint manufacturer Benjamin Moore & Co. and See’s Candies.

It added that both Berkshire Hathaway Energy and BNSF have publicly committed to reducing their carbon footprint over the coming years. The former is aiming to achieve net-zero greenhouse gas emissions by 2050; the latter is aiming to cut emissions by 30% by 2030 from 2018 levels.

In the past, Berkshire has been “very comfortable falling back on the notion of being decentralized,” said Cathy Seifert, a CFRA analyst who covers Berkshire. That justification might look increasingly insufficient to investors, she said, especially given how much activists are pushing for companies to disclose more on their environmental impact.

One investor that agrees with that view is Neuberger, a big asset management firm based in New York. The company could improve its disclosures, “given the importance of the topic,” Neuberger said in a statement explaining its support for the proposal.

Ultimately, Mr. Buffett might not have a choice on the matter. In March, the Securities and Exchange Commission formally proposed requiring publicly traded companies to report the greenhouse gas emissions generated by their businesses, as well as from the energy they consume. Regulators haven’t made the rule final yet.

Berkshire without Buffett

If Berkshire seems stuck in its ways, that is likely partially a reflection of Mr. Buffett’s approach to investing. It is slow. It is deliberate. And it hasn’t really changed over the decades.

“Lethargy bordering on sloth remains the cornerstone of our investment style,” Mr. Buffett wrote to shareholders in 1990, a year when Berkshire neither bought nor sold a single share of five of its six major holdings.

Some of his critics take issue with his reluctance to venture into newer, highly volatile investments. Along with

JPMorgan Chase

& Co. Chief Executive

Jamie Dimon

and BlackRock Inc. Chief Executive

Larry Fink,

Mr. Buffett is part of a “finance gerontocracy” keeping cryptocurrency prices from taking off further, billionaire venture capitalist Peter Thiel said at a bitcoin conference in April.

Yet as markets have swooned this year, Mr. Buffett’s value approach is back in fashion as money managers seek areas of the markets that can ride out a more volatile environment. NFTs, which are digital tokens stored on a blockchain, have flopped along with other bets on volatile assets such as cryptocurrencies and meme stocks.

Whether that type of outperformance can continue when Mr. Buffett is no longer at Berkshire’s helm is up in the air.

Berkshire has a succession plan in place. Mr. Buffett has tapped Vice Chairman

Greg Abel,

59, who manages all of Berkshire’s noninsurance operations, to ultimately succeed him as chief executive.

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Meanwhile, portfolio managers

Todd Combs,

51, and

Ted Weschler,

59, are expected to run the company’s massive investment portfolio by themselves once Mr. Buffett departs the job. Although Mr. Buffett still controls much of the portfolio himself, Mr. Combs and Mr. Weschler had “total authority” over $34 billion of investments as of the end of 2021, Mr. Buffett wrote in his annual shareholder letter released February.

“They’re setting themselves up for a good transition,” Mr. Kelley said. Combined with the fact that Berkshire largely leaves its subsidiaries to manage their day-to-day operations, the company will likely continue to be a well-run collection of businesses even when Mr. Buffett is no longer around, he said.

What’s less easy for investors to figure out is how much of Berkshire’s cachet disappears when Mr. Buffett, a bona fide household name, is replaced by men far fewer people know.

That is a question likely to be left unanswered at this weekend’s shareholder meeting.

“There’s nobody else like him. Period,” Mr. Lountzis said.

—Heather Gillers contributed to this article.

Write to Akane Otani at akane.otani@wsj.com