Warren Buffet, Berkshire Hathaway, and Corporate Giving

The Idea

Buffet had an interesting approach to corporate charity. It was an idea very unique in the world of widely-held organizations. To understand why, you must understand the simple way that most corporations give money.

A normal corporation has directors who manage the company and owners who have invested in it, and Berkshire Hathaway is no different in this respect. The way a corporation gives money is through the preferences of the directors of the company. The directors open a corporate checkbook, write in a dollar amount they feel comfortable with, and choose a recipient they prefer. The effect is that those who are responsible for writing the checks are not the owners of the company but those who manage it.

Buffet’s approach differed. Instead of the directors of Berkshire Hathaway deciding on the recipients of Berkshire’s corporate giving, the shareholders were given the power to decide for themselves. The way this worked was that for each share of Berkshire owned, a shareholder was allocated $8 to give to a charity or to charities of their choice. The shareholders received letters in the mail stating their allowable contribution size and they responded with the names of charities they preferred.

The program was a great success for a decade. The result was that Berkshire began making charitable donations to categories of organizations that corporations tend not to donate to, like churches and synagogues. Most corporate directors do not give to religious institutions. Berkshire found that it’s owners were happy to give to them.

The common sense approach taken by Buffet was that the owners should make the decisions; if a director had a suggestion it would be intently be given consideration but the final decision rested with shareholders.

The Conclusion

The program continued for a decade until various Berkshire subsidiaries were boycotted on account of pro-life abortion organizations disagreeing with the decision by many shareholders to give to pro-choice abortion organizations. Pampered Chef sellers were seeing steep declines in income resulting from the boycotts. It was Warren Buffet’s and Charlie Munger’s decision to end the program, finding it unreasonable to harm the incomes of hardworking business owners who lived under Berkshire’s corporate umbrella in the name of minor tax efficiencies realized by the giving program.

The Takeaway

Buffet is an investor of unparalleled success. On the list of the world’s richest people he stands as the lone billionaire who gained his fortune through investing. His approach from the time he started has been to not defer to the norms of industry, but to common sense and goodness. His approach to corporate giving bucks the norms of his peer financial institutions, multi-corporation conglomerates, and major american companies. Yet, it has not limited his success in any way.

By being genuinely good, by representing shareholders and stakeholders fairly, there is a great opportunity for success for you too.