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Berkshire Hathway Ends "Charitable" Giving...
by Thomas Strobhar 2003

Berkshire Hathaway, the hugely successful, Nebraska-based company led by Warren Buffett, recently announced an end to its program for charitable giving, and in a way that is big news.

The program was an object of adoration for years, not least because it allowed Class A shareholders to designate where they wanted their portion of the company’s charity to go. It seemed so democratic, so enlightened compared with the usual corporate-charity model: allowing an executive committee to pick a few charities on behalf of all shareholders. And yet we should be glad that Berkshire’s program has ended. It was a bad idea in the first place.

What happened to change the company’s mind? A revolt of sorts—not in the boardroom but in the kitchen. Berkshire’s new subsidiary, the Pampered Chef, does its business in neighborhoods across the country, offering, as its Web site puts it, “multipurpose kitchen tools” that “make cooking quick, easy and fun.” The key to its success is direct selling: So-called kitchen consultants, or “chefs,” offer in-home demonstrations to “guests”—that is, potential customers—roughly imitating the sales methods that Tupperware pioneered years ago.

As it turned out, Pampered Chef customers, not to mention the kitchen consultants themselves, weren’t keen on the charities to which Berkshire’s biggest shareholder—Mr. Buffett—was giving his money, and they let their unhappy feelings be known. (Because the program was open to only Class A shareholders holding physical certificates, Mr. Buffett controlled well over half the contributions even though he owns only about a third of the company.) Berkshire’s press release acknowledged this unhappiness: “Certain donations, including some made by Berkshire’s chairman, Warren Buffett, have caused harmful criticism to be directed at . . . The Pampered Chef.”

Millions of dollars a year were going to Mr. Buffett’s favorite charity, The Buffett Foundation, whose philanthropic interests are heavily weighted toward population control and family planning. Among other things, the Buffett Foundation has helped to finance trials of the abortion pill RU-486; it has purchased suction machines used for abortions around the world; and it has funded the deployment of the controversial sterilization pellet Quinicrine in Third World countries.

Here was the cause of revolt among an important part of the 67,000 pampered “chefs” at Berkshire Hathaway’s subsidiary. Some quit rather than have the fruits of their labor, otherwise known as profits, given over to such purposes. Others watched sales decline while home-selling conversation focused more on Mr. Buffett than on the advantages of a graduated set of ice-cream scoops or a heart-shaped stainless steel canapé cylinder.

Partisans of the abortion debate—on either side of it—may love or hate the Berkshire decision for their own reasons. But those concerned with good corporate governance should applaud it. As Milton Friedman noted long ago, charitable contributions are a dubious corporate enterprise. Their only legitimacy resides in an attempt to enhance the business of a company. In Berkshire Hathaway’s case, there was the rub.

True, the Berkshire program avoided the worst abuses of corporate charitable giving where, for example, money is given to the local symphony orchestra to garner polite applause for the company and ensure front-row seats for the executives. It was also widely popular among Berkshire’s owners. The 1993 annual report quoted shareholders who thought that the program helped children or grandchildren who had recently been given shares to better understand the importance of charitable giving. It also produced some interesting results. More than 400 churches and synagogues received contributions, something unheard of at other corporations.

But in the end these weren’t reasons enough to save it, for the program offered as many opportunities for threatening profits as for enhancing charitable self-expression. With company funds, Mr. Buffett engaged in a giving practice that even he admitted served no corporate interest. The program seemed all the stranger considering that Berkshire’s charitable contributions were often twice the company’s famously low corporate overhead. Mr. Buffett bragged that the program took only one part-time person to administer, but he never did explain why a corporation should give away some $200 million, some of it to controversial causes.

From a business perspective, Mr. Buffet could only defend the program for its tax efficiency, since the charitable contributions were from the company’s pre-tax dollars. By contrast, the personal estate he may eventually give to the Buffett Foundation will be an after-tax sum. It could also be argued that the Berkshire contribution to the Buffett Foundation—more than $9 million last year and upwards of $100 million over the life of the program—was an indirect form of executive compensation. Perhaps, but then it should be labeled as such. By this calculation, Mr. Buffett morphs from one of the most famously underpaid executives to one of the most munificently compensated. Incidentally, Mr. Buffett has recently crusaded against overpaid executives and those who take advantage of shareholders.

A billionaire many times over, Mr. Buffett should have no trouble personally funding The Buffett Foundation. It is just something he is not used to. He “doesn’t do a lot of giving,” according to Stacy Palmer of the Chronicle of Philanthropy. By contrast, Mr. Buffett’s billionaire rival, Bill Gates, is internationally famous for his charitable work through The Bill and Melinda Gates Foundation. Mr. Gates may be worth a few billion more than Mr. Buffett, but his foundation is a thousand times larger that Mr. Buffett’s, and it is funded by stock that Mr. Gates himself owned. None came from Microsoft.

Considering Mr. Buffett’s net worth, his reputation as “the world’s greatest investor” and his status as one of the most respected names in corporate America, we have every reason to assume that we will be reading soon about his new personal charitable contributions. They may well be immense and directed all the more to the population-control measures he believes in. But they will be his own, serving a personal passion without mixing in a public company’s image or damaging its power to create wealth in the first place.

Mr. Strobhar is the president of an investment firm in
Dayton, Ohio.