Warren Buffett's gift to the Gates Foundation

Here are four articles about the biggest philanthropic gift ever -- three very positive, and one very negative (yep, trust a socialist to have a negative view).

1. A $31 Billion Gift Between Friends – by LANDON THOMAS Jr.

The friendship between Warren E. Buffett and Bill Gates has been forged over a shared passion for such homespun American treats as cherry Coke, burgers and college football. They delight as well in loftier pursuits, like playing bridge and solving complex math problems.

But, more than anything, what Mr. Buffett's $31 billion gift to the foundation that Mr. Gates runs with his wife, Melinda, shows is a common disdain for inherited wealth and a shared view that the capitalist system that has enriched them so handsomely is not capable alone of addressing the root causes of poverty.

"A market system has not worked in terms of poor people," Mr. Buffett said yesterday, in an interview taped earlier in the day for "The Charlie Rose Show" on PBS .

As for any thought he might have had in giving the bulk of his billions to his three children, Mr. Buffett was characteristically blunt. "I don't believe in dynastic wealth," he said, calling those who grow up in wealthy circumstances "members of the lucky sperm club."

Genuine friendships within the highest tier of corporate America are rare, because of the demands of the jobs as well as the myriad forces that can turn shared interests into embarrassing conflicts.

But the bond between Mr. Buffett and Mr. Gates, the two richest people in the United States and arguably the two most influential in American business in recent years, has lasted more than 15 years. It has been sustained, according to people who know them, in large part by a very high level of intelligence and a conviction that their vast wealth has given them a larger responsibility to society.

"When you are as smart as Warren or Bill, I think it's hard to find people to talk to," said Donald E. Graham, the publisher of The Washington Post , who has spent time together with the two men. He called Mr. Buffett's gift "the most creative thing that anyone has done and the way he has done it underscores how much admiration he has for Bill."

What was most surprising about Mr. Buffett's decision was not so much that he was giving his wealth away but that he was asking someone else to pursue philanthropy on his behalf.

Like Mr. Buffett, corporate titans like Sanford I. Weill , the former chief executive of Citigroup , and Henry M. Paulson Jr. , the chief executive of Goldman Sachs who has been nominated to be Treasury secretary, have promised to dispense with their own wealth. But they, like most of those with huge fortunes, are expected to set up their own charitable foundations to carry out their wishes. For Mr. Buffett, a hallmark of his skill as an investor has been his self-denying quality. He has often described his task running Berkshire Hathaway , the insurance holding company that serves as his investment vehicle, as finding the best corporate managers, investing heavily in them and getting out of the way — an approach that he now plans to follow with Mr. and Ms. Gates.

"I would be terrible at it," Mr. Buffett said yesterday, assessing his abilities as a philanthropist. "I like to look in the mirror and ask myself whether I'm doing O.K. And there are a lot of people whose opinions I don't want to listen to. So you have to be a little more diplomatic than I am."

In past interviews, Mr. Gates, who just turned 50 and is 25 years younger than Mr. Buffett, has referred to himself as the student in the relationship ("I study him," he has said).

But while business itself has not been at the core of their relationship, Mr. Buffett invited Mr. Gates to serve as a director of Berkshire Hathaway and said that he had bought a small piece of Microsoft a long time ago just to keep his eye on Mr. Gates.

Mr. Gates said yesterday that Mr. Buffett had first mentioned the idea in passing on his wealth to the Bill & Melinda Gates Foundation about a year and a half ago. Then in recent months, the two men, who play bridge online and vacation together, delved into more specifics as Mr. Buffett discussed just how impressed he had been with the work of the foundation, which devotes the greatest amount of its resources to improving health conditions in developing countries.

"Then it was like, 'Wow, is he serious about that?' " Mr. Gates recalled in his interview with Mr. Rose. Followed by, "Wow, are we ready for that?"

The two men were first introduced in 1991, when Mr. Gates, who then kept his nose close to Microsoft's grindstone, was persuaded by his mother to attend a meeting where Mr. Buffett and Katharine Graham, then the publisher of The Washington Post, were present.

Mr. Gates was reluctant to go, fearing that Mr. Buffett was only interested in narrow financial subjects. "What were he and I supposed to talk about, P/E ratios?" he recalled for an article in Harvard Business Review.

But they hit it off immediately, plunging into an in-depth dissection of I.B.M.'s prospects. Yesterday, Mr. Gates credited Mr. Buffett for encouraging him, in the early 1990's, to read a copy of the World Development Report, put out by the World Bank , that analyzed poverty levels around the world, thus sparking his interest in philanthropy.

One thing they don't have in common is the way they live. Mr. Buffett, who still inhabits the house in Omaha that he bought for $31,500 in 1959, frequently lured Mr. Gates to his home turf to participate in local bridge tournaments. Mr. Gates built a huge mansion on the shores of Lake Washington not far from Microsoft's headquarters in Redmond, a suburb of Seattle. And he is a much more enthusiastic world traveler, though he persuaded Mr. Buffett to accompany him on a trip to China in 1995.

But they both are devoted workaholics who go to their offices just about every day they are at home. In public, there is a relaxed towel-snapping aspect to their relationship — as if they are making up for all those jocular moments that passed them by during their younger, more intensely ambitious years.

In an earlier interview with Charlie Rose, Mr. Buffett explained the role he played in Mr. Gates's engagement in 1994 to his wife, with whom he has had three children. The couple flew into Omaha, where they met Mr. Buffett at Borsheim's, the jeweler that Berkshire Hathaway has owned for years.

"Look, Bill, this is none of your business, but when I got married, I spent 6 percent of my net worth on the ring," he recalled saying to Mr. Gates, who at the time had a net worth already well into the billions. "I don't know how much you love Melinda."

Mr. Gates can get his jabs in, too. He has said publicly that his daughter calls Mr. Buffett "the man who works at Dairy Queen," a needle at Mr. Buffett's oft-expressed love for the company, which he owns, and its signature product.

Mr. Gates has also credited Mr. Buffett with crystallizing his own feelings about inherited wealth. The son of a successful lawyer in Seattle, Mr. Gates rebelled at his own privileged upbringing, dropping out of Harvard and starting Microsoft with several close associates.

But in the end, a decision that will double the wealth of what is already the largest charitable foundation in the world seems to have been largely the result of a shared belief in the power of lasting, creative partnerships. Mr. Buffett, for example, has worked with a close associate, Charles T. Munger, for decades.

Mr. Gates has had similar partnerships. He co-founded Microsoft with a childhood friend, Paul G. Allen, and presided over Microsoft's rise to its current status with Steven A. Ballmer , a dorm mate at Harvard, whom he named chief executive in 2000 when he elevated himself to chairman of the board.

"In business, I had a great partnership with my partner Charlie," Mr. Buffett said yesterday. "And I have seen what happens when you get two people together that are totally in sync but also have different ways of working towards a common goal."


2. "Great News for the World"
With his massive pledge to the Gates Foundation, Warren Buffett is changing the way people think about giving

Warren Buffett's gift of $31 billion to the Bill and Melinda Gates Foundation is the largest gift in history by a multiple of 20, excluding the Gateses' $29 billion gift (see BusinessWeek.com, 6/27/06, "Buffett's Mega-Gift" ). It will eventually drive the Gates Foundation's endowment to double its size. Indeed, the endowment of the Gates Foundation—already the richest in the U.S.—will be larger than the combined endowments of the other 9 foundations on the top 10 list.

After Buffett's announcement at the New York Public Library on June 26, Melissa Berman, chief executive and president of Rockefeller Philanthropy Advisors in New York City, spoke with BusinessWeek.com's Bremen Leak on the significance of the gift and the impact it will have on charitable giving in the U.S. Edited excerpts of their conversation follow:

It must have been extraordinary to witness such a historic moment in philanthropy. As someone who advises donors on a daily basis, what was your initial reaction to the announcement this morning?
This is great news for the world—period. The capacity that these donors will have to make an impact on the world with their own donations and innovative partnerships is incredible. Warren Buffett's gift was very unique.

Are these sorts of partnerships becoming more common?
They're very unusual. It's rare to have that kind of relationship, but I believe we'll start to see more of them. We're looking at the beginning of a new era as to how people start to think about leverage and impact.

There has been a lot of interest over the last 10 years about impact. Now we're starting to see more on leverage. This year we advised $130 million in philanthropic activity. Our donors are more and more interested in applying metrics to their philanthropy. And increasingly, they're focusing on getting the best caliber thinking—through their own experience or through that of advisors.

Who approached whom in this particular partnership?
It was very clear that Warren Buffett has been thinking about this for a long time. He showed a great deal of respect to Bill and Melinda Gates and was very direct in saying that donors need to find the same caliber of talent in people who help them give away their wealth as in those who help them produce their wealth.

Is it possible that a $31-billion gift could give the Gates Foundation an unfair advantage in terms of its size or influence when compared to smaller nonprofits?
The Gates Foundation is already the largest in the U.S. in terms of its grant-giving capacity. Shortly, it will be four to five times the size of the next largest foundation. But it will take some time to get to that point.

We don't typically think about nonprofit groups as having an unfair advantage. With gifts like this one, we might consider it an outsize opportunity. Bill Gates was quick to point out that the size of the problems—global poverty, education, climate challenges, and so on—is much greater than the pool of funds available to solve them. So there is a great opportunity for others to form partnerships to try to remedy some of these problems together.

Will the Gateses broaden their spectrum to include initiatives from Buffett’s agenda such as reproductive health or nuclear weapons reduction?
It is entirely possible that the Gateses will expand their horizons, but the causes they support and those of Warren Buffet are very closely interrelated. The environment, global health, education, civic institutions, market institutions&all of these forces are becoming increasingly inseparable.

In terms of health issues, the Gates Foundation is very open in the broadest sense of the word. I think that we'll have to wait and see how the thinking of the Gates Foundation on environmental issues evolves.

Until his wife died in 2004, Warren Buffett had said that he planned to give away his wealth at his death. How might giving while living in this case have a greater impact?
The Gates Foundation is in the position of having Warren Buffett as a trustee. He's an incredible asset.

It's very noble for someone to look around and say there is an organization that doesn’t happen to have his name on it but can do the most good with his gifts. A philanthropist can have a greater impact through the grants than through the name above the door.

Is the Gates Foundation—or anyone—equipped to handle this magnitude of gift?
Warren Buffett has been very thoughtful in having a ramp-up period of a couple of years. I'm confident that the Gateses have been bringing together experts to help them manage the new funds. It's their hallmark to bring together the most creative partners. Who wouldn't want to help the Gates Foundation utilize this gift?

This gift is going to inspire many, many potential donors who have been milling over the question that Warren Buffett so effectually answered today—that is, is it better to leave your donations in a will or to give while living?


3. The Buffett Way of Giving It Away: what we can learn from his gift to the Gates Foundation.
By Daniel Gross

Warren Buffett The nation's second-richest man, Warren Buffett, has decided to turn over most of his $44 billion fortune to the nation's richest man, Bill Gates. Buffett is committing to give about 10 million Class B shares in his holding company, Berkshire Hathaway, to the $30 billion Bill and Melinda Gates Foundation. (Here's the Gateses' gracious response .) He'll start by handing over 500,000 shares this year (worth about $1.5 billion at today's price), and will make annual donations of smaller numbers of shares. Buffett will also give billions to foundations run by his children, and to the foundation created by his late wife, Susan Thompson Buffett.

It has taken the 75-year-old Buffett a long time to decide to give away his fortune—he's been too busy making it bigger. (The critics who have spent years nagging Buffett for his previously modest philanthropy will have to find someone else to pester.) Now that he has decided to disburse his billions, it's fascinating to see that he is giving away his money the same way he made it: looking for value, pinching pennies, letting managers execute successful strategies, and relying on his own investing brilliance. Call it value philanthropy.

Buffett consistently ranks second on the Forbes 400 ,and yet he is famously frugal. As a value investor, Buffett has made a career of purchasing a dollar of assets for 50 cents. While it's difficult to purchase a dollar of philanthropy for 50 cents, Buffett is doing his best to economize. Creating and operating a foundation to house, manage, and give away significant sums can be an expensive proposition. You have to rent office space and hire executives, accountants, program officers, and support staff. In its most recent annual survey, the Chronicle of Philanthropy found, for example, that the Rockefeller Foundation last year made $110.5 million in grants and spent $30.5 million—27 percent of that total—on administrative costs. The Gates Foundation is far more efficient, although it doesn't appear in the Chronicle 's survey. Last year it gave out more than $1.3 billion in grants and reported management expenses of $42 million. The foundation also reports that it has made more than $60 million in investments in property and equipment. Bill and Melinda Gates are funding the construction of a new headquarters for the foundation. It costs money to give away money. Buffett hates to spend money unnecessarily. By transferring funds to the Gates Foundation, as Buffett told Fortune 's Carol Loomis , he's avoiding the annoyance and expense of building a philanthropic infrastructure.

When he buys a firm, Buffett frequently keeps the management on and lets them keep running the business. So far this year, Berkshire has acquired Israeli metalworking company Iscar , apparel maker Russell Corporation , and communications firm Business Wire . In each instance, Buffett retained existing management. "They do a much better job than I could in running their operations," he told Loomis. Just so, Buffett doesn't presume to know how best to fund AIDS-prevention programs. In effect, he's buying a share of a successful philanthropic business (the Gates Foundation) and retaining existing management (Bill and Melinda Gates).

But while he's willing and eager to outsource management, Buffett has proven utterly unwilling to outsource money management. Buffett is sharing his wealth but controlling it. The outside investors who manage the Gates Foundation's $30 billion endowment are very conservative. Gates has asked the managers to target a 5 percent return each year—so that it can have enough to money to pay out 5 percent of its assets each year, as mandated by the government, without dipping into the principal. The foundation's 2005 financial statement shows that about two-thirds of the assets are in bonds.

Buffett has effectively cut these managers out by keeping the donation in his hands for as long as possible. Buffett has little patience or use for professional money managers. Unlike Gates, he hasn't diversified his personal holdings by selling stock in the company he created and parceling it out to outside managers. In this year's letter to shareholders, Buffett railed against the group of parasitic professionals he dubbed "Helpers"—brokers, consultants, hedge-fund and private equity managers who help themselves to fees and shares of the profit. And Buffett has structured his donations to keep his money out of the hands of any Helpers—and to buy more philanthropy per donated buck. Instead of giving a lump sum to be managed as part of an endowment, Buffett has committed to give the Gates Foundation a chunk of Berkshire Hathaway stock each year. Based on his track record over 40 years, he believes he can do a heck of a lot better than 5 percent per year and thus generate more cash for philanthropy. As the value of his stock rises, so too will the value of his donation. Another wrinkle: Buffett has told the Gates Foundation that it has to spend the cash he donates in the same year. That way, chronically underperforming Helpers will never have their chance to get their hands on his cash.

For more than four decades, Buffett has believed that he could best serve his shareholders by managing his own money effectively, seeking value, and minding expenses. Now, he believes he can best serve the world by doing the same.


4. The philanthropy of Warren Buffett
By David Walsh

This past weekend investor Warren Buffett, to a vast fanfare from the media, announced his decision to donate some $37 billion worth of shares in his firm, Berkshire Hathaway, to five charitable foundations. The largest recipient (receiving some $31 billion) will be The Bill & Melinda Gates Foundation, which specializes in global health and education projects.

That one solitary human being has nearly forty billion dollars to dispose of, with a good deal left over, is appalling in itself, at a time when 1.1 billion people, one-fifth of the world’s population, live on less than $1 a day and some 3 billion on less than $2. The planet’s three wealthiest individuals in 2005 (including Messrs. Buffett and Gates) had greater wealth than the combined gross domestic product of the world’s 48 poorest nations.

There is, in any event, something intrinsically degrading and demeaning about philanthropy. A society in need of philanthropists is one rooted in inequality, in which the deprivation of the many is supposedly addressed by the largesse of the few. No one can seriously suggest that social problems will be solved in this manner. Especially in America, where an aristocracy has taken shape before our eyes over the past decade and the Bush administration is taking blind, reckless measures to eliminate all restrictions on the accumulation of personal wealth.

As for Mr. Buffett himself, there are no doubt immense personal contradictions in his life. If one takes the media accounts at face value, he seems an honest and civilized man. Among many unsavory, rotten types, he appears to stand out as something of an exception. He has liberal views on social issues and has put his money to use in a number of worthy causes. He lives modestly in a home bought decades ago.

It is worth noting that Buffett’s lifestyle puts the lie to the claims by the media and the assorted apologists for corporate thievery that the fabulous sums paid to American executives are necessary to retain “the best and the brightest.” For Buffett, at least, the accumulation of personal wealth seems not to have been the principal motivation.

There can hardly be any doubt about his abilities as an investor. Highly skilled at what he does, this is clearly a man who knows his way around money. And his success has earned him a devoted following.

While we have no intention of taking part in the current media adulation, there is no reason to demonize Buffett, as an individual, on account of his great wealth—or Bill Gates either, for that matter. In the final analysis, the issues raised by their fortunes don’t go to their personal moral qualities.

That said, those tempted to get dewy-eyed on hearing of Buffett’s billion-dollar donations to good works would do well to consider certain facts of economic life. Whatever his intentions, Buffett has played a part in recent economic processes that have had devastating implications for large numbers of people. Under consideration here is not Buffett the individual, but the social process he embodies. Its terrible impact on the lives of workers may be painful to him and, in fact, “extremely demoralising,” as Oscar Wilde suggested the burdens of possessing private property often are for the rich, but that is only a further argument for socialism.

Notwithstanding his evident personal decency, Buffett is one of those figures who have helped drive the ever more ruthless exploitation of the American working class. The very mechanisms by which he earned his billions, a portion of which he now intends to give away, have contributed to the growth of poverty and social inequality. An analyst, Jonathan Davis, describes Buffett’s operations:

“His holding company Berkshire Hathaway is built around a core of cash-generative insurance companies; the cash they generate provides the capital that Buffett and his partner Charlie Munger then invest on their shareholders’ behalf. Capital allocation is what Buffett and Munger see as being their ‘core competence.’

“Buffett is well-known for his large ‘semi-permanent’ minority holdings in a handful of America ’s largest companies, the likes of American Express, Coca-Cola and Gillette. Yet these represent only one part (and a declining one) of the company’s overall investment activities. In addition to his insurance operations, Berkshire Hathaway now owns outright a string of industrial and retail companies, many in deeply boring but lucrative fields of business. While many of these were originally family-owned companies, an increasing number are now former quoted companies that Buffett has acquired outright on the stock market.”

Buffett’s operations, his organization of mergers and acquisitions, are inevitably tied in with corporate structural reorganizing aimed at generating a greater return on investment. His business is to see that assets are deployed more effectively, i.e., more profitably, and his success indicates his brilliance at that. There is nothing sentimental in Buffett’s approach. He can undoubtedly read a balance-sheet like few others.

Buffett’s financial maneuverings have an objective character, i.e., his decisions are always understandable from a business point of view. His concerns for his employees may be very real, but, as “capital personified and endowed with consciousness and a will,” in Marx’s expression, he hardly has a choice. Buffett’s goal is, of necessity within the capitalist market, to increase the per-share value of Berkshire Hathaway, at any cost. He may draw only a modest salary, but the werewolf-like investors must be satisfied.

Buffett has inevitably left a trail of closed facilities and ruined communities behind him. He may find it regrettable, it may play a role in his decision to give up tens of billions, but that should not blind anyone to implacable economic realities. On the contrary, the fact that a decent man is forced to destroy jobs and lives is the strongest argument against those, in the trade unions and in left-liberal circles, who would have workers appeal to the ‘humanity’ of the capitalists.

Buffett began cutting jobs at the age of 32, when he purchased Dempster, a windmill manufacturing company, and placed one Harry Bottle in charge. “Bottle cut costs, laid off workers, and caused the company to generate cash,” notes a commentator. The same year he discovered a textile manufacturing firm, Berkshire Hathaway, which was selling for less than $8 a share. It became one of the springboards to his empire.

In 1985, Buffett shut down the Berkshire Hathaway textile operations in New Bedford, Massachusetts, throwing 425 people out of work. The closing came in response to increased competition from Japan and Taiwan, compounded by depressed prices and the strength of the US dollar.

In 1985, Buffett, together with Capital Cities Communications, put together a deal to buy ABC. At the same time, Laurence Tisch took over as chief executive officer of CBS and RCA sold NBC to General Electric. The results of this process: “The new corporate leaders found their properties losing audience and revenue to cable networks. Round after round of budget cutting and layoffs followed.”

One could go on. Big business is inevitably dirty business. In 2000, Buffet’s firm purchased a stake in US Gypsum (USG), according to one web site, betting “that the company’s legacy of asbestos litigation would soon be resolved through some agreed-on scheme of compensation for injured workers.” With no such measure forthcoming, USG sought protection in the bankruptcy courts from asbestos suits, behind which lie disease and misery for thousands of workers.

Buffett is no more a savior to workers than any other capitalist. In 2003, he declined to purchase bankrupt textile maker Burlington Industries after a bankruptcy court rejected a $14 million fee Burlington would have had to pay if the deal fell through.

In August 2004, Fruit of the Loom, the underwear manufacturer now owned by Berkshire Hathaway, announced that its plant in Cameron County, Texas would close by the end of the year and that much of its production would be shifted to Honduras. The jobs of 800 workers were eliminated. Cameron County already had a double-digit unemployment rate and a 33 percent poverty rate, according to a piece in the New Yorker magazine.

“When Warren Buffett ... acquired Fruit of the Loom, the news sparked applause on the Cameron County shop floor. Buffett, workers had heard, was smart. They did not anticipate that a smart businessman might consider the global market and the opinions of his shareholders and take their workplace out from under them. The newly unemployed Fruit of the Loomers didn’t blame Buffett, whose company would soon report doubled profits. That was just the way the system worked.” ( New Yorker )

In 2005, Buffett helped engineer the merger of Gillette, of which he was the largest shareholder, with Procter & Gamble. Buffett reportedly made $645 million on the deal. From a news account: “This deal will spark off the M&A [mergers and acquisitions] frenzy for the year, and expect to see more consolidation, mergers and layoffs. P&G expects to cut about 6,000 jobs, or about 4 percent of the combined workforce of 140,000.”

American capitalists, even the most benevolent, dominate the workplace like colossi. An article in the Montgomery (Alabama) Advertiser provides some sense of this. It concerns the fate of workers at a Russell Corporation textile plant. The headline reads, “Russell Waits on Buffett,” and the piece begins: “What does it mean to be purchased by the world’s second richest man?

“It’s a question Russell Corp. employees are mulling over this week after Berkshire Hathaway, a holding company led by billionaire investor Warren Buffett, announced it would acquire the sportswear maker. The acquisition adds both uncertainty and hope to the lives of 3,700 Russell employees working at the company’s plants in Alexander City—where the company was founded in 1902—and other locations in Alabama.

“Just two months ago, Russell downsized its workforce by 700 in Alexander City and the company pledged this week to proceed with restructuring plans that would further shave the work force by the end of 2007.”

The article notes: “Buffett has a reputation for stabilizing company finances, but he also has proven his capacity for Machiavellian tactics like plant closures and layoffs.”

The Advertiser piece points out that the “turnaround” at Fruit of the Loom organized by Buffett wasn’t free of cost. “Just last month Fruit of the Loom shuttered a yarn facility in Rabun Gap, Ga., leaving 930 workers without a job. The company blamed the continued ‘onslaught’ from Asian imports for the closure.”

This is the work of a glorified asset-stripper.

Balzac argued that behind every great fortune lay a great crime. This does not mean that the fortune-maker, in his personal make-up, is disposed to depravity. No, his actions may very well be driven only by the soundest business principles. But no one accumulates billions with clean hands.

Buffett may not have directed the shooting down of workers, like his Robber Baron-philanthropist predecessors, such as Andrew Carnegie and Henry Clay Frick, but he has been one of the human instruments by means of which the destruction of decent-paying jobs has taken place, with all the human suffering that implies.

His wealth is bound up with the counteroffensive against workers’ living standards that began in earnest under Ronald Reagan and has never stopped, as well as the parasitic stock market boom of the 1990s. In 1983, Buffett’s net worth reached a respectable $620 million. By 1989 it had increased more than six-fold, to $3.8 billion; it has grown by a factor of more than ten since then.

Carnegie and Frick also distributed millions (billions in contemporary dollars) to charities and good causes. Carnegie declared, “He who dies rich dies thus disgraced.” Frick was more unrepentant. He and Carnegie had a bitter falling out; when, years later, Carnegie proposed a meeting for the purposes of reconciling, Frick allegedly replied, “Tell him I’ll see him in Hell, where we both are going.” Deservedly, the pair are remembered more for their crimes than for their philanthropy.

We live in different times, and Buffett has not been called upon to defend his billions through direct police-military force. Nonetheless, we are confident that history will render a harsh judgment on the period in which he made his billions and the means by which he did so.