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THE ESSAYS OF WARREN BUFFETT
49
ers deplore governmental allocation of the taxpayer's dollar but
embrace enthusiastically their own allocation of the shareholder's
dollar.
For Berkshire, a different model seems appropriate. Just as I
wouldn't want you to implement your personal judgments by writ-
ing checks on my bank account for charities of your choice, I feel it
inappropriate to write checks on your corporate "bank account"
for charities of my choice. Your charitable preferences are as good
as mine and, for both you and me, funds available to foster charita-
ble interests in a tax-deductible manner reside largely at the corpo-
rate level rather than in our own hands.
Under such circumstances, I believe Berkshire should imitate
more closely-held companies, not larger public companies.
If
you
and I each own 50% of a corporation, our charitable decision mak-
ing would be simple. Charities very directly related to the opera-
tions of the business would have first claim on our available
charitable funds. Any balance available after the "operations-re-
lated" contributions would be divided among various charitable in-
terests of the two of us, on a basis roughly proportional to our
ownership interest.
If
the manager of our company had some sug-
gestions, we would listen carefully-but the final decision would be
ours. Despite our corporate form, in this aspect of the business we
probably would behave as if we were a partnership.
Wherever feasible, I believe in maintaining such a partnership
frame of mind, even though we operate through a large, fairly
widely-held corporation. Our Treasury ruling will allow such part-
nership-like behavior in this area [...]
I am pleased that Berkshire donations can become owner-di-
rected. It is ironic, but understandable, that a large and growing
number of major corporations have charitable policies pursuant to
which they will match gifts made by their employees (and-brace
yourself for this one-many even match gifts made by directors)
but none, to my knowledge, has a plan matching charitable gifts by
owners. I say "understandable" because much of the stock of
many large corporations is owned on a "revolving door" basis by
institutions that have short-term investment horizons, and that lack
a long-term owner's perspective [...]
Our own shareholders are a different breed .... [A]t the end
of each year, more than 98
%
of our shares are owned by people
who were shareholders at the beginning of the year. This long-
term commitment to the business reflects an owner mentality
which, as your manager, I intend to acknowledge in all feasible
50
CARDOZO LAW REVIEW
[VoL 19:1
ways. The designated contributions policy is an example of that
intent.
Our new program enabling shareholders to designate the
recipients of corporate charitable contributions was greeted with
extraordinary enthusiasm. . .. Of 932,206 shares eligible for partic-
ipation (shares where the name of the actual owner appeared on
our stockholder record), 95.6% responded. Even excluding Buf-
fett-related shares, the response topped 90%.
In addition, more than 3
%
of our shareholders voluntarily
wrote letters or notes, all but one approving of the program. Both
the level of participation and of commentary surpass any share-
holder response we have witnessed, even when such response has
been intensively solicited by corporate staff and highly-paid profes-
sional proxy organizations. In contrast, your extraordinary level of
response occurred without even the nudge of a company-provided
return envelope. This self-propelled behavior speaks well for the
program, and speaks well for our shareholders.
Apparently the owners of our corporation like both possessing
and exercising the ability to determine where gifts of their funds
shall be made. The "father-knows-best" school of corporate gov-
ernance will be surprised to find that none of our shareholders sent
in a designation sheet with instructions that the officers of Berk-
shire-in their superior wisdom, of course-make the decision on
charitable funds applicable to his shares. Nor did anyone suggest
that his share of our charitable funds be used to match contribu-
tions made by our corporate directors to charities of the directors'
choice (a popular, proliferating and non-publicized policy at many
large corporations).
All told, $1,783,655 of shareholder-designed contributions
were distributed to about 675 charities. In addition, Berkshire and
subsidiaries continue to make certain contributions pursuant to lo-
cal level decisions made by our operating managers.
There will be some years, perhaps two or three out of ten,
when contributions by Berkshire will produce substandard tax de-
ductions-or none at alL In those years we will not effect our
shareholder-designated charitable program. In all other years we
expect to inform you about October 10th of the amount per share
that you may designate. A reply form will accompany the notice,
and you will be given about three weeks to respond with your
designation....
1997]
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