INTERVIEW

‘The idea that the money shouldn’t go back to society, but instead to people who came from the right womb, strikes me as crazy’

WARREN BUFFETT TALKS TO KENNETH WHYTE ABOUT THE JOYS OF MAKING BILLIONS AND GIVING IT AWAY-AND WHY THE KIDS SHOULDN’T GET IT

October 15 2007
INTERVIEW

‘The idea that the money shouldn’t go back to society, but instead to people who came from the right womb, strikes me as crazy’

WARREN BUFFETT TALKS TO KENNETH WHYTE ABOUT THE JOYS OF MAKING BILLIONS AND GIVING IT AWAY-AND WHY THE KIDS SHOULDN’T GET IT

October 15 2007

‘The idea that the money shouldn’t go back to society, but instead to people who came from the right womb, strikes me as crazy’

INTERVIEW

WARREN BUFFETT TALKS TO KENNETH WHYTE ABOUT THE JOYS OF MAKING BILLIONS AND GIVING IT AWAY-AND WHY THE KIDS SHOULDN’T GET IT

Nebraska’s Warren Buffett is known as the Oracle of Omaha for the savvy stock market investments that have made him one the wealthiest people in the world. Through his holding company Berkshire Hathaway, Buffett, 77, has amassed a fortune investing in companies like Coca-Cola, famously shunning trendy, riskier bets like Internet and technology companies. His success has earned him a near cult-like following, evident each year at Berkshire’s hugely popular Omaha shareholders’ meeting, which Buffett once called Woodstock for Capitalists. But for all his riches, Buffett is equally well-known for his frugal and folksy ways, and lately for his philanthropy. In 2006 he said he would give away 85 percent of his roughly $ 50-billion fortune, with the bulk going to the Bill & Melinda Gates Foundation in annual instalments that Buffett insists be distributed in the year they are received. His sister Doris is also involved in philanthopy and runs the Sunshine Lady Foundation, which often deals with personal entreaties for aid that Buffett receives.

Q Last year you made your big announcement about giving away all your money. Is that decision sitting well with you or do you ever wake up in the night and think, ‘What have I done?”

A: No, I sleep like a baby. It’s worked out perfectly for me. It’s exactly what I wanted to do in terms of where the money goes, it’s the people I want to have making the decisions, it fits well with what I want for Berkshire Hathaway, so I wouldn’t change an item in it.

Q: You gave the money to five foundations, the largest amount going to the Bill & Melinda Gates Foundation, but was there ever a Plan B?I heard you muse once that you could afford to hire 10,000 artists to paint your picture every day for the rest of y our life. You were joking, of course, but was there ever something else you had in mind?

A: No. I originally thought that my wife would outlive me, she was younger than I was, and women live longer than men and all of that, so I thought that was likely, and in that case she actually would have made the decision. I mean, the money would have gone to what was then called the Buffett Foundation—now called the Susan Buffett Foundation—so she would really have been in charge of the disposition. But when she died first, I had to make the decision. She loved giving away money, and she was good at it, and she was wise about people, so I had no worries at all about how she would have carried it out, but instead I had to carry it out, so there was no Plan B once she died first.

Q: You decided you didn’t want to leave it all to your kids. You have a line about that?

A: Yeah, I want to leave them enough so they can do anything but not enough so they can do nothing.

Q: Right, a wonderful line, but what brought you to that determination? Was it your observation of what happened to other people’s children?

A: I don’t believe it’s right for society. I also don’t think it’s a good thing for the kids. But that’s a secondary thing. I mean, I’ve been ungodly blessed, you know, I just happened to be born at the right time in the right place. I tell people if I’d been born a few thousand years ago I would have been some animal’s lunch, because I can’t run very fast or jump very high. Or if I’d been born in Bangladesh or some place things would have been different for me. So what I’ve acquired has been, to an enormous degree, the product of a society that’s a huge capitalist society, and I was born into it at the right time, and I get these disproportionate material rewards in respect to my contribution. There’s all kinds of people who are just as good citizens as I am, they go over and serve in Iraq, they help in their communities, but I happen to be in something that just pays off like crazy and I get everything I want in life, and the idea that that money shouldn’t go back to society but instead should go to a few people based on the fact that they came from the right womb strikes me as crazy. I mean, I do not believe in the divine right of the womb!

Q: Okay, but do you also think it’s damaging to leave children all that money?

A: Well, I think it can be—I mean, you see all kinds of different results on it—but in the end my kids have had every opportunity in the world. I’m going to leave them a fair amount of money, and I’ve given them a fair amount of money, but nothing compared to what I have—so they’ve had the advantages of a good education, on average they’re a little lucky on genes, they’re in the right country at the right time, so they have all kinds of advantages. And in addition, like I said, I’ve given them some money and I’ll give them some more, but the idea that they should be just showered with money, where they can command the resources of society in a huge way forever, just strikes me as totally inappropriate, and I think it’s bad for the society. I’ve used this illustration that, if we were to pick our United States Olympic team based on the eldest son and the eldest daughter of those who represented us in all the events 24 years ago, we would think that was asinine, but to hand the resources of society, and the resources to command the labour of society and the materials of society, to a

bunch of people simply because they happen to have the right last name strikes me as just as foolish in terms of how you manage a society as it would be to pick an Olympic team. The United States will compete in this world, and we believe in equality of opportunity. Well, how can you have equality of opportunity when you hand somebody billions of dollars just because they came out of the right womb?

Q: You favour inheritance taxes?

A Yeah, I definitely do. If you believe in a meritocracy you have to, otherwise you’ve got a dynasty of wealth, and generally speaking we thought dynasties based on royal blood or something are a crazy idea in the U.S., and I think a dynasty based on wombs is kind of silly too.

Q: What was more fun, to make the money orto give it away?

A: Well, it’s a lot of fun to make it. I mean, it’s just a lot of fun to play a game that you’re reasonably good at and that you can stay active in when your legs go and all sorts of things, your eyes and everything. So I’m blessed by being in something that doesn’t require hand-eye coordination or any of that sort of thing. You couldn’t have an activity that’s more fun than what I do.

And it’s nice to know that the money will be utilized in a way that helps people’s lives. You may have read the story about my sister in the Wall Street Journal a month or so ago. I send all these letters [that he receives

for personal help] on to her and I help fund what she does, but I get these letters from people thanking me and telling me what a difference it makes. Well, she’s the one that’s made the difference. But it’s a good feeling to feel that perhaps a million people won’t get malaria who would otherwise, or even, on a very small scale, that somebody’s individual problems have been solved. But in terms of what I spend my time thinking about, I spend my time thinking about Berkshire Hathaway, overwhelmingly. And that’s why I’ve farmed [the charitable work] out to people who are younger, who are intelli-

gent, who have more energy than I have for work, who are going to have a lot more years to develop their skills in giving away money, and who I know have the right motivation, so it just makes sense in terms of specialization of labour.

Q: Do you ever think about the paradox of being the world’s most generous man, in terms of the amount you’ve given away, yet also being one of the world’s most acquisitive men?

A: Well, it’s worked out that what I do just pays off like crazy, but if it didn’t I’d be doing the same thing. I’m doing it because I enjoy it, and if I’d ended up making a million dollars I would have been just as happy as making way more than that.

Q: You’ve never been one to plaster your name on hospital wings, or go to big galas and sit on prestigious boards and so on. Why not? Do you just find those things unsatisfying or boring, or what?

A: If I did it, I’m sure I would find it boring. And in the end, somebody else will put up money they wouldn’t otherwise to get

their name on the hospital, so it’s kind of silly for me to do it. I mean, they won’t get anything extra out of me for naming rights so they might as well sell it to somebody who would find meaning in that, you know? You can call that a market system: it’s a market for putting your name on a building. Somebody will always outbid me on that.

Q: Why did you want to give your money away in a short horizon rather than give it to a foundation that will live interminably with your name on it?

A: Because the people I’m giving it to are good and they’re known quantities, and I’d

cThe middle class are more philanthropic. In terms of what people are giving up, the Forbes 400 are probably the least.’

‘If we picked our Olympic team based on the eldest child of those who represented us 24 years ago, we would think that was asinine’

rather bet on somebody that I’ve seen, and where I’ve seen what they’ve done, and where I know their quality, and where they are doing what I believe they should be doing right now, rather than to hope, six feet underground, that 75 years from now somebody’ll be making equally good decisions and working with equal efficiency and all of that. Foundations and charity generally are not subject to a market system, any perpetuity is not subject to a market system by definition, and I really think a market system works pretty well. So, if somebody does very well with the money I give them and then the money runs out, they should be able to attract money from somebody else. There has to be some system that sunsets organizations that don’t do a good job, and in capitalism it works very well in terms of businesses. It probably doesn’t work as well in terms of something like foundations.

A lot of corporations give money to charities, and they buy tables at events where people like you are featured speakers...

A: That’s one thing, I’ll never run out of mail! People tell me that when they retire, “Everything stops except the invitations to the charity events.”

Q: What do shareholders get out of corporate philanthropy? Companies have to answer for every cent that goes out the door now—it’s all about return on investment. What’s the return on charitable donations? '

A: As a parent company we don’t give away any of Berkshire’s money. I mean, our individual companies do things, they participate as they see fit. I let our managers have enormous autonomy, and they deserve it. What I do tell them when we buy them is, “Follow the policies you followed before, except for things that are personal in nature,” so that’s what they do. And at the parent company level we don’t do anything, we don’t buy any tables.

Q: Why not?

A: If you go back to the

’8l or ’82 annual report, we set up this shareholder-designated contributions program where the shareholders told us the names of up to three charities they would like Berkshire to donate to on their behalf on a pershare basis. We gave away about $190 million this way—we treated it like a partnership. Our shareholders told us, “Here’s our share of the giving and here’s what I’d like it to go to.” We would give money to, like, 4,000 charities per year. There’s one annual report which is particularly interesting. I listed out what people selected: churches were No. l, and the typical corporation never gives money to a church, but that’s what our shareholders wanted to do. So we would send out a cheque, say to Creighton University [a Jesuit school], and we’d list 19 people who had designated them to receive so much per share, and listed the total dollars.

You’ll find this interesting: we had about 4,000 shareholders who used to participate in the program, which we had up until a couple of years ago. I gave them the opportunity to give anonymously, and, like, two every year would. So as for the Biblical admonition, you know, don’t let the left hand know what the right hand is doing? The left hand’s damned interested in what the right hand is doing, apparently. But I felt that was, in a

way, a sort of pure test of what people did unaffected by who was asking.

Q: But what about companies that do go out and buy tables at events and sponsor this and sponsor that? Is that a good use of shareholder capital?

AI wouldn’t do it myself, that’s all I can say. I don’t believe in telling other people how to give to charity. I tell them enough about how to run their businesses in other ways, but what people do with their money, in terms of sharing, that’s up to them. I had a lot of people who thought I was following the wrong course, but if I’d followed what they told me to I would have given away all my money when I had about $2 million and the world wouldn’t have gotten any more. So, having been the recipient of a lot of advice on not only giving but other things—but particularly on giving—I don’t feel I should tell other people what to do.

Q: What advice would you give somebody who’s got a normal salary and can maybe afford to put a little away or give some to charity? Is it best to accumulate a fortune and then give, or is it best to give as you go?

A: I have a lot of student groups come here, I’ve got 31 universities scheduled—a few from Canada, in fact—and I get that question. I tell them, “Lookit, do what you feel good about doing. There’s nobody that would say that the Boy Scouts are better than the Girl Scouts or something like that, it’s up to you. Assuming you want to do it—it’s really your business—if you do have interests, find something that you want to participate in.” I can’t tell them whether one school is better than another or anything like that, but whatever they’ve got feelings about, just put yourself into it. You may change your ideas later on, but follow your heart, basically.

Q: It sometimes seems the world of philanthropy is sort of a luxury available only to the rich—that it’s a world where rich people give away money to causes deemed worthy by rich people...

A: I don’t know. If you look in the U.S., about two per cent of the GDP goes to philanthropy, and people in the middle class are more philanthropic in a real sense. The interesting thing is, Utah jumps out because of the Mormons; they have by far the highest percentage of adjusted gross income going to charitable contributions than the rest of the states. And that isn’t because the Mormons are richer—they just believe in it and they carry out their beliefs. If you look at this, church giving is a huge percentage of philanthropy in this country. I don’t have any statistics on it, but I would bet that is

If you put me on a couch, I think you would find that in the end I want my inner scorecard to be one that my dad would find acceptable1

coming overwhelmingly from the middle class. And they’re giving money that means something to them, in terms of whether they go to a movie, maybe, or something that week or that month. So I think it’s true that the big numbers get splashed around, and they can make more of an impact on things that really require a focus of moneylike medical research or something of the sort—but the average American is pretty philanthropic, and I would say that if you really measured in terms of what people are giving up, the Forbes 400 are probably the least philanthropic.

Q You’ve always been noted for your humility. You live simply. You give your money to a charity with someone else’s name on it. Is humility effortless for you or is it something that you have to work on? I would expect that with all that money, there would be temptations.

A: No. I’ve got an inner scorecard, and my dad had one, and he was a huge influence on me. I got criticized for not doing more earlier. I don’t have a problem with that, as long as I know what I’m doing and why I’m doing it. Whether my name is on a building—what the hell difference does it make?

I’m proud of my record at Berkshire, so I’m not humble about that at all, but that is an achievement over time, you know. Getting my name on a building isn’t an achievement at all, getting an honorary degree is no achievement at all, it just doesn’t mean anything.

Q: Tell me about your inner scorecard. What’s on it?

A: Basically, it’s being kept according to how I would feel about my dad scoring me, to get right down to it. I don’t think about it that way every day, but if you put me down on a couch— which nobody ever has—I think you would find that in the end I want that scorecard to be one that my dad would find acceptable.

Q: And he valued hard work and...?

A: He valued the things I try and do. I fail like everybody else, I do not bat a thousand, nobody does, and you don’t want to hold yourself to some impossible scorecard either. You don’t want to agonize over every time you fell short or something—you’ll die of remorse. But you want to have a scorecard.

Q: And personal relatio?iships, you’ve had great ones in your life...

A: Yeah, I've been very lucky.

Q:.. .your family, your kids, closest associates. Is that, again, something that you’ve had to work especially hard on, or have you been just lucky?

A: No, that flows, basically, and you’re lucky. And of course I’ve got 77 years so you make more friends as life goes along. I just was at a group of 41 of them last week; we meet every couple of years. If you’ve got great friends you’re not going to be an unhappy guy.

Q: This is more about business. You’ve said in the past that you don’t worry too much about interest rates, and that smart investors needn’t worry too much about interest rate environments, but we’re at a place in North America right now sort of living and dying on the direction of interest rates: we’re in debt up to our teeth and threatened. Is this a mistake we’ve made?

A: No. I mean, high interest rates—there are times when they’re needed for one reason or another, but the world never comes to an end. Your economy and ours have done pretty damn well over time. Just take the 20th century. The real GDP per capita in the United States—and probably in Canada—went up, like, seven for one. There’s never been a century like it in history, and if you look at that century, we had 21 per cent prime rates, we had one per cent prime, we had World Wars I and II, we had the Great Depression, so I don’t regard any variable like that as being key at all. You know, it obviously has an effect on certain individuals, but, you know, everybody’s debt is somebody else’s asset.

Q: One last question. What do you think was more instrumental in your success? Do you think it was your intellect and your technical abilities, or your judgment, your personal stability and optimism?

AI think the fact that my emotions don’t rule my life in business or markets the way many people’s do is a huge asset, but the biggest thing is I was in the right place at the right time. I mean, just move it back 150 years.

Q: There were a lot of people there with you at the outset.

A: That may be, and I was wired right, you know? I mean, I wasn’t wired to play championship chess. That wiring may be just as scarce as the wiring I have, but it just doesn’t pay off in a market system in this country. It did for a very short period of time with Bobby Fischer, then it died again. So the wiring is enormously important. Somebody else is wired to be a great scientist or something, they contribute just as much, but a market system happens to pay off now.

Q: Is it the wiring that made you a technical analyst or is it the more human qualities? Which do you rate as more important?

A: Well, both. You need them both. You need the wiring and then you need temperamental qualities. I get asked all the time by students, “Are you born with the temperamental qualities or do you acquire them?” I don’t know the answer to that, I think it’s some mix of both. But I think you’re born with the wiring, and then you’ve got to do something with the wiring. If you don’t have the wiring, you’re not going to be able to do certain kinds of things. M

Warren Buffett will be speaking in Toronto on Oct. 11 to raise money for the Toronto General & Western Hospital Foundation. For more on corporate and personal philanthropy, see stories on pages 61 and 64.