Warren Buffett's legacy is at stake via Bill Gates

FE Team | Published: May 18, 2024 21:30:47

NEW YORK, May 18 (Reuters Breakingviews): Warren Buffett cares deeply about who will succeed him to run Berkshire Hathaway. But what about the single organization destined to receive much of his stock? Buffett has bequeathed a vast sum to the philanthropic foundation set up by Melinda Gates and her ex-husband, Microsoft co-founder Bill Gates. Melinda's recent exit from the foundation might consolidate that control in the hands of Bill.
Both Bill and Melinda have a longstanding relationship with Buffett. Bill credits thought provoked by Buffett as key to his decision to retire at 50 from leading his $3 trillion tech behemoth in order to focus on his foundation. Bill also served on Berkshire's board back in 2006, the year Buffett decided to grant, opens new tab stock to the Gates' charitable endeavors. Melinda, too, has said Buffett was responsible for helping her refocus her life, and she stuck by the foundation through her divorce from Bill a few years ago - until now. On Monday, the foundation said she would depart.
There is, as yet, no word on whether this changes Buffett's enormous gift to the Gates Foundation. The 2006 grant earmarked 10 million of Buffett's shares - after taking into account a conversion from super-voting stock to regular stock - for the organization, roughly 67 per cent of the Sage's total ownership at the time. Every year, 5 per cent of that pool is supposed to go to the foundation, which is more or less obligated to spend an equivalent value on good causes. At the end of 2022, it reported Berkshire holdings worth a bit over 1 per cent of the company.
Over time, Buffett's own shareholdings have fluctuated. He sold stock, transferred it, and Berkshire did some buybacks. On an as-converted basis, Buffett has a roughly 15 per cent economic stake in the company, half what he had in 2006. However, the proportion of his shares earmarked for Gates has stayed roughly the same, Breakingviews calculates - around two-thirds of Buffett's pot.
Those future promises would gift the foundation a further roughly 10 per cent economic stake in Berkshire. Owing to the math of share conversions, its bequeathed voting power would be a bit under half that, which would still leave the Foundation swinging a very big stick.
The foundation's filings note that the gift only applies during Buffett's lifetime - suggesting that changes to the arrangement are always a possibility. Still, Buffett has even recently articulated a reason such a structure is good for Berkshire. At the company's 2023 shareholder meeting, in response to an audience member asking about shareholder activism, he emphasized that his shares will go to philanthropic organizations, insulating Berkshire's new leaders. That's fair enough when it comes to outside agitators, but the departure of Melinda potentially makes the current arrangement even more consolidated. When it comes to Buffett's legacy, for now, it rests unusually heavily on one man.