Letting shareholders choose their own charities

Unlike in some other countries, corporations and wealthy individuals in the United States give generously to charitable organisations and often form their financial backbone.

While acknowledging this generosity, many shareholders have felt disenfranchised. Charities chosen by company management would often not be the charity of choice of individual stockholders.

Warren Buffett on charitable donations

As Buffett has said:

‘[These] representatives of the owners direct funds to their favourite charities, and never consult the owners as to their charitable preference. (I wonder how they would feel if the process were reversed and shareholders could invade the directors’ pockets for charities favoured by the shareholders’.

The Berkshire Hathaway approach

Berkshire Hathaway, under the management of Warren Buffett and Charles T Munger, has adopted an innovative and shareholder-inclusive approach to charitable donations. They allow shareholders a say in where the company’s charitable contributions go.

The scheme allows shareholders, on a basis proportionate to the number of shares in the company that they own, to nominate which charity or charities should get a donation. The company then allocates its charitable donations to the charities in the proportions voted on by shareholders.

This arrangement has been warmly embraced by shareholders with over 90 per cent regularly responding to company requests for determination.

The Buffet philosophy on charities

The Buffett-Munger philosophy was stated by Buffett thus:

‘Neither our operating managers nor officers of the parent company use Berkshire funds to make contributions to broad national programs or charitable activities of special personal interest to them, except to the extent they do so as shareholders. If your employees, including your CEO, wish to give to their alma mater or other institutions to which they feel a personal attachment, we believe they should use their own money, not yours.’

Berkshire Hathaway does at times make donations to charities determined by management but these are not high in comparison to shareholder directed donations and are always directed in ways that have an indirect benefit to the company.

This approach to charitable donations is a good example of shareholder inclusion by management and provides a model that other companies should adopt.

Update

This program recently encountered difficulties when anti-abortion protesters targeted Pampered Chef, a Berkshire Hathaway subsidiary in respect of donations made on behalf of shareholders to organizations alleged to be supporting free choice.

Berkshire Hathaway has now terminated the shareholder nominated charitable donations scheme but will continue company donations. This shows the power that pressure groups can exercise when they choose to do so.

Barbara Mikkelson, of the Urban Legends Reference Pages, has a well-researched article on the subject.

The future of the innovative program adopted by Buffett remains doubtful although some other model may be initiated. This is a pity because the scheme was inclusive and democratic.

Further resources

Berkshire Hathaway's official press release announcing the termination of their shareholder contributions program (pdf file)