BERKSHIRE HATHAWAY INC.
SHAREHOLDER-DESIGNATED CONTRIBUTIONS
The Company has conducted this program of corporate giving during
each of the past sixteen years. On October 14, 1981, the Chairman sent to
the shareholders a letter* explaining the program. Portions of that
letter follow:
"On September 30, 1981 Berkshire received a tax ruling from
the U.S. Treasury Department that, in most years, should produce a
significant benefit for charities of your choice.
"Each Berkshire shareholder - on a basis proportional to the
number of shares of Berkshire that he owns - will be able to
designate recipients of charitable contributions by our company.
You'll name the charity; Berkshire will write the check. The
ruling states that there will be no personal tax consequences to
our shareholders from making such designations.
"Thus, our approximately 1500 owners now can exercise a
perquisite that, although routinely exercised by the owners in
closely-held businesses, is almost exclusively exercised by the
managers in more widely-held businesses.
"In a widely-held corporation the executives ordinarily
arrange all charitable donations, with no input at all from
shareholders, in two main categories:
(1) Donations considered to benefit the corporation
directly in an amount roughly commensurate with
the cost of the donation; and
(2) Donations considered to benefit the corporation
indirectly through hard-to-measure, long-delayed
feedback effects of various kinds.
"I and other Berkshire executives have arranged in the past,
as we will arrange in the future, all charitable donations in the
first category. However, the aggregate level of giving in such
category has been quite low, and very likely will remain quite
low, because not many gifts can be shown to produce roughly
commensurate direct benefits to Berkshire.
"In the second category, Berkshire's charitable gifts have
been virtually nil, because I am not comfortable with ordinary
corporate practice and had no better practice to substitute. What
bothers me about ordinary corporate practice is the way gifts tend
to be made based more on who does the asking and how corporate
peers are responding than on an objective evaluation of the
donee's activities. Conventionality often overpowers rationality.
"A common result is the use of the stockholder's money to
implement the charitable inclinations of the corporate manager,
who usually is heavily influenced by specific social pressures on
him. Frequently there is an added incongruity; many corporate
managers 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 writing
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
charitable interests in a tax-deductible manner reside largely at
the corporate 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
making would be simple. Charities very directly related to the
operations of the business would have first claim on our available
charitable funds. Any balance available after the "operations-
related" contributions would be divided among various charitable
interests of the two of us, on a basis roughly proportional to our
ownership interest. If the manager of our company had some
suggestions, 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 partnership-like behavior in this area . . .
"I am pleased that Berkshire donations can become owner-
directed. 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. As I mentioned in
the 1979 annual report, at 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 ways. The designated contributions
policy is an example of that intent."
* * *
The history of contributions made pursuant to this program since its
inception follows:
Percent of
Specified Amount Eligible* Shares Amount No. of
Year per share Participating Contributed Charities
---- ---------------- ---------------- ----------- ---------
1981 $2 95.6% $ 1,783,655 675
1982 $1 95.8% $ 890,948 704
1983 $3 96.4% $ 3,066,501 1,353
1984 $3 97.2% $ 3,179,049 1,519
1985 $4 96.8% $ 4,006,260 1,724
1986 $4 97.1% $ 3,996,820 1,934
1987 $5 97.2% $ 4,937,574 2,050
1988 $5 97.4% $ 4,965,665 2,319
1989 $6 96.9% $ 5,867,254 2,550
1990 $6 97.3% $ 5,823,672 2,600
1991 $7 97.7% $ 6,772,024 2,630
1992 $8 97.0% $ 7,634,784 2,810
1993 $10 97.3% $ 9,448,370 3,110
1994 $11 95.7% $10,419,497 3,330
1995 $12 96.3% $11,558,616 3,600
1996 $14 97.2% $13,309,044 3,910
* Shares registered in street name are not eligible to participate.
In addition to the shareholder-designated contributions summarized
above, Berkshire and its subsidiaries have made certain contributions
pursuant to local level decisions of operating managers of the
businesses.
* * *
The program may not be conducted in the occasional year, if any, when
the contributions would produce substandard or no tax deductions. In
other years Berkshire expects to inform shareholders of the amount per
share that may be designated, and a reply form will accompany the notice
allowing shareholders to respond with their designations. If the program
is conducted in 1997, the notice will be mailed on or about September 15
to Class A shareholders of record reflected in our Registrar's
records as of the close of business August 31, 1997, and
shareholders will be given until November 15 to respond.
Shareholders should note the fact that Class A shares held
in street name are not eligible to participate in the program. To
qualify, shares must be registered with our Registrar on August 31
in the owner's individual name(s) or the name of an owning trust,
corporation, partnership or estate, as applicable. Also, shareholders
should note that Class B shares are not eligible to participate in
the program.
*Copyright 1981 By Warren E. Buffett
All Rights Reserved