Warren Buffett Gives It Away


On this day in economic and business history...

Berkshire Hathaway CEO Warren Buffett shocked the worlds of both investing and philanthropy on June 25, 2006, when he announced his intent to give 85% of his fortune to charity. The vast majority of that fortune was earmarked for the Bill & Melinda Gates Foundation, a decision spurred in no small measure by the long-standing friendship between Buffett and Bill Gates. The CNNMoney/Fortune exclusive that broke the story offered the following details on Buffett's gift:

Beginning in July and continuing every year, Buffett will give a set, annually declining number of Berkshire B shares -- starting with 602,500 in 2006 and then decreasing by 5% per year -- to the five foundations. The gifts to the Gates foundation will be made either by Buffett or through his estate as long as at least one of the pair -- Bill, now 50, or Melinda, 41 -- is active in it.

This arrangement was no doubt modified by a 50-to-1 split of Berkshire's Class B shares in 2009. As a result of that split, the total gift Buffett originally promised in 2006 now looks like this:

  • To the Bill & Melinda Gates Foundation: 500 million shares

  • To the Susan Thompson Buffett Foundation: 50 million shares

  • To the Susan A. Buffett Foundation: 17.5 million shares

  • To the Howard G. Buffett Foundation: 17.5 million shares

  • To the NoVo Foundation: 17.5 million shares

Buffett has already given away many millions of shares to the Gates Foundation (based on split-adjusted totals). At the current price of Berkshire's B shares, seven years after it was first pledged, this gift is worth nearly $67 billion. That's nearly twice the original value of the pledge, which was calculated at $37 billion in 2006.

The record-breaking nature of Buffett's gift would inspire Gates and Buffett to develop the Giving Pledge, a campaign begun in 2010 to encourage the world's wealthiest to leave most of their money to charity. Seven years after Buffett unofficially kicked off the greatest charity drive in history, the Giving Pledge has swelled to 114 signatories, virtually all of whom are worth at least $1 billion.

Incorporating for the future
Two of the Dow Jones Industrial Average's components took the necessary steps toward public markets when they incorporated on June 25.

3M was the first, having incorporated on June 25, 1929. The company had been founded in 1902 as Minnesota Mining and Manufacturing, and after some early struggles it grew rapidly through the 1920s on the strength of innovations like waterproof sandpaper and Scotch tape. By 1929, the company was getting big enough to require a more investor-friendly corporate structure, which was one key reason for the change from partnership to corporation. Unfortunately for investors, 1929 was the worst possible year in decades in which to buy shares of small industrial concerns. 3M survived and eventually thrived despite the Great Depression, and it eventually became a Dow component in 1976. Want to learn more about 3M's origins? Click here.

Microsoft came much later, but it incorporated on the same day of the year as 3M -- on June 25, 1981. It had been founded six years earlier by Bill Gates and Paul Allen once they found a buyer for their first product -- a tape-based BASIC interpreter for the primitive Altair 8800. Now the company was on the cusp of perhaps its greatest coup, as the IBM PC would launch within months, allowing its users to interact through an operating system called MS-DOS. The PC's launch set Microsoft on a rocket trajectory that would lead it to become the largest publicly traded company in American history.

Microsoft generated $7.5 million in annual revenue the year before the PC. That number would grow nearly 20 times larger, to $140 million, by the time Windows 1.0 launched in 1985. Microsoft had less reason to issue shares than 3M, as it had always been phenomenally profitable, but Gates understood the importance of luring top talent with equity in his fast-growing company. The incorporation in Washington (it would later reincorporate in Delaware) helped advance that goal extraordinarily well; one Seattle-based economist would later estimate that approximately 10,000 Microsoft employees became millionaires by the time the company's stock peaked in 1999. Not all of them had been with Microsoft since its private days, but it's safe to assume that most of its roughly 1,400 full-time employees in 1986 were quite richly compensated with Microsoft's stock growth.

A new (minimum) deal for American workers
President Franklin D. Roosevelt signed the Fair Labor Standards Act, or FLSA, into law on June 25, 1938. It was the last major element in Roosevelt's prewar New Deal era, and it became the first law to impose minimum-wage standards that withstood the judgment of the Supreme Court. Several earlier state and national minimum-wage laws had fallen before the Supreme Court in the preceding two decades, including one made law during Roosevelt's first year in office. This law, to hold up, had to be both legally impeccable and backed by one of the strongest publicity campaigns of Roosevelt's four-term tenure.

Roosevelt had campaigned ferociously for the bill, both during and after the election. Its first draft arrived in the Capitol with a message that all of America's "able-bodied working men and women [should receive] a fair day's pay for a fair day's work." This effort wound up watered down from $0.40 an hour and 40 hours a week, but it still couldn't pass the House before its summer recess. Roosevelt pushed forward in the fall with a tighter message, railing against "the exploitation of child labor and the undercutting of wages and the stretching of the hours of the poorest paid workers in periods of business recession." Despite congressional opposition, public-opinion polls showed strong backing for the President: One conducted in early 1938 found that a full two-thirds of the national populace supported minimum-wage standards.

The FLSA, in order to withstand Court scrutiny, initially applied to only a fifth of the nation's workforce. It set the minimum wage at $0.25 per hour and restricted the workweek to 44 hours. However, the FLSA also benefited from the infamous "switch in time" that led to the Court's liberalization on labor issues following Roosevelt's threat to pack the court with additional liberal justices after his landslide 1936 electoral victory. Without this combination of restricted impact and liberalized attitudes in the Supreme Court, the FLSA might not have withstood scrutiny. Even so, Roosevelt acted quickly to avoid a pocket veto, and the act was signed in a massive wave of 121 bills nine days after the start of Congress' 1938 recess.

The minimum wage has been raised many times since 1938. It was at its absolute highest on an inflation-adjusted basis in 1968, when the hourly minimum wage of $1.60 was equivalent to more than $10 an hour in present-day terms, or 90% of the federal poverty level. In 2007, Congress finally gave states the power to establish their own minimum-wage laws at higher rates than those imposed by federal law. Nine states have taken advantage of this freedom to raise their statewide minimum wage past the present federal level of $7.25 per hour.

The article Warren Buffett Gives It Away originally appeared on Fool.com.

Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter @TMFBiggles for more insight into markets, history, and technology.The Motley Fool recommends 3M and Berkshire Hathaway. The Motley Fool owns shares of Berkshire Hathaway, International Business Machines, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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