The sage of Omaha is known as the kind grandfather of capitalism. He does not have the blingy lifestyle of other billionaires who splash out on big yachts, fancy cars and palaces to live in. With Microsoft founder Bill Gates; Warren Buffet founded The Giving Pledge whereby billionaires give away at least half of their fortune for good causes. He has gone even further pledging to donate 99% of his wealth. With his philanthropic background in mind, the latest statement by Buffett on morality and business comes as a surprise and appears to be against the current tide in business for a shift away from shareholder capitalism towards stakeholder capitalism where the stakeholders not include those who own a company but also its employees, suppliers and the environment. In an interview with the Financial Times, Buffett said it was “wrong for companies to impose their view of doing good on society.” – Linda van Tilburg
By Thulasizwe Sithole
Berkshire Hathaway has invested into green companies including $30bn in wind turbines and infrastructure in Iowa. The aim of this investment is to turn Iowa into the wind capital of the world or the “Saudi Arabia of wind.” The investment reflects the philosophy that moving away from fossil fuel towards renewable energy is because of companies’ responsibility to society of “doing well by doing good.” The FT reports that was the latest trend in the corporate world that was printed in annual reports and advertisements – “sincerely or not”.
Warren Buffet however said it was rubbish and that he invested in wind because of tax credits and that without the production tax credits, Berkshire Hathaway would not have invested in wind energy generation. During an interview with the FT, Buffet said, “it was wrong… for companies to impose their views of doing good on society. What made them think they knew better.” He went on to state that it was hard to measure the effect of “doing good” and when he compared the 20 largest companies; it would be hard to determine who was behaving the best. “I like to eat candy. Is candy good for me or not. I don’t know.”
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Buffett said even if it was easy to determine what was moral for the world; management which took “doing good” into account was wrong as they were merely the agents for the company’s shareholders. At Berkshire, he said “charitable contributions were ruled out on principle.” Many other managers who criticised the way in which the government spent taxpayers money enthusiastically embraced the allocation of shareholders dollars”, he said.
The FT remarks on how Buffett’s view on company’s responsibilities contrast with the views of investors who are increasingly pouring dollars into Environment, Social and Governance or ESG funds. Deutsche Bank has estimated that the amount of dollars into ESG funds have almost doubled from 2015 to 2019 and is forecast to exceed $100trn by 2027. Many of these companies believe that “capitalism has become dangerously unstable” and that they have a social responsibility towards doing good for the world.
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Advocates for stakeholder capitalism say that capitalism need to bring about a better society or “companies’ licence to operate may be revoked.” The chairman of investment bank Guggenheim Partners said that when “masses think the elites have too much, one of two things happens: legislation to redistribute the wealth… or revolution to redistribute poverty.”
Buffett’s vision for a better society is that “government policy, not capitalism must drive change.” The government should make changes to the market system. Referring to Berkshire Hathaway that still owns coal power plants, he said that either the shareholder or consumer would be picking up the cost of eliminating the coal plants because “there’s a cost to somebody… the question is how it gets absorbed, but overwhelmingly that has to be a governmental activity.”
