BERKSHIRE HATHAWAY INC.
The Company has conducted this program of corporate giving during each of the past seventeen 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 1997 $16 97.7% $15,424,480 3,830 * 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 1998, 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, 1998, 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