Warren Buffett has said his business investments need to create shareholder value, and social and political concerns should be left in the hands of individuals. Jeff Bezos and Elon Musk seem to think the same way. This approach to business may have made sense in the 1970s, but it is now old school.
Climate change demonstrators hold signs in the likeness of Warren Buffett, chairman and chief ... [+]
When my team did our analysis, we found that the company that Warren Buffett governs, Berkshire Hathaway, was one of only two in the top S&P50 that hadn’t made carbon commitments (Elon Musk’s Tesla being the other). Berkshire Hathaway sets high financial performance goals for its subsidiaries, but not ESG goals.
Even though ESG doesn’t seem to matter much to Berkshire Hathaway, Buffett has personally expressed concern for society. His personal donations exceed $48 billion.
Buffett clearly separates his business interests from his personal ones. His businesses need to profit within the confines of the law, even if there is ultimately a cost to society. This generates money for shareholders, which they can donate to whatever social causes they choose.
This approach to philanthropy is out-of-date. This outdated approach to philanthropy stems from a Milton Friedman-era doctrine that argues that the primary social responsibility of any business is to make a profit. That theory hasn’t aged well.
Businesses exert a lot of control and can create immense long-term harm. No matter what billionaires think they are doing for society, it will never fully repair the damage inflicted by the size and reach of business.
It’s time for billionaires like Warren Buffett, Jeff Bezos, and Elon Musk to bring their philosophies on corporate purpose and impact into the 21st century. Today’s customers, employees, and partners are asking more of companies and the wealthy people that control them.
Berkshire Hathaway’s ESG Failures
It is clear that Berkshire Hathaway is not meeting industry norms for social responsibility. Out of its 62 subsidiaries, only three have set science-based targets: Burlington Northern Santa Fe (BNSF), Brooks, and Fruit of the Loom. And, only 14 have joined Berkshire Hathaway’s Sustainability Leadership Council.
It’s puzzling, then, that Berkshire still applauds its commitments. For example, it announced in its 2021 Annual Report that two of its subsidiaries, Berkshire Hathaway Energy (BHE) and BNSF, reduced their greenhouse gas emissions and set targets. Although these companies account for 90% of Berkshire Hathaway’s subsidiaries’ emissions, these commitments provide reasons for weak praise. At best, they only met, not exceeded, industry norms.
Also, while Berkshire Hathaway celebrates reducing emissions on the one hand, it’s doubling down on fossil fuel investments on the other. In the first half of 2022, it increased its stakes in Occidental Petroleum Corp. and Chevron to $8.52 billion and $25.9 billion, respectively. Aside from the environmental implications, these investments were also seen, according to Reuters, as an attempt to profit off of rising oil prices following Russia's invasion of Ukraine.
Berkshire Hathaway, which topped Fortune’s Global 2000 in May, has not only shown indifference to environmental issues, it seems indifferent to social issues as well. In 2021, its shareholders voted against promoting workplace diversity, equity, and inclusion (DEI) policies and disclosing its attempts to address climate change. When the holding company received similar shareholder proposals in 2022, the board of directors unanimously voted against them.
In late 2021, Berkshire increased its stake in Activision Blizzard to 9.5%, making it the 11th-largest holding in its portfolio. This purchase came months after Activision Blizzard employees walked out in protest following allegations of a culture of “severe harassment and discrimination against female workers.”
Berkshire Hathaway doesn’t appear to have taken any measures to address these issues. It seems to hide behind its holding company status, citing the need to maintain its “unusually decentralized” way of managing subsidiaries, in which each company is responsible for creating and implementing its own policies and programs.
Buffet Separates His Business Dealings from his Concerns to Society
Buffett has openly expressed that he believes that social or political causes have no place in business – such causes need to be undertaken by individuals using their personal wealth. He said in 2019 that “I don’t believe in imposing my political opinions on the activities of our businesses.”
To Buffett’s credit, he has acted on this belief, donating over $48 billion to the Bill and Melinda Gates Foundation and several other foundations founded by family members. He says that "if you're in the luckiest 1% of humanity, you owe it to the rest of humanity to think about the other 99%." And in 2006, Buffett pledged to give 99% of his wealth to philanthropic foundations before he dies.
To think about the 99% should not be limited not only to his own personal impact, but that of the companies he controls — which influence almost every domain of society, from food and drink to energy to electronics to clothing. And what’s more, these companies will continue to influence society and the environment, for good or bad, long after Buffett is gone.
His approach to Berkshire’s ESG activities is clearly at odds with his mission to positively impact the world in his remaining years.
Milton Friedman’s Ideas Are Outdated
No doubt, Warren Buffett’s approach to social issues were influenced by Milton Friedman whose ideas thrived in the 1960s and 1970s. Milton Friedman was an American economist who believed staunchly in free markets, grounded in the thinking of trickle-down supply side economics. Such thinking was embraced by Ronald Reagan and Margaret Thatcher, who reduced the role of government to make more room for business. Friedman argued that this would catalyze the competitive spirit and be an engine for growth.
Such thinking is outdated. Friedman failed to recognize the planetary limits to economic growth. His economic models assumed limitless growth, so stimulating the economy could erase economic problems. He failed to recognize the environmental problems created by such growth, including catastrophic climate change and biodiversity loss.
Friedman also assumed that governments would set fair “rules of the game.” However, governments have failed to step up to protect society. Recent measures taken by the U.S. Supreme Court to relax gun laws, soften regulatory power over emissions, and remove women’s rights over their own bodies by overturning Roe v. Wade have demonstrated the failure of the government to protect the public good and asking individuals and corporations to play by their own “rules.”
Further, wealth did not fully “trickle down” according to Friedman’s plan. As the wealthy became wealthier, they started to influence public policy in their favor, becoming even more wealthy. Since Friedman passed away in 2006, income inequality in the U.S. has worsened progressively, even as the country’s GDP ballooned.
Today’s “purpose generation” is asking more of their employers and the companies they buy from, because they recognize the limits of old-school capitalism. They are choosing to work for firms that look not just to create shareholder value, but also contribute to a better society.
It’s not just Warren, but also Jeff and Elon
Jeff Bezos, the former wealthiest person on the planet, has made his own personal pledges to do good in the world. Bezos wrote in an Instagram post in 2020 that “Climate change is the biggest threat to our planet.” He pledged $10 Billion to fund research to counter climate change through the Bezos Earth Fund.
Amazon CEO Jeff Bezos arrives to begin his news conference at the National Press Club in Washington, ... [+]
That is all good, but it’s worth noting that he founded and, until recently, was running a company – one of the world’s largest – that has been accused of undercounting reported emissions and generating excessive waste from destroyed returns. Unlike Buffett, he was also solely responsible for Amazon’s operations.
And, no story is complete these days without some mention of Elon Musk.
Musk said in a TED interview when asked about philanthropy: “I think if you care about the reality of goodness instead of the perception of it, philanthropy is extremely difficult. SpaceX, Tesla, Neuralink and The Boring Company are philanthropy. If you say philanthropy is love of humanity, [the companies] are philanthropy.”
This disinterest in traditional philanthropy can be seen in Musk’s individual giving. Like Bezos, his large donations have been secretive. In November 2021, he donated 5 million shares worth $5.7 billion to an unknown charity – one of the largest philanthropic gifts ever. However, the fact that he nor any charity disclosed the gift’s recipient fueled journalists’ speculation that it was (a) given to a donor-advised fund (a philanthropic intermediary that allows wealthy people to immediately receive a tax receipt while their donation sits in a fund and is eventually funnelled to nonprofits anonymously), and (b) meant primarily to significantly reduce Musk’s hefty massive tax bill.
PARIS, FRANCE - DECEMBER 4: Chairman of SolarCity Elon Musk delivers a speech during the Climate ... [+]
His Musk Foundation has been heavily criticized, as well. According to the New York Times, the foundation made donations of “a little less than 3 million to nine groups.” By the end of fiscal year 2020, it had donated only about $23 million of an available $1 billion.
This might be excusable if Musk did indeed treat his companies like instruments of social and environmental good. Yet, Tesla does not report its carbon emissions and make commitments. Further, Tesla continues to hold onto its right to repair, which means higher repair costs for consumers and more cars being sent to landfills sooner than needed.
Making money off of doing harm
These wealthy men are using their business investments to meet their personal goals, and they use their personal philanthropy to repair the business issues that their companies, in part, create. They, and their companies, are generating enormous wealth and wielding enormous power over every facet of human life. If they only act within the rules of the game set by government, and government is unable or unwilling to set rules that protect society, then they are generating wealth at the cost of society.
If these billionaires do sincerely believe in society, it’s time for them to recognize the incredible impact that they have, not just in their personal philanthropy, but through the corporations they run. They can no longer hide behind Friedman’s antiquated doctrine.
Mr. Buffett can lead the way in his remaining years by truly acting in a way that makes the world better for the 99%.
