Nightly Business Report
Aired : June 26, 2006

SUSIE GHARIB: It`s official tonight, Warren Buffett is giving his money away to Bill Gates. The billionaire investor has earmarked 85 percent of his $44 billion fortune to the Bill and Melinda Gates Foundation. The move comes on the heels of news that Gates plans to wind down his work at Microsoft to devote more time to the foundation. Buffett`s historic gift dwarfs donations from legendary philanthropists like John Rockefeller and Andrew Carnegie. Suzanne Pratt reports.

SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: Meet the new dynamic trio of corporate philanthropy -- Bill Gates, Melinda Gates and Warren Buffett. At a news conference in New York today, Buffett, who is chairman of Berkshire Hathaway and the world`s second richest man, detailed plans to give $31 billion in Berkshire stock to the Gates Foundation, which is run by Gates, the world`s richest man. Buffett will also make large contributions to his late wife`s and each of his children`s charities. But today, he explained why the bulk of his fortune is going back to society and not to his family.

WARREN BUFFETT, CHAIRMAN, BERKSHIRE HATHAWAY INC: It isn`t in keeping with my view of how the world should operate to create huge amounts of dynastic wealth. I really believe that in terms of having equality of opportunity in this country, and the right people in the right jobs doing the right things, I don`t think they should inherit my position in society.

PRATT: To that end, the Gates Foundation is already the world`s largest philanthropy with nearly $30 billion in assets. The Buffett gift doubles the size of the foundation and effectively its annual giving, which last year was more than billion dollars. Gates says the extra money will allow the foundation to deepen its efforts in global health and education, rather than broaden into other areas.

BILL GATES, CO-CHAIR, BILL & MELINDA GATES FOUNDATION: We think that we can wisely take and even more than double the impact we have. In some ways the early successes we have now give us opportunity to scale up using the amazing resources that Warren has made available.

PRATT: Gates and Buffett say they hope other individuals will take their lead in terms of giving money away to private charities. Experts in corporate philanthropy say that`s already happening.

MELANIE SCHNOLL BEGUN, MANAGING DIR., CITIGROUP PHILANTHROPIC SERVICES: It`s going to be follow the leader, I hope so. I don`t know if it`s going to be that magnitude. But I think many people are going to recognize that when you have such an enormous opportunity to make a difference and to watch your money while you`re living make that difference, that that could be extremely powerful.

PRATT: In a letter to Bill and Melinda Gates dated today, Buffett outlined his plan to give the foundation 10 million shares of class-B Berkshire stock. Beginning in July and continuing every year of his life and after his death, Buffet will give a set number of class-B shares to the Gates Foundation. Buffett personally holds only class-A shares, but he will convert them for the gift. Shares of Berkshire Hathaway class-A fell today on the news, but Buffett says he sees no reason for the decline.

BUFFETT: I see no way that it decreases the intrinsic value per share of Berkshire and I see no way that it over time changes the price of Berkshire relative to its intrinsic value in the market. So, there should be no downside whatsoever.

PRATT: According to Buffett there could in fact be a positive for Berkshire stock associated with the immense donation. If the Gates Foundation increases selling of Berkshire shares, that will increase liquidity and the stock could ultimately be added to the S&P 500. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.

SUSIE GHARIB: Joining us now to talk more about this, Phil Buchanan, executive director of the Center for Effective Philanthropy. It`s a non-profit research organization that helps foundations improve their performance. The center also receives some funding from the Gates Foundation. Hi Phil.

PHIL BUCHANAN, EXEC DIR., CENTER FOR EFFECTIVE PHILANTHROPY: Hi, Susie.

GHARIB: I would like to get your sense of the impact of this stunning gift from Warren Buffett. What`s the ripple effect of this gift? Do you think that Warren Buffett and Bill Gates have paved the way here for other wealthy individuals to give more generously to charities and to foundations?

BUCHANAN: Well, I think it`s really refreshing to see that Warren Buffett decided not to create another institution, a whole bureaucracy to support his philanthropic efforts but decided, instead, to get behind something that he thought was working. Again I think that that is a powerful message. And the hope now is that they can stay as focused and disciplined as I think they`ve intended to be even at this enormous scale that they will have, some $60 billion in assets which is, you know, bigger than a lot of countries` GDPs.

GHARIB: Warren Buffett did say today that one of the reasons that he decided to go this route of giving his money to the Gates Foundation is because he thought that Bill and Melinda Gates would do a better job at distributing this wealth than he would. Can you give us any sense of what has been the track record of the Gates Foundation?

BUCHANAN: Yeah, I think it`s hard to say because it`s early. I mean clearly in some areas such as their funding of vaccines against [disease] in Africa, they can actually take credit for vaccinating millions of children and they`ve saved lives. There is little question about that. Other issue areas and this is really the challenge that charitable foundations face, it`s more difficult to quantify the results particularly in the short term. So they are focused on educational reform in the U.S. and as Melinda Gates said recently in a "BusinessWeek" interview, it will be 20 years before they fully understand the implications of what they`ve been doing. So here are two guys who are used to performance measures that are quarterly, you know, even daily entering a realm, the work of charitable foundations, in which performance measures can be elusive and it can take decades to really understand the impact of what you`ve done and the initiatives you`ve funded.

GHARIB: Now the IRS has some rules about how much of a foundation`s funds have to be distributed every year. In the case of the Bill and Melinda Gates Foundation, now with this big infusion from Warren Buffett, it`s going to be something like $3 billion a year, double what they have been doing. Now that seems to be a lot of money and a very challenging task. How do you go about doing that effectively and responsibly? BUCHANAN: Yeah, I think that`s right. I mean it`s clearly a lot of money. On the other hand, it`s less than two percent of total U.S. charitable giving. So I think the challenge for them will be to stay focused. I think that the foundations in this country enjoy a lot of freedom. And that`s their strength in the sense that Gates can go in and take on malaria in Africa when no other actor, political or business had intended to do so. On the other hand, it can also make it awfully tempting to take on the next important issue. There are a lot of causes that really warrant support. And I think the challenge for foundations is to stay disciplined enough that they can really move the needle on a couple of issues rather than trying to affect a whole panoply of issues. So I was interested to see Mr. Buffett`s statement that he intends to support the current focus of the Gates Foundation. And I think that`s probably a good sign.

GHARIB: In a word or two, because we`ve little time left, is there a risk of being just too big as a foundation?

BUCHANAN: Sure. I mean I think the risk always with any large institution is that bureaucracy sets in and then it is harder to be nimble, to respond to changing environments or to change course on the basis of performance data that you have come back. But I think, you know, that can be avoided if you put the right performance measures in place and if you are disciplined and focused.

GHARIB: All right, we`re going to have to leave it there. Thank you so much, Phil.

BUCHANAN: Thanks, Susie.

GHARIB: We`ve been speaking with Phil Buchanan of the Center for Effective Philanthropy.

Reprinted with the permission of Nightly Business Report.