The traditional approach to business may have made sense in the 1970s, but now it seems that Elon Musk and Jeff Bezos think the same way. Warren Buffett has said that businesses should address concerns and create social and shareholder value in order to meet the needs of individuals.
When my team conducted our analysis, we found that only one of the top two companies in the S&P50, Berkshire Hathaway, governs the company that Elon Musk’s Tesla is a subsidiary of. Berkshire Hathaway, led by Warren Buffett, sets high financial performance goals and ESG goals, but it had not made carbon commitments.
Berkshire Hathaway appears to hold great importance for ESG, despite the fact that Buffett has personally expressed concern for society. His personal donations of $48 billion surpass this.
He has the ability to contribute to whichever societal issues they prefer, resulting in financial gain for stakeholders. Despite the potential negative impact on society, it is essential for his enterprises to be financially successful within legal boundaries. Buffett clearly distinguishes between his professional and personal pursuits.
This approach to philanthropy is outdated. The outdated nature of approaching philanthropy in this way can be traced back to a doctrine from the Milton Friedman era, which states that the main social responsibility of any business is to generate profits. This theory has not aged well.
The magnitude and scope of commerce cause harm that can never be completely repaired, despite the beliefs of billionaires regarding their contributions to society. Enormous and lasting damage can be inflicted, and businesses wield significant control.
Today, partners, employees, and customers are demanding more control over wealthy individuals and companies. In the 21st century, Elon Musk, Jeff Bezos, Warren Buffett, and other billionaires are bringing their corporate philosophies with the aim of making an impact and serving a purpose.
Berkshire Hathaway’s Environmental, Social, and Governance (ESG) Shortcomings
Berkshire Hathaway’s Sustainability Leadership Council has been joined by only 14 subsidiaries. Only Brooks, Fruit of the Loom, and Burlington Northern Santa Fe (BNSF) have established science-based targets, making them the sole three subsidiaries. It is evident that Berkshire Hathaway is not adhering to industry standards in terms of social responsibility, considering its 62 subsidiaries.
Berkshire Hathaway’s subsidiaries’ emissions account for 90% of the industry average, falling short in only providing justifications for lukewarm commendation. In spite of these companies establishing goals and decreasing their greenhouse gas emissions, Berkshire Hathaway Energy (BHE) and BNSF, in their 2021 Annual Report, surprisingly praised two of their subsidiaries, which remains perplexing.
After Russia’s incursion into Ukraine, Reuters reported that these investments were perceived as an endeavor to capitalize on the surging oil prices. Throughout the initial six months of 2022, the company augmented its financial interests in Occidental Petroleum Corp. And Chevron to $8.52 billion and $25.9 billion, respectively. While Berkshire Hathaway proudly boasts about its emission reduction efforts, it simultaneously intensifies its investments in fossil fuels. Furthermore, apart from the environmental consequences.
The 2022 board of directors of Berkshire Hathaway, which topped Fortune’s Global 2000, unanimously voted against proposals from shareholders that were similar to those received in 2021. When it comes to addressing climate change and disclosing its attempts to promote workplace diversity, equity, and inclusion (DEI) policies, the company seems indifferent. It is not only indifferent to environmental issues but also appears indifferent to social issues.
In late 2021, Berkshire increased its stake in Blizzard Activision, making it the 11th largest holding in its portfolio. Following severe allegations of a culture of discrimination and harassment against female workers, employees at Blizzard Activision walked out in protest after months of purchase.
Berkshire Hathaway does not seem to have taken any measures to address these issues, citing the need to maintain its “unusually decentralized” way of managing its subsidiaries, which each company is responsible for implementing and creating its own programs and policies.
Buffet Segregates His Business Transactions from his Commitments to Society
“I don’t believe in imposing my political opinions on the business activities. He stated in 2019 that causes such as wealth redistribution should be undertaken by individuals using their personal wealth – he openly expressed his belief that there should be no place for political or social causes in business.”
In 2006, Buffett pledged to donate 99% of his wealth to philanthropic foundations before his death. Acting on this belief, he has donated over $48 billion to the Gates Foundation, as well as several other foundations associated with Gates and Melinda. He credits Buffett for inspiring his philanthropy and believes that if you are one of the luckiest 1% in humanity, you owe it to the rest of humanity to think about the other 99%.
Buffett’s departure marks the continuation of the influence he has had on companies in various sectors, ranging from clothing and electronics to energy and food. His impact extends beyond the realm of business, encompassing almost every aspect of society. However, it is important to recognize that his personal influence should not be confined to just 1% of what he thinks.
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 Concepts Are Obsolete
This argues that this could catalyze growth for the engine and competitive spirit. Such thinking was embraced by Margaret Thatcher and Ronald Reagan, who reduced the government’s role to make more room for business. Milton Friedman, an American economist who staunchly believed in the trickle-down thinking of supply-side economics and thrived in the free markets, influenced Warren Buffett’s approach to social issues without a doubt.
Friedman’s thinking, which fails to recognize the limits of planetary economic growth, is outdated. His economic models assumed that stimulating unlimited growth could erase economic problems. However, he failed to recognize the environmental problems created by such growth, including catastrophic climate change and the loss of biodiversity.
“Recent measures taken by the U.S. Supreme Court to overturn Wade v. Roe have demonstrated the government’s failure to protect the public good by asking corporations and individuals to play by the rules. Governments have also failed to step up and protect society by removing women’s rights over their own bodies and softening regulatory power over emissions, as well as relaxing gun laws. However, Friedman also assumed that governments would set fair rules of the game.”
Since 2006, income inequality in the U.S. Has worsened even more, with the wealthier individuals gaining increasing influence in public policy to favor their own interests. However, Friedman’s plan of “trickle down” wealth did not fully redistribute the wealth, leading to further concentration of wealth among the already wealthy.
Today’s “generation” is choosing to work for firms that not only contribute to society but also create value for shareholders, recognizing the limits of old-school capitalism. They are asking for more from their employers and buying purpose.
Jeff Bezos, the former wealthiest person on the planet, pledged to fund $10 billion through the Bezos Earth Fund to research and counter climate change. In an Instagram post in 2020, Bezos wrote that climate change is the biggest threat to our planet. Bezos has made personal pledges to do good for the planet.
He was solely responsible for Amazon’s operations. It has been accused of undercounting emissions and generating excessive waste, leading to the destruction of returns. It is worth noting that he founded the company, which is currently one of the largest in the world. Despite these issues, it is generally considered to be a good company.
Moreover, these days no narrative is whole without some reference to Elon Musk.
“Philanthropy is the affection for humankind,” [the firms] are philanthropy,” expressed Musk in a TED conversation when inquired about philanthropy. “I believe that if you value the actuality of benevolence rather than the impression of it, philanthropy is exceedingly challenging. SpaceX, Tesla, Neuralink, and The Boring Company are philanthropy.”
Bill’s massive tax reduction for Musk primarily meant that the donation of a fund, which is anonymously funneled through nonprofits, allows wealthy individuals to receive an immediate tax receipt while sitting as an intermediary philanthropic entity. It was speculated that the recipient of this philanthropic gift, worth $5.7 billion in shares donated in November 2021, is an unknown charity as neither the disclosed charity nor the fact of his donation has ever been revealed. However, these secretive philanthropic gifts, like those seen in traditional philanthropy, showcase Musk’s disinterest in individual giving, similar to Bezos’ large donations.
Out of a total of $1 billion that was available, it had only contributed approximately $23 million by the conclusion of fiscal year 2020. The charitable organization gave donations amounting to “slightly under 3 million to nine groups,” as reported by the New York Times. Additionally, his Musk Foundation has faced significant criticism.
Musk truly regarded his companies as vehicles for promoting social and environmental well-being, which could be forgiven to some extent. However, Tesla fails to disclose its carbon emissions and make pledges. Moreover, Tesla still maintains its refusal to allow repairs, resulting in increased expenses for customers and premature disposal of vehicles, exacerbating the landfill problem.
Earning a profit from causing damage
These wealthy individuals, who possess significant power and generate substantial wealth through their companies, only abide by the rules of the game set by the government if it is necessary to protect the society’s wealth. They also utilize personal philanthropy to address business-related issues within their companies and use their business investments to achieve their personal goals.
If billionaires sincerely believe in the incredible impact they can have on society, it’s time for them to recognize that they can no longer hide behind antiquated doctrines like Friedman’s. They should run their corporations but also engage in personal philanthropy.
Mr. Buffett has the potential to improve the world for the majority by genuinely setting an example in his remaining years.