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Ways of the World

Carol Stone, business economist & active Episcopalian, brings you "Ways of the World". Exploring business & consumers & stewardship, we'll discuss everyday issues: kids & finances, gas prices, & some larger issues: what if foreigners start dumping our debt? And so on. We can provide answers & seek out sources for others. We'll talk about current events & perhaps get different perspectives from what the media says. Write to Carol. Let her know what's important to you:

Tuesday, July 11, 2006

The Two Richest People in the World . . .

. . . recently announced plans to make major donations of "time, talent and treasure" to the cause of global poverty. Bill Gates and Warren Buffett are indeed the two richest individuals in the world, according to an annual tally by Forbes magazine. They did not inherit their fortunes, but made them by building strong businesses.

Bill Gates
On June 15, Bill Gates, chairman of software giant Microsoft, announced that he would begin immediately to pull back from day-to-day management, transitioning over the next two years toward a nearly full-time role with his charitable endeavor, the Bill and Melinda Gates Foundation. It is a leader in new results-oriented approaches to fighting world poverty and disease and enhancing public education, especially high schools.

Mr. Gates, age 50, is young to cede much management control over his brainchild company. In an interview in the July 10 issue of Fortune magazine, Gates asserts, however, that he has been planning this move for some two years, and rather than an "either/or" approach to his activities, he is excited to have two entirely different arenas that engage him so completely. He will retain a research function at Microsoft, his favorite part of the business, and he will definitely "keep up" with technology and with the firm. [The present writer can identify with this way of thinking!]

Gates also asserts that his move is not connected to the enormous gift fellow corporate giant Warren Buffett has just announced. Buffett's grant to the Gates Foundation of stock in his firm Berkshire Hathaway is presently valued at $31 billion and will double the resources of the Gates institution.

Warren Buffett
Buffett's action might be deemed the more dramatic, since, apart from gifts to family foundations, Buffett has not been known for charitable work. In a separate story in the same issue of Fortune, he explains that he always thought he'd spend his lifetime making money that would then be doled out after his death.

Buffett's thinking took a turn also two years ago when his beloved wife of 52 years, Susie, died of a stroke. He had always assumed that she would be the one to administer his assets after he died. Now, he had to find a new way. He realized that his good friends (even bridge partners) Bill and Melinda Gates were already running a large foundation and having a good time doing it. What Buffett enjoys most is running his company; the Gateses could certainly do a better job putting his money to good use than he could.

The result will be an organization with assets of some $60 billion, a size equivalent to such global businesses as Dell Computers, Walt Disney and Honda, according to The Economist for July 1. In striking historical comparison, John D. Rockefeller's charitable giving amounted to $7.6 billion and Andrew Carnegie's to $4.1 billion, expressed in terms of 2006 values.

These events bring us to the topic of philanthropy, and we will certainly talk further about that: the work of the Gates Foundation and other similar efforts. But following our recent encounter with two dishonest business leaders, let us spend some time on Gates and Buffett and their businesses. How are they different from Enron? Well . . .

Microsoft & Berkshire Hathaway: "Not Squeaky Clean"
Gates's company is certainly not squeaky clean. Just Monday morning in the Wall Street Journal, we read that the European Commission has levied a fine on Microsoft for failing to comply with a 2004 anti-trust order. An anti-trust suit in the US went on for years. So Microsoft is not perfect and it's been found guilty of manipulating markets.

When I told a friend that Buffett was giving his fortune away, the friend scoffed, "Buffett? He's just a corporate raider!" Indeed, Berkshire Hathaway is a conglomerate of diverse companies Buffett has bought controlling interest in: household names, like Benjamin Moore Paints, Dairy Queen, Fruit of the Loom. Insurance interests: GEICO and General Re, for two. (The latter is a reinsurance company, which buys participations in large business risks, like aircraft.) As these and other companies were brought under the Berkshire Hathaway umbrella, many employees lost their jobs.

But Gates & Buffett Know How To Invest and Manage with Care . . .
What both Gates and Buffett have, unlike Ken Lay, is a hands-on management style; part of Lay's defense at his trial was that he "didn't know" what his subordinates were doing. But Gates and Buffett stay in touch with their firms' operations. And unlike Jeff Skilling and associate Andy Fastow, they don't tend to make up stories – or form off-the-books "partnerships" – to cover up mistakes. In fact, for instance, in the recent flap over the dating of stock options, the Wall Street Journal reported that through 1999, Microsoft had a policy to date options advantageously, but decided it did not comply with accounting standards and disclosed the facts itself when it ended the practice.

Buffett has a reputation as a thoughtful, thorough and honest investor. His "Letters to Shareholders" and other communications are widely quoted and taught in finance courses. "Always invest in a company for the long-term." "Never invest in a business you cannot understand." And so on. He's known as a low key guy who's lived in the same house in Omaha for over 30 years, drives an older model Lincoln Town Car and drinks Coke. He told Fortune magazine he hopes other well-to-do executives will follow his example in giving away their money sooner rather than later.

. . . and As They Give with Care, We Offer Prayer
We prayed here for business leaders who are convicted criminals. We can surely also pray for the intention of business leaders who are trying – by and large – to be honorable and generous.

"For a blessing upon all human labor, and for the right use of the riches of creation, that the world may be freed from poverty, famine, and disaster, we pray to you, O Lord.

"Lord, hear our prayer."
The Book of Common Prayer
Prayers of the People, Form V


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