Felix Salmon

Haven’t Gates and Buffett given away their billions?

By Felix Salmon
March 15, 2012

The thing that struck me first about Bloomberg’s new updated-daily Billionaires Index was the fact that Bill Gates and Warren Buffett are still in second and third place, respectively. Aren’t they both supposed to have given most of their money to the Gates Foundation? How can they give it all away and yet still be among the world’s richest people?

Ben Walsh looked into this for me, and it turns out that Gates and Buffett have pledged to give most of their money to the Gates Foundation. But they haven’t actually done so, yet.

The Buffett gift is the more transparent of the two: the terms of the gift are laid out in a public letter written in admirably clear English. Buffett basically set aside 10 million B shares in June 2006, and promised to donate 5% of those shares to the Gates Foundation every year. The idea is that although the number of shares being donated each year will fall by 5%, share-price appreciation will keep the annual value of the gift roughly constant, or even rising, over time.

The B shares had a 50-for-1 stock split in January 2010, so the Buffett gift was of 500 million shares at their current valuation of $81.34 each. That’s $40.7 billion. To date, Buffett has donated 132 million shares, with a cumulative value of $9.5 billion. Buffett insists that the shares be sold and the proceeds spent, so it’s silly to look at what those 132 million shares are worth today. But it’s certainly safe to assume that if he hadn’t given those shares away, they would not have been sold — and the current value of 132 million shares is $10.8 billion.

As a result, we can say that were it not for Buffett’s gift to the Gates Foundation, his net worth would be $10.8 billion higher: $55.9 billion, rather than $45.1 billion. Amazingly, that eleven-figure increase in net worth would make no difference to his ranking on the Bloomberg index: he’d still be in third place, behind Gates’s $63.4 billion.

On the other hand, if you subtract from Buffett’s net worth the 368 million shares he has irrevocably committed, then he drops from $45.1 billion to $15.2 billion. That’s still a completely insane amount of money for any one individual to have, but it would place him just 46th on the Forbes billionaires list, between a Russian steel magnate and a Russian nickel magnate.

So while Buffett’s gift has had the effect of reducing his spendable net worth from $55.9 billion to $15.2 billion, a 73% decrease, it has so far had the effect of reducing his billionaire-league-table status by a much smaller $10.8 billion, or 19%.

And what about Gates? He has donated $28 billion to his eponymous donation to date, which to a first approximation means that his net worth would be a whopping $91.4 billion if he hadn’t given that money away. That would make him the world’s richest man by a very comfortable margin.

What’s less clear is the amount of money that Gates has pledged to give to his foundation in the future. In their Giving Pledge letter, the Gateses say that “we have committed the vast majority of our assets to the Bill & Melinda Gates Foundation”, but that’s pretty much all the specificity I’ve been able to find. What we do know is that the gifts they’ve made already have reduced Bill’s net worth by roughly 30%.

All of which is to say that the net-worth numbers on billionaire league tables are decidedly silly, since they include enormous sums which have been pledged but not formally donated. Insofar as billionaires are competitive — and, to a first approximation, all self-made billionaires are competitive in such matters — then maybe it would make more sense for the people putting these league tables together to use the sum of current net worth and the amount that has been given to charity. There are lots of people who want to be the richest man in the world, and there’s nothing embarrassing about appearing on this league table. Nothing, that is, which might encourage its members to give more of their money away.

If I were Gates or Buffett, then, and wanted to encourage my fellow billionaires to give their money away, I’d set up some structure which resulted in all my committed funds being subtracted from my net worth. We’re so used to seeing those two names on the top of every billionaires list that it would be something of a salutary shock to see them disappear from the league tables overnight, as a result of doing something incredibly praiseworthy. And it would also make the rest of us realize how silly these league tables really are.

7 comments so far | RSS Comments RSS

As an american I have full faith as far as intentions are concerned. Both Bill Gates and Warren Buffett have pledged to give away much of their wealth. They may not have given away big chunks but they are definitely on the road to the “giving side” as opposed to others that would like to take away candies from babies; “the ultimate american greed”
I add Bill Gates and Warren Buffet to the Kritik’s Auspicious Title (KAT) of “The American Icons”
The core of greedy americans may damage the economy but there are those benevolent americans that truly practice “Dont be Evil” We need to recognize and honor these brave individuals by putting their photo on the currency bills, airline tickets, cruise and railway tickets … It is not too difficult to initiate such action.

Posted by kritik1 | Report as abusive

Articles such as this would inspire Americans to jump start the economy.

Posted by kritik1 | Report as abusive

When Mr. Buffett invested in the railways (I think somewhere in the mid-west some time last year), correct me if I am wrong on the timing of this investment; but people with low vision criticized Buffetts wisdom as reckless investment. But Mr. Buffett knows where Americans turn when gasoline prices go sky high. The need for modern infrastructure in line with other countries cannot be over-emphasized.

Posted by kritik1 | Report as abusive

Berkshire Hathaway bought Burlington Northern Santa Fe (a massive railroad conglomerate as big as its name is long) in 2009 (completed February 2010).

As far as energy efficiency goes, I saw some interesting analysis recently that suggests there is far less difference between modes of long-haul passenger transportation than you might expect. Automobile efficiency has been rising, while passenger trains are underutilized (and thus less efficient on a per-passenger basis) than they could be. The key to energy efficiency is thus to travel less frequently and shorter distances.

Of course rail is a tremendous way to move bulk goods.

Posted by TFF | Report as abusive

or maybe the wealth tables should include capital donated to encourage others to share wealth…

Posted by APW100 | Report as abusive

Some additional thoughts on this:

(1) Finding buyers for billions of dollars of shares isn’t easy, and the sale can depress the share price for a while.

(2) Buffett and Gates receive plenty of recognition for giving away their money, likely boosting their status more than a high placement on the “wealth tables”.

(3) Wouldn’t you want bright/successful people to manage the money as long as they are alive? And sure, their fortunes are mostly in shares of a single corporation, but that share ownership confers a large voice in corporate operations as well as status.

Posted by TFF | Report as abusive

Don’t get me wrong. Everyone has the right to earn as much money as they can but is it just me or do some of these people’s net worth seem exorbitant?

What happens when a select few people become worth $100, $200, $500 billion dollars? We are seeing Apple accumulate over $100 billion in cash. What now?

I mean, after taking out Muammar Gaddafi we learn he had over $200 billion in accounts all over the world. Not to mention all the real estate, gold, etc. he owned too.

At what point is too much, way too much?

Posted by midas360 | Report as abusive

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