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By Selena Maranjian (TMF Selena)
August 7, 2002

There's a new bit of disgrace and scandal surrounding the erstwhile CEO of Tyco (NYSE: TYC), Dennis Kozlowski. According to a Wall Street Journal story (subscription required, free trial available to Fools), "It appears that more than $135 million in Tyco funds went to benefit Kozlowski, largely in forgiven loans and company payments for real estate, charitable donations, and personal expenses."

The grisly details -- from $6,000 gold-trimmed shower curtains to a $2 million birthday party -- are distasteful, but particularly interesting is this: On behalf of Kozlowski, Tyco appears to have made many charitable contributions to the CEO's favored organizations, with him typically getting most or all of the credit. It looks like, among other things, Tyco shareholders made Kozlowski a "million-dollar giver" to the United Way, gave $2 million to the Nantucket Historical Association, and chipped in $1.7 million to Berwick Academy in Maine (which Kozlowski's daughters attended), for a gymnasium named after Kozlowski.

If you're outraged by that, consider that it actually happens all the time, to some degree. It may not be that CEOs usually get the credit, but companies do donate to charities -- often. This should trouble us all because when firms do this, they're giving away our money -- cash that belongs to shareholders. Think of all the good works done by Philip Morris (NYSE: MO), for example -- some $125 million worth in 2001 alone. Even Kmart (NYSE: KM) has supported the likes of the Red Cross and the March of Dimes, when perhaps it should have been conserving every penny.

One rare exception to this common mold is Berkshire Hathaway (NYSE: BRK.A). (If you're aware of other exceptions, let us know!) CEO Warren Buffett and partner Charlie Munger have set up a clever system whereby their shareholders get to decide which charities receive contributions from the company. In his 2001 letter to shareholders, Buffett explains: "... we make no contributions except those designated by shareholders. We do not match contributions made by directors or employees, nor do we give to the favorite charities of the Buffetts or the Mungers.... Shareholders name the charity; Berkshire writes the check.... Last year Berkshire made contributions of $16.7 million at the direction of 5,700 shareholders, who named 3,550 charities as recipients."

In a similar vein, The Motley Fool has made most of its charitable contributions to organizations nominated by its readers and employees. Perhaps in this new era of companies being expected to act rationally, more firms will donate rationally, too.

Selena Maranjian owns shares of Berkshire Hathaway, but not Class A shares so she hasn't been able to participate in the contribution program. The Motley Fool is investors writing for investors.

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