Warren Buffett is one of the world's most famous investors. Although he was technically the CEO of industrial conglomerate Berkshire Hathaway (BRKA +0.08%)(BRKB 0.02%), it was his investment approach that really grew the business. Essentially, he used the company as an investment vehicle, buying entire companies and large stakes in publicly traded stocks.
He has handed the CEO role to a handpicked successor, Greg Abel. But Buffett may be making Abel's job more difficult over the long term with the changes he is making to his giving plans. Here's what you need to know.
Buffett shifts gears with his $140 billion Berkshire stake
Buffett's ownership of Berkshire Hathaway totals around $140 billion. The company's market cap is roughly $1.05 trillion, so Buffett alone controls around 13% of the giant company. That's a big position, and it gives the former CEO a strong voice in corporate decision-making. To be fair, he's the chairman of the board of directors, so he has a strong voice anyway. But large shareholders often have to be consulted when big decisions are made.
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This is where the shift away from giving shares to the Bill Gates Foundation comes into play. Unfortunately, Bill Gates has been caught up in the Epstein scandal, and Buffett has been distancing himself from the former Microsoft (MSFT +2.00%) CEO. So instead of donating Berkshire shares to Bill Gates' foundation, Buffett is donating the rest of his Berkshire stake to foundations run by his children.
Nothing is going to change right away
This is a multi-year process that won't end until 2034, unless Buffett passes away, in which case it will happen more quickly. Regardless, so long as Buffett is still alive, it is unlikely that his children will do anything dramatic with their foundations' Berkshire positions. But a look at Hershey (HSY 0.04%) and Hormel (HRL 0.32%) is worth considering.
Both of these consumer staples companies have large foundations established by their founders. The Hormel Foundation has a stated goal of ensuring Hormel's ongoing independence. The Hershey Trust has stepped in to block acquisition attempts a couple of times. With a $1 trillion market cap, it is unlikely that Berkshire Hathaway will be acquired by another company. But there's another twist here.
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Key Data Points
The Hormel Foundation and The Hershey Trust both use dividends from their respective equity stakes to support their philanthropic efforts. Buffett shied away from paying dividends, instead reinvesting in the business. But Berkshire Hathaway has ample capacity to pay dividends. It isn't a stretch to think that Buffett's children, in support of the foundations they run, could push Berkshire Hathaway to start paying a dividend. That would allow the foundations to maintain their stock positions while continuing to support their philanthropic goals.
Berkshire Hathaway is still changing
Greg Abel is likely to run Berkshire Hathaway in a manner similar to Buffett, his mentor. However, Abel is a different person, so he will put his own imprint on the company. Essentially, Berkshire Hathaway is already changing. When Buffett gives away all his shares, it isn't a stretch to think the business will change further. And with the involvement of large philanthropic foundations, the change might include a deeper discussion of dividends in 2034, or even sooner.
