Liquidity and Control at Buffett’s Berkshire Hathaway
Warren Buffett’s ownership of Berkshire Hathaway is skewed heavily towards commanding greater voting power rather than a larger slice of the economic interest. He values control more than liquidity and is delighted to have shareholders who prefer liquidity to control to stake their money accordingly. It is interesting to see the corporate governance tools used to create this structure and precisely how the voting power and economic interests are determined.
Berkshire Hathaway, like many other corporations, has multiple classes of stock with different economic and voting rights. Berkshire’s Class A has 10,000 times the voting power as its Class B and 1,500 times the economic interest. All shares are eligible to vote on most shareholder voting matters and there are no further distinctions as to economic rights, such as dividends or liquidation payments. Market prices generally reflect the economic rather than the voting ratio: the Class A shares recently traded at $170,000 per share while the Class B trade at $113 (very close to 1500-to-1).
Many stockholders, including Buffett, own some Class A and some Class B, in part because they exercised the right to convert A to B to give gifts and otherwise manage estate planning. It is easy to see what portion Buffett or another shareholder has of each Class, simply his number of shares of a Class divided by all shares of that Class. Buffett, for example, owns about forty percent of Berkshire’s Class A shares and a small number of the Class B.
It is more important to know what percentage of the aggregate voting power and economic interest any given shareholder’s stake represents. So: what percentage of the aggregate voting power and economic interest does Buffett command? For Berkshire, the answer can be computed using the following formula that reflects the relative weight of the A compared to the B in votes and payouts:
Voting Power =
Number of A Shares Owned + Number of B Shares Owned / 10,000
Total A Shares Outstanding + Total B Shares Outstanding / 10,000
Economic Interest =
Number of A Shares Owned + Number of B Shares Owned / 1,500
Total A Shares Outstanding + Total B Shares Outstanding / 1,500
Applied to Buffett (using the most recent proxy statement figures for share information):
Buffett’s Voting Power =
350,000 + 3,525,623 / 10,000
892,657 + 1,126,012,136 / 10,000
Buffett’s Economic Interest =
350,000 + 3,525,623 / 1,500
892,657 + 1,126,012,136 / 1,500
Conversion charts can be created to show the voting power and economic interest of given levels of A and B share ownership. The following assume the same figures stated above, which can change from time to time as Class A shares are converted into Class B shares or other capital shuffles occur.
Class A Power
Class B Power
(shares in millions)