What Berkshire Hathaway Teaches About Hobby Lobby
Eleven years ago tomorrow, the abortion issue led Berkshire Hathaway, the huge conglomerate Warren Buffett built and now owned by one million different shareholders, to end its shareholder-directed charitable contribution program. Under the program, Berkshire’s board earmarked an amount for charitable giving and then let the company’s class A shareholders designate the charities to which their share went. In twenty-two years, the program distributed $197 million to thousands of different charities.
Berkshire terminated the program on July 3, 2003 because activists boycotted products of one of its subsidiaries to protest giving to organizations they opposed on religious grounds: some designated Planned Parenthood, which facilitates a woman’s choice to abort an unwanted pregnancy, while others gave to Catholic Social Services, which opposes abortions.
Berkshire stood for neither position, of course, because it is a business organization whose mission is to increase its intrinsic economic value, which has nothing to do with religion. Berkshire’s board chose to terminate the program because the boycotts hurt Berkshire’s business and its personnel while offering shareholders only a slight convenience and tax advantage.
The scenario speaks to the debate that erupted this week between foes in the abortion debate thanks to the Supreme Court’s decision in the Hobby Lobby case. The issue in that case, narrower and more technical than accompanying rhetoric suggests, was whether the word persons in a federal statute about religious freedom includes corporations owned by a small number of people with a specific set of religious beliefs. If so, then regulations implementing Obamacare cannot require them to fund birth control devices in conflcit with their religious beliefs.
A majority of the Court concluded that closely-held corporations are persons for the purpose of the statute because they are readily seen as merely a convenient legal form through which individuals do business. The dissent complained that only individuals can have religious beliefs and therefore corporations, whether closely held or otherwise, aren’t persons for purposes of the federal law.
The Berkshire example is instructive on both opinions. Buffett has always boasted that Berkshire, though using the corporate form, adopts a partnership attitude. The shareholder charitable contribution program epitomized this attitude. It gave the decision to the owners, as is done in partnerships and closely held corporations, not the board, the practice in public corporations. Those owners, moreover, were the class A shareholders, a subset of Berkshire’s shareholder body made up of people with larger and older stakes—including hundreds who really were Buffett’s original partners.
Berkshire shareholders, class A and class B, readily agree on a wide variety of business and ownership topics. For example, in a vote earlier this year on the company’s dividend policy, 98 percent ratified the existing—and unusual—no-dividend practice. But put a question about hot-button religious or political issues of the day such as abortion and expect deep divisions.
Berkshire’s shareholders may be able to act like partners or closely-held shareholders on business issues while the charitable giving program proved they were unable to do so on others. For the Court in Holly Lobby, this perspective supports the majority’s holding about the nature of close corporations while validating the dissent’s appetite for a sharp boundary between them and the typical business organization.
Lawrence A. Cunningham is the author of the upcoming Berkshire Beyond Buffett: The Enduring Value of Values and editor of The Essays of Warren Buffett: Lessons for Corporate America. He teaches business-related courses at George Washington University Law School.