Long Friendship of Bill
Gates and Warren Buffett has Reached its Final Act
Growing
tensions between the two billionaires, over issues both substantive and stylistic,
have roiled the world of philanthropy.
·
Mr.
Gates was surprised by the penetrating questions Mr. Buffett directed at him
about the software business, and found himself warming to the avuncular
Midwestern billionaire
·
A
society in which individualism, private property, wealth accumulation and
competition are preserved is the “condition of affairs under which the best
interests of the race are promoted, but which inevitably gives wealth to the
few.
·
Mr.
Carnegie argued that to leave a fortune to one’s children would be to “leave to
my son a curse as the almighty dollar,” because it would destroy them.
·
The
“true antidote for the temporary unequal distribution of wealth, the
reconciliation of the rich and the poor — a reign of harmony” is for the
wealthy man to disburse his fortune.
·
Although
the investor had pledged 99 percent of his wealth to philanthropy, his
commitment to the Gates Foundation and the four Buffett family foundations
would stand only as long as he lived.
·
In
2006, it gave away about $1.6 billion; by 2009, it projected it would have to
make $3.2 billion worth of grants per year. Today, the foundation’s resources
dwarf those of the Ford Foundation, the Robert Wood Johnson Foundation, the
Well come Trust and other big global foundations. The Gates Foundation’s annual
budget exceeds that of the World Health Organization.
·
In
a blog post that year announcing that the foundation would spend $9 billion a
year by 2026, Mr. Gates expressed his gratitude to his friend.
·
Mr.
Buffett’s children are in unanimous agreement that none of the remaining shares
will go to the Gates Foundation, according to people aware of their thinking.
·
Mr.
Buffett told The Wall Street Journal that the Gates Foundation would not
receive any more money after his death.
In
the summer of 1991, Mary Gates, the mother of the Microsoft billionaire Bill Gates,
convinced her workaholic 35-year-old son to spend the July 4 holiday at Hood Canal,
a scenic, outdoorsy location about two hours from Seattle that had long been the
family getaway.
The
Oracle of Omaha, Warren Buffett, was among the guests. When Mrs. Gates tried to
introduce her son to Mr. Buffett, however, he brushed her off, saying that he didn’t
want to meet a “stockbroker.”
But
the two men hit it off immediately. Settling into a patterned couch, Mr. Buffett,
dressed in a red polo shirt and dark trousers, his left foot propped up against
the coffee table, and Mr. Gates in a tennis outfit — shorts and a white shirt, his
white socks coming up to mid-calf, his mop of hair tousled — talked for 11 hours
straight. The other guests had to pull them apart. Mr. Gates was surprised by the
penetrating questions Mr. Buffett directed at him about the software business, and
found himself warming to the avuncular Midwestern billionaire.
Theirs
has been an unusual friendship. Mr. Buffett is folksy and outgoing, and never passes
up an opportunity to crack a joke. He likes to speak in aphorisms. He enjoys breaking
down complex investing principles into simple nuggets that anyone could understand.
When he meets new people, Mr. Buffett is genuinely curious about their backgrounds.
He asks them questions and listens intently, eyebrows furrowed, to the answers.
Banter comes to him easily.
Mr.
Gates, 25 years his junior, has a far different public persona. Almost everyone
who interacts with him — whether at a gathering, in the office, in small group settings
or during interviews — says he can be charming and engaging in the moment, but small
talk and repartee are not his forte. He isn’t immediately interested in the person
in front of him, but if you asked him a question, he might go on for minutes. Courtesies
are lost on him.
Over
the next few decades, the two billionaires forged a bond based on free-flowing conversation
and a mutual love of bridge, business, problem solving and philanthropy. It was
not unusual to see them golfing together at the annual Sun Valley conference, a
gathering of luminaries from the worlds of technology, media and business, informally
called the “summer camp for billionaires.” A few times a year, Mr. Gates would fly
into Omaha on his private jet to spend a few hours with his friend, who sometimes
drove to the airport to pick him up.
The
essence of their friendship, for Mr. Gates, was captured in a black-and-white photograph
that sat in his office at his private firm Gates Ventures, a person who worked there
recalled. In the photo, Mr. Buffett is clearly in the middle of delivering a joke,
and Mr. Gates has his head thrown back in laughter. Not an especially emotive person,
his “laugh out loud” moments were often when he reacted to a joke by Mr. Buffett,
shrieking with joy.
In
2004, Mr. Gates joined the board of directors of Mr. Buffett’s giant conglomerate,
Berkshire Hathaway, which Mr. Buffett described as an “act of friendship.” To do
so, he had to step down from the board of Icos, the biotechnology
company that developed Cialis and the only company other than Microsoft whose board
he had been on. By then, Mr. Gates had stepped down as chief executive of Microsoft,
although he remained its chairman. (In March 2020, Mr. Gates said he would step
down from the boards of both Berkshire and Microsoft to focus more on his philanthropy.)
As
Berkshire global shareholders made their pilgrimage to Omaha for the conglomerate’s
annual meeting, they were delighted by the public displays of the pair’s friendship.
One year, the duo handed out soft-serve ice cream from Dairy Queen — another Berkshire
company — to shareholders. Sometimes, they played Ping-Pong or drove around in a
golf cart. As attendees thronged Mr. Buffett, asking for selfies and autographs,
Mr. Gates could often be seen standing off to the side, hands tucked under his armpits,
happy to let the spotlight shine on his friend.
But
the cheery snapshots masked a more complicated tale of friendship, one that, in
recent years, has shown signs of cracks. Even as their relationship blossomed, there
remained some striking differences, most notably in how they displayed the trappings
of their enormous wealth.
In
addition to his modest home in Omaha, Mr. Buffett owned only a single vacation property,
in Laguna Beach, Calif., that he bought for $175,000 in the early 1970s and has
since sold. He has a 6.25 percent interest in a Falcon 2000 operated by NetJets
(a Berkshire company), he once told me, adding, “And that’s about it.”
By
contrast, Mr. Gates lives a more traditional billionaire’s lifestyle, with multiple
homes, planes, expensive art and a big personal staff to oversee it all. Among his
possessions: an oil painting by Winslow Homer that he bought for a reported $30
million. A lover of fast cars, Mr. Gates has indulged in luxury wheels over the
years, including several Porsches.
And
as the years progressed, certain aspects of his behavior,
including his stewardship of his foundation, have upset Mr. Buffett, according to
four people with insight into their relationship. For more than a decade, Mr. Buffett
— known for his love of lean and efficient operations free of bureaucracy — had
been bothered by what he saw as the bloat and inflated operating costs of the Bill
& Melinda Gates Foundation, the entity started in 2000 by Mr. Gates and his
former wife, which is now known as the Gates Foundation.
In
2023, Mr. Buffett, whose donations to the foundation supercharged its philanthropy
for decades, decided that upon his death, the remainder of his fortune — worth more
than $100 billion — wouldn’t continue to go to the organization.
It
proved to be a telling sign.
The
Andrew Carnegie Model
The
New York Public Library’s flagship building stands in Midtown Manhattan, a national
landmark in front of which tourists linger, awe-struck, even as office workers scurry
by, inured to its majesty. Built in the Beaux-Arts style, with its tall columns
and iconic lions sculpted out of gray and pink Tennessee
marble, the library opened in 1911. But on the morning of June 26, 2006, an unremarkable
summer day in New York, the 200 or so philanthropy executives, reporters and others
gathered inside the marble-lined main hall of the library were riveted less by the
building’s quiet magnificence than by the moment they were about to witness.
For
days leading up to the event, the media had been buzzing. Invitations sent by Gates
Foundation staffers had been cryptic, saying only that Mr. Buffett, along with Mr.
Gates and his then-wife, Melinda French Gates, would be making an announcement.
Shortly after 11 a.m., Mr. Buffett, who had flown in from Omaha for the news conference,
got straight to the point. He had always intended to give 99 percent of his fortune,
then estimated at $44 billion, to philanthropy. Now, he had identified the Gates
Foundation as the biggest recipient of his generosity during his lifetime.
The
world’s second-richest man at the time was handing over his money to the world’s
richest man, entrusting Mr. Gates with the challenging, fraught and complicated
work of finding the right causes to give to. The symbolism of the location they
had chosen for the announcement could hardly be overlooked. The New York Public
Library has long stood as a testament to the harnessing of private dollars for the
public good.
Its
flagship was built with contributions from the Astor, Tilden and Lenox foundations.
Later, the nineteenth-century steel magnate Andrew Carnegie would donate $5 million
to set up a branch system around the main library. Today, the building is named
after Stephen A. Schwarzman, the billionaire co-founder of the private equity behemoth
Blackstone, who gave $100 million to the institution in 2008.
Years
before their announcement, Mr. Buffett had presented Bill Gates with a copy of Mr.
Carnegie’s article “The Gospel of Wealth.” In the essay, Mr. Carnegie explained
that it was the duty of a wealthy man to give back to society — not through taxes,
not by making less, but through personal philanthropy.
In
the text, he provided a moral defense of the wealth created
by capitalism by arguing that everyone was better off under a market-based economy.
A society in which individualism, private property, wealth
accumulation and competition are preserved is the “condition of affairs under which
the best interests of the race are promoted, but which inevitably gives wealth to
the few,” he wrote.
Mr. Carnegie argued that to leave a fortune
to one’s children would be to “leave to my son a curse as the almighty dollar,”
because it would destroy them,
and to leave it to public use upon death would be just a means of disposal and not
an active use of the funds by the generator of the fortune.
Instead,
he wrote, the “true antidote for the temporary unequal distribution
of wealth, the reconciliation of the rich and the poor — a reign of harmony” is
for the wealthy man to disburse his fortune. “They have it in their power during
their lives to busy themselves in organizing benefactions from which the masses
of their fellows will derive lasting advantage, and thus dignify their own lives,”
he wrote.
Although
Mr. Buffett had long believed in the ideas of Mr. Carnegie, he had little interest
in overseeing the disbursement of his own wealth. He liked to stay within what he
called his “circle of competence,” arguing that a person shouldn’t assume that because
they’re good at one thing, they are good at everything.
Rather,
Mr. Buffett had hoped to leave the Berkshire fortune to his first wife, Susan, an
abortion rights activist who ran their foundation, to give away, expecting that
she would outlive him. But when Mrs. Buffett, who had been diagnosed with cancer,
died suddenly of a stroke in July 2004 at the age of 72, Mr. Buffett, bereft and
blindsided, was forced to revisit his philanthropic plans.
His
three children, Susan (known informally as Susie Jr.), Howard and Peter, each had
a foundation, but the entities were fledglings. The foundation that his deceased
wife had run — called the Buffett Foundation before he renamed it the Susan Thompson
Buffett Foundation in her honor — was bigger, but not
prepared to handle the billions of dollars he was ready to give away.
At
the same time, Mr. Gates had been paying more attention to the shape and structure
of his philanthropy after quitting his job as chief executive of Microsoft in 2000.
Mr. Buffett watched as his friend built an organization that had already begun to
reshape global philanthropy. By 2005, when he reflected on his own mortality in
his annual letter to shareholders and told them about his intention to give every
Berkshire share that he owned to philanthropies, the solution to his conundrum was
obvious, even if his decision was impulsive, according to several people who witnessed
the events at the time.
Once
he had made up his mind, Mr. Buffett held multiple conversations with both Mr. Gates
and Ms. French Gates about their ambitions for the foundation, and whether they
would be able to build the infrastructure necessary to support the billions they
would have to give away because of his annual gifts. It was only after he was satisfied
with their long-term goals that Mr. Buffett took the momentous step. In doing so,
he was repurposing his business strategy to his philanthropy: Just as he picked
businesses and investments for Berkshire based on the quality of the managers running
them, Mr. Buffett was picking Mr. Gates to run his philanthropy for him.
“What
Warren has always done is find out who is the best at doing this, that and the other,
and get them to do it,” said Larry Cunningham, a Berkshire shareholder and a professor
emeritus at George Washington University. “When it came to philanthropy, that’s
what he did, too.”
Mr.
Buffett’s gift to the Gates Foundation came with three conditions: One, that either
Mr. Gates or Ms. French Gates would remain an active participant in the foundation.
(Ms. French Gates, who divorced Mr. Gates in 2021, left the foundation in May.)
Two, that the funds that came from Mr. Buffett each year had to qualify as charitable
dollars rather than gifts, which are taxed differently. And three, that the value
of his annual contributions had to be given away within the year, rather than sitting
in the foundation’s endowment, in addition to the 5 percent of net assets that foundations
are required to give away under tax law.
Mr.
Buffett and Mr. Gates further cemented their philanthropic partnership when they,
along with Ms. French Gates, announced the Giving Pledge campaign in 2010. It was
designed to encourage fellow billionaires to commit at least half their wealth to
philanthropy, either during their lifetimes or upon their deaths.
Between
2006 and 2023, Mr. Buffett had given more than $39 billion to the Gates Foundation.
By comparison, Mr. Gates and Ms. French Gates gave $39 billion between 1994 and
2022, including $22 billion to get the foundation going in 2000. In some years,
the former couple gave less than half a billion. In 2021, they pledged $15 billion
to the foundation’s endowment, and the following year, they transferred that money,
as well as another $5 billion Mr. Gates had contributed.
“There
is one not-very-well-known but incredibly important reason why the foundation has
been able to be so ambitious,” Mr. Gates wrote on his blog in 2022. “Although it
is named the Bill & Melinda Gates Foundation, basically half of our resources
to date have come from Warren Buffett’s gifts.”
In
the hoopla surrounding Mr. Buffett’s announcement in 2006, an important detail of
his plan escaped attention: Although the investor had pledged
99 percent of his wealth to philanthropy, his commitment to the Gates Foundation
and the four Buffett family foundations would stand only as long as he lived.
Mr.
Buffett, then 75, said he would make separate plans for how to distribute the shares
that remained after his death. Some months later, he told Berkshire shareholders
in his annual letter that he had stipulated in his will that all Berkshire shares
that remained in his pocket when he died would have to be used for philanthropy
within a decade of his death. (In 2021, two months shy of his 91st birthday, Mr.
Buffett said he had reached only the midpoint of giving away all his shares.)
Only
decades later would the broader implications of that lifetime pledge become an issue
of significance for future funding at the five foundations and the responsibilities
of his three children.
A Foundation on Speed
When
the Gates Foundation got its start in 2000, even Mr. Gates would probably not have
predicted that he and Ms. French Gates would have created an entity that can claim
to have saved millions of lives, shaped the global public health agenda and propelled
the Microsoft co-founder to a level of renown and respect typically reserved for
Nobel Peace Prize winners.
By
2005, the year before Mr. Buffett’s announcement, the foundation was already the
world’s largest philanthropic organization of its kind. In the years following the
Buffett gift, the foundation scrambled to build a far bigger framework that could
accommodate the giant waves of money that were about to hit its shores annually
and effectively give away many more billions of dollars.
In 2006, it gave away about $1.6
billion; by 2009, it projected it would have to make $3.2 billion worth of
grants per year. Today, the foundation’s resources dwarf those of the Ford
Foundation, the Robert Wood Johnson Foundation, the Wellcome Trust and other
big global foundations. The Gates Foundation’s annual budget exceeds that of
the World Health Organization.
Not
unlike an undulating octopus, the foundation has its tentacles in a variety of global
issues, including vaccines, public health, agricultural development, food security,
poverty alleviation, sanitation, gender equality and creating digital accounts for
the unbanked. With offices scattered across the globe, it has built an enormous
— and sometimes invisible — network of ties with governments, multilateral institutions,
corporations, countries, universities and nonprofits.
Its
way of doing things has cemented “big” or institutionalized philanthropy as distinct
from the passive, ad hoc charitable giving long practiced by individual wealthy
donors.
In
2019, the foundation — whose influence, size and practices had already invited criticism
about its approach being neocolonial, antidemocratic and too reliant on the idea
that technology can solve all problems, reflecting Mr. Gates’s views — took an even
bigger hit to its reputation. Just weeks after Jeffrey Epstein, the convicted sex
offender and pedophile, was found dead in his Manhattan
jail cell, news emerged that Mr. Gates had met with him several times. Mr. Gates
said that he had met Mr. Epstein purely to discuss philanthropy, and that he was
sorry for his poor judgment.
Less
than two years later, in May 2021, Mr. Gates and Ms. French Gates announced their
divorce. The following month, Mr. Buffett said he would step down as the third co-trustee
of the Gates Foundation, adding that there was no reason for him to stay in the
role but that his pledged gifts would continue. “My goals are 100 percent in sync
with those of the foundation, and my physical participation is in no way needed
to achieve those goals,” he said in a statement.
In
January 2022, the foundation created a new board of trustees to improve its corporate
governance practices, and to bring fresh perspectives that would inform the next
phase of its growth. In a blog post that year announcing
that the foundation would spend $9 billion a year by 2026, Mr. Gates expressed his
gratitude to his friend. “Warren, I can never adequately express how much I
appreciate your friendship and guidance as well as your generosity,” he wrote. More
recently, he told The New York Times that Mr. Buffett’s ongoing gifts are “record
breaking” and based on his belief in the foundation’s work.
Although
civil, the public statements, taken together, contained a sense of an ending, as
though viewers of the long theater of a friendship and
a world-changing philanthropic partnership were witnessing the final act. And Mr.
Buffett was, in fact, making clear to the employees and new trustees of the Gates
Foundation that the lifetime pledges he had made in 2006 could come to an end any
time given his age and that they shouldn’t count on Berkshire billions when making
long-term funding plans, according to several people with knowledge of Mr. Buffett’s
motives.
Soon
afterward, Berkshire put out a regulatory filing disclosing that Mr. Buffett would
donate more shares to his four family foundations. He had already increased his
gifts to his children’s foundations once before, in 2012. Mr. Buffett put out a
news release in 2023 announcing another round of gifts to the four entities. “They
supplement certain of the lifetime pledges I made in 2006 and that continue until
my death (at 93, I feel good but fully realize I am playing in extra innings),”
he wrote.
He
also detailed the plan for the Berkshire shares that would be impossible to give
away during his lifetime, given that he had hit only the midpoint in 2021. Valued
at around $100 billion in 2023, those shares would be placed into a trust. His three
children would be the co-trustees, and they would have a decade after their father’s
death to disburse those funds to charity. There was no mention of the Gates Foundation.
Mr. Buffett’s children are in unanimous agreement
that none of the remaining shares will go to the Gates Foundation, according to
people aware of their thinking.
Always deliberate with his language, Mr. Buffett emphasized the word “lifetime”
to avoid any miscommunication or confusion about which philanthropies stood to get
his money, partly because there was a longstanding assumption within the Gates Foundation
that it would always get Mr. Buffett’s money, those people said.
In
a footnote to its combined financial statements for 2021 and 2022 that was released
in May 2023, the Gates Foundation Trust, which manages the endowment for the foundation,
noted for the first time that the Buffett money would no longer come in after his
death. “As this gift is conditional and applies only during his lifetime, its receipt
cannot be assured in advance of each year’s installment
of the gift,” the note said. “After his death, Mr. Buffett’s executors will direct
the disposition of his assets.”
Other
factors further strained the friendship between Mr. Gates and Mr. Buffett. The Gates
Foundation had settled into a groove and even become complacent, Mr. Buffett told
staffers, which reduced its appetite for taking the kinds of risks that could lead
to more effective philanthropy, and that he had hoped his donations would be used
for. He was also upset by comments relayed to him by others who had found Mr. Gates
rude and condescending, according to multiple accounts. Mr. Buffett had long offered
Mr. Gates advice on how to be a friend: Be aware of how your closest friends think
of you, Mr. Buffett would tell Mr. Gates, and be good to them.
When
this reporter suggested to Mr. Buffett in April that Mr. Gates’s “genuine ‘laugh
out loud’ moments are when he’s around you,” he replied, “We have had a huge number
of laughs together, and he has a keen sense of humor.”
Nearly
every year since starting his GatesNotes blog in 2010,
Mr. Gates has posted at least one goofy video of him and Mr. Buffett together or
written a brief essay celebrating an aspect of their friendship. But he did not
write a single entry solely about his friend in 2021, 2022 or 2023.
In
his last GatesNotes post dedicated to Mr. Buffett, in
2020 during the pandemic, Mr. Gates filmed himself in an apron baking an Oreo cookie
cake for his friend’s 90th birthday.
In
a statement that he issued to The Times in May, Mr. Gates said: “I am incredibly
lucky to have Warren as a friend and mentor, and our friendship is stronger than
ever. I continue to learn from him, and always look forward to my regular calls
and visits with him.” Mr. Buffett typically does not initiate the outreach, two
of the people familiar with the friendship said, although they added that he has
minimized all his interactions given his advanced age.
Speaking
of the friendship between the two, a person with knowledge of their relationship
said, “All tea leaves point to disturbance in the mythology.”