On Monday, Warren Buffett announced that he was donating more than US$1 billion in Berkshire Hathaway Inc shares to four family foundations — a continuation of his commitment to give away most of his wealth to charity rather than pass it on to his family.
With the announcement, Buffett put out a memo that was less about the nuts and bolts of the donation than the importance of getting your affairs in order at the end of your life. Close readers of Buffett know that this is his modus operandi. Below the surface, his musings are often steeped with advice about leadership and management.
However, at 94, Buffett is clearly thinking about his mortality and acknowledges that “father time always wins.”
More than ever, he seems determined to pass on not just lessons about what makes a good investment but what makes a good life.
Here are my takeaways:
Do not create dynasties (or nepo babies). Buffett mentions more than once in his memo that he does not believe in dynastic wealth.
“Parents should leave their children enough so they can do anything but not enough that they can do nothing,” he wrote.
Two out of his three kids are on Berkshire’s board, but none are in management — nor would any of them ever become chief executive officer (CEO).
Contrast this with the nepo baby moment in other parts of the business world as a generational shift in power takes place at family-run companies. For those not fluent in Internet-speak, a nepo baby is someone whose career benefits from the wealth or connections of successful parents. The result often is infighting, a la Estee Lauder Inc, or a tendency to put the wrong person in charge — for example: Tyson Foods Inc. Tasking your children to give away massive sums of a family’s wealth rather than accumulating more of it seems like a healthier way to live.
Acknowledge your good fortune. Buffett leans toward self-effacement, and more often credits his success with his good luck than he does with his genius. He wrote that his lucky streak “began in 1930 with my birth in the United States as a white male,” adding that, “so favored by my male status, very early on I had confidence that I would become rich.”
This mentality — that his lot in life has had an outsized-impact on his prosperity — is what has motivated him to pass along his wealth “to others who were given a very short straw at birth.”
It likely has also prevented a lot of hubris and the kind of unforced errors that can come with it.
Be transparent about your plans. Buffett says that every parent should have their children read their will, explain why they made certain decisions and adopt their feedback when it makes sense.
“I saw many families driven apart after the posthumous dictates of the will left beneficiaries confused and sometimes angry,” he wrote. “I also witnessed a few cases where a wealthy parent’s will that was fully discussed before death helped the family become closer.”
Buffett has taken the same approach to succession planning at Berkshire, where his transparency has prevented a lot of drama. As I have written before, a CEO handoff should be without mystery and as boring as possible. The same goes for a will.
Live below your means. Buffett has long extolled the magic of compounding, describing it as akin to a snowball rolling downhill picking up speed and mass. In his memo, he wrote that the real payoff comes in the final 20 years of life. The famously frugal Buffett — he lives in the same house in Omaha he bought in 1958 — has amassed a huge amount of savings, or as he dubs it, “units of deferred consumption.” That has allowed the snowball to grow even bigger, accumulating more money for him to give away.
Tell your kids you are proud of them. That is what Buffett does at the end of his letter. No notes.
Beth Kowitt is a Bloomberg Opinion columnist covering corporate America. She was previously a senior writer and editor at Fortune. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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