Daddy Givebucks: Lessons Learned When Warren Buffett Hands You $1 Billion

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PETER AND JENNIFER BUFFETT: Their giving focuses on equal opportunities for adolescent girls in developing countries. | Photograph by Tina Tyrell

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WARREN BUFFETT: Photographed at Berkshire Hathaway headquarters in Omaha, Nebraska, on June 16, 2009. | Photograph by Rainer Hosch

For all the talk of how Warren Buffett is a normal, aw-shucks Midwestern guy, we know he is not just like us. We don't play bridge with Bill Gates. We may get calls asking for capital infusions, but they're from our kids, not from GE and Goldman. And these days, we certainly don't get 10% dividends on our stocks.

But ask Buffett about his kids -- Susie, 56, an Omaha knitting-shop owner; Howie, 54, an Illinois farmer; and Peter, 51, a New York-based new-age musician -- and he turns into your typical, gushing dad. "All three are smart. They have good judgment," he says. "They're just very decent human beings."

So decent, he thinks, that three years ago, when he pledged $30 billion in Class B Berkshire Hathaway stock to the Bill & Melinda Gates Foundation, he also promised each of his children $1 billion in shares for their charitable foundations. (All four foundations are receiving their stock grants in annual installments, with the remainder to be paid out upon his death.)

The gifts were by far the largest the Buffett kids had ever received -- and ever expect to receive -- from their father. He had made clear long ago that nearly all of his fortune would be going to charity. In recent years, each of his children had received $1 million on every fifth birthday -- though that practice appears to have ended after three big birthdays for Susie and two for each of her brothers. (Of the $1 million extra his sister got, Peter says, "Who's going to complain?") According to Peter, "the largest thing that came our way" was $10 million that they were each left by their mother, also named Susie, who died in 2004. "They're comfortable," says Warren Buffett, "but they don't have tons of money."

In a letter that accompanied his pledges to them, Buffett wrote, "I consider myself lucky to have three children who want to spend much of their time and energy working on projects that will benefit others." That set out his expectation -- that they will personally manage the assets and aggressively direct them toward their chosen causes. "Anyone can go around and get a hospital wing named after them," Buffett says.

Buffett tells Fast Company that one of the reasons he is giving these gifts is because he doubts he'd be skilled at philanthropy himself. "I don't think being able to allocate capital means you're good at anything else," he says. He offers a metaphor to illustrate how he thinks about financial investing versus philanthropic investing. When evaluating whether to buy a stock, he says, he'll wait months or even years until he feels comfortable "swinging at easy pitches." But in philanthropy, "you're really trying to swing at balls other people have been missing," he says. Plus, "the data's kind of fuzzy."

Warren Buffett doubts he'd be skilled at philanthropy: "I don't think being able to allocate capital means you're good at anything else."

Buffett's gifts propelled his kids' small foundations into the elite of philanthropy, immediately endowing them with new prestige and influence, but also introducing added risk. "You get a lot of people who have big hearts but don't have business skills," says Trevor Neilson, president of the Global Philanthropy Group. "That leads to a lot of ineffective nonprofits."

Newer foundations tend to give to those who ask, rather than seek out the projects that need the funding most. They end up giving to too many groups -- "a thousand little checks to people who can all feel the love," Neilson says -- resulting in effectiveness for none. And they're lax about monitoring the work of those groups, in part because they don't know the groups well and in part because most foundations' small staffs -- none of the Buffett kids' organizations have more than a handful of employees -- typically don't have the resources.

Three years after they began receiving their gifts, all three Buffetts say they have struggled against those temptations. And all three seem relieved that they've been asked to manage just one-thirtieth of what their father gave to the Gates Foundation, both because the bulk of the spotlight is not on them -- "I always think of us as the farm team for Gates," Peter says -- and because it's a lot of work just to give away tens of millions of dollars a year.

Yet they've also thrown themselves into their newfound roles. Susie considers it her full-time job, and her foundation pays her a $100,000 annual salary. (Howie gets some income from farming; Peter has his earnings from music, while his wife, Jennifer, who is president of their foundation, draws a $148,000 salary.) Each of them has carved out an area of specialty where they think they can have a huge effect. (Dad suggested they specialize.) To borrow their father's baseball metaphor, they've all missed a few pitches. But like many other philanthropists, they're learning as they go -- and each of them shared one major lesson with Fast Company.