In an effort to prevent a breakup of Berkshire Hathaway after his death, Warren Buffett has systematically created a share-class structure that puts the bulk of power into Berkshire’s supervening Class A shares, where most of Buffett’s stake resides, details an article in Barron’s. This structure was put in the spotlight recently after Buffett distributed roughly $759 million worth of stock to four different Buffett family foundations. That brings his personal stake in Class A shares to 227, 416 worth about $107 billion, giving him 31.4% voting interest and a 15.5% stake in the conglomerate.
Class A shares, worth one vote each, have almost 7 times the voting power of Class B shares, which carry a mere 1/10,000th of a vote. Berkshire created Class B shares in 1996 and while ownership is heavier in the Class B stock—two-thirds of the outstanding shares through October—the class only holds about 17% of the company’s voting power. Meanwhile, when Buffett donates his Berkshire stock, he converts his Class A shares into Class Bs, giving the recipients less voting power. And while Class A shares can be converted into Class B shares, Class Bs cannot be converted into Class As, the article explains.
About 98% of Buffett’s wealth is in his company’s stock, and he’s spoken extensively about how that equity will be funneled into philanthropy after his death. That arrangement will allow whoever is overseeing those stock transfers to have great sway with Berkshire for many years after Buffett passes away; still, even Buffett himself realizes the amount of pressure the company will be under to break apart after his death. There are many who believe that Berkshire would be worth more separately rather than as a whole, particularly with such valuable pieces as Geico and Burlington Northern Santa Fe railroad. But that’s where the trustee overseeing Buffett’s stock could come into play—given the power to potentially equalize the voting power of Class A and B shares would prevent any investor from gaining a voting monopoly by snatching up Class A stock, the article contends.
Currently, Buffett owns almost 40% of Class A stock. Berkshire Hathaway did not comment for the article.
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