Bill Gates is reshaping philanthropy—
as it relaunches him
THERE'S A STORY ABOUT BILL GATES that his wife, Melinda, likes to tell. Shortly before the couple established their philanthropic foundation in 1997, Bill carried around, in his briefcase for a month, an emotional letter from an American family asking him for help with a sick child, who needed a kidney. “Bill agonized over it,” Melinda recalled at a digital industry conference last month in California. “Do you spend $20,000 on a single transplant or buy vaccines for many children in Africa?"
For the past 10 years, the Gateses have opted for the latter: “How can we do the most good for the greatest number with the resources we have?” Bill asked a sea of Harvard University graduates at their commencement ceremony last year.
The answer? If you’re Bill Gates—with $37.5 billion in your foundation’s coffers and as much as $100 billion to contribute over the course of your lifetime—you do it very, very carefully, say philanthropy leaders. With that kind of wealth comes unprecedented giving power: you have the world’s biggest foundation—the Wal-Mart of the global charity sector—and you’ve got the single most powerful leadership platform in philanthropy today. “One out of every 10 foundation dollars spent is going to have the Gates name on it, and that gives (Gates and his foundation) an influence that is impossible to calculate,” says Rick Cohen, the former executive director of the National Committee for Responsive Philanthropy. Adds Steve Gunderson, president of the 2,000-member Council on Foundations: “Bill Gates is now the face of philanthropy for the country, if not the world”—and like it or not, Gunderson told Contribute Media, “the Gateses will have an obligation to lead and deliver for decades to come.”
Indeed, as Gates formally leaves his day job at Microsoft next week to start work full-time at his family foundation (“not to retire,” Gates says, but to “reorder my priorities”), all eyes in the nation’s $300 billion philanthropy sector are focused on the man that many in the field now call “the Rockefeller of our time,” the 52-year-old ex-computer nerd-turned-richest man in America (after Warren Buffett)—the guy who helped spawn the last century’s personal computer revolution and who now, with the same brainiac zeal, wants to make social problem-solving profitable, too.
THE ROCKEFELLER OF HIS AGE
He’s definitely got the cash. Like Rockefeller, Gates is his generation’s richest; his personal assets are valued at an estimated $50 billion, and he remains the largest single shareholder in Microsoft, with 9.6 percent of the stock, a stake currently worth $21.6 billion—for a total fortune greater, in inflation-adjusted currency, than his famous Gilded Age predecessor. Also like Rockefeller, Gates’ journey from tech-industry bad boy and cut-throat business strategist to philanthropist has been a slow and not-always-comfortable transition: Gates, early on, refused to give money away, afraid it would diminish his ability and focus on making money, he told Bill Moyers in a 2003 interview. (“I mean, is it going to erode your ability, you know, to make money? Are you going to somehow get confused about what you’re trying to do?”)
Years later, Gates still is making adjustments. During a recent trip to Africa to visit AIDS patients with Melinda, journalists wisecracked privately about Gates’ decidedly awkward “bedside manner” with patients compared to that of his wife’s during visits to the health clinics around the world that the couple’s philanthropy is supporting. (“It’s awkward for me to be out in the field,” Gates told Moyers. “I’m not, you know, particularly good at it. Maybe I’ll never be good at it…but I know it’s important. If [more] people got out like that, you know, [maybe many more of] these problems would get addressed.”)
Yet also like Rockefeller, Gates believes in his own, hyper-logical way, that charity can and should have its biggest impact in the areas of health and education, since this can give people everywhere a better shot at overcoming their disadvantages. A Rockefeller gift led to the first successful vaccine for yellow fever: a Gates donation is supporting the quest for a vaccine against malaria, and the couple has joined fellow American philanthropist Eli Broad in his multi-billion-dollar mission to reform the nation’s public school system over the next decade. Besides global health and U.S. education, the Gateses have made global development—anti-poverty work—a third key category for their giving.
SHIELD-BEARER FOR NEW ENTREPRENEURIAL CLASS
But unlike Rockefeller, Gates epitomizes a new and expanding global class of people that didn’t exist at the turn of the last century—a young, impatient new group of entrepreneurial, first-generation millionaires and billionaires in established and emerging economies around the globe who see as their personal mission the goal of changing the world in large and measurable ways during their lifetimes. Gates “is on track to becoming their poster child,” says Harvard philanthropy historian Peter Dobkin Hall.
To be sure, Gates—though getting better at addressing a non-tech crowd—will probably never acquire the rock-star appeal of, say, a Bono or the easy eloquence of a Bill Clinton or the creative vision of ex-eBay President Jeff Skoll, whose philanthropic leadership of the social enterprise movement and support for today’s documentary film craze is seeding a hip new social consciousness among today’s cause-wired youth around the world. But the sheer size of the Gateses new charity enterprise—along with the couple’s willingness to take risks with its dollars and share what works and what doesn’t in their quest for systemic change—will only become more meaningful to fellow philanthropists over time, sector leaders say. “I meet many high net-worth individuals that are watching Gates and what he does and how he does it, and that’s really exciting in a behavioral way,” says Jacqueline Novogratz, the founder and CEO of Acumen Fund, a nonprofit global venture fund that uses entrepreneurial approaches to solve the problems of global poverty. “It opens up people’s minds to what’s possible with philanthropy today.” Jeff Raikes, the Microsoft executive who becomes the foundation’s new CEO in September, told Fortune magazine in June: “Bill has an incredible opportunity to help shape the thinking of other multi-billionaires by getting them to think about the process, the structure, the best practices” of giving money away.
Will he deliver? There’s no question that Gate’s move to focus on his foundation comes at a critical time. Investor Warren Buffett’s decision to give the foundation most of his $45 billion fortune over the next decade is, at least for now, proving to be both a blessing and a curse: already, some $3.4 billion of Buffett’s money has been funneled into foundation coffers since 2006, with more coming soon—a rapid capital jolt that has turned the Gates foundation, practically overnight, into the largest private philanthropic foundation of all time. The Buffett motherlode is triggering enormous, startup-style tumult at the foundation and is exacerbating some existing uneasiness in the philanthropy sector over the sheer enormity of what he and Melinda are building. Even Bill, himself, acknowledged the size challenge—“scale is a challenge”—when he announced he was leaving Microsoft on the heels of the Buffett gift to devote more time to the foundation.
IS GIVING SCALABLE?
Can it scale well? It’s a fair question. The foundation, which began in 1997 in a small office above a pizza parlor near Microsoft, now has some $37 billion in assets and is nearly four times the size of the next largest foundation. Buffett’s pledge also effectively doubles the Gates foundation’s annual spending requirement—the government requires all private foundations to spend at least 5% of their endowments annually—and this, for Gates foundation employees, has unleashed a mad scramble to spend more, faster, and all while retaining effectiveness standards amid a staff expansion that will take the foundation from 543 current employees to more than 800 by year’s end. According to Gates Foundation spokeswoman Heidi Sinclair, the foundation distributed some $2.007 billion last year, roughly 5.4% of its endowment, and, to keep pace with its growth from the Buffett gift, will be required to give some $3.5 billion away next year, almost twice the 2007 amount. “One of our greatest challenges is making effective grants,” Sinclair says.
“One of the key questions now becomes, do they decentralize?” says Glen Macdonald, director of the Wealth and Giving Forum, an organization of wealthy philanthropists who run their own foundations and regularly give more than $15 million per year to their causes of choice. “Gates as an enterpereneur and innovator has dealt with scale before. The thing to watch now is how he manages that rapid growth and tension that comes with it. One option is to focus on many areas (of giving versus the three existing ones); another is to build collaboration ties with established public and private foundations, NGOs, social enterprises, and corporations.” Macdonald may as well be speaking for many in the sector, as well as Gates, when he says, “what matters most at the end of the day is outcome.”
For months now, Gates has been setting up his three new offices from which to tackle his new job: one will be located at Microsoft in Redmond; a second one, about 15 miles away, will be at the Gates Foundation in downtown Seattle, and a third will be sandwiched between the other two, and located much closer to home. Gates spokeswoman Sinclair says Gates has carved out precise blocks of time in each location: a day in Redmond, two at the foundation and two at his personal office, which Gates told Fortune will probably be his “real center of gravity.”
While he’ll remain chairman of Microsoft, his workload at Microsoft will plummet while at the same time, his work at the foundation will increase sharply. Gates’ official title, which he shares with his wife and father, is co-chair, but his day-to-day role will be as the foundation’s chief strategist.
Foundation insiders expect that Bill and Raikes—the Microsoft business software systems division whiz who will take over as CEO of the foundation in September—will join forces to ease the size challenge. Both Gates and Raikes declined to be interviewed by Contribute for this story, but philanthropy and business leaders expect the two to strategize over new ways to use software and leading-edge applications of information technology to both manage the Gates foundation’s growing complexity, if not the rapid growth of the sector, itself, as philanthropy enters a new era of globalization.
“For those who have been criticizing the Gates Foundation on its need to grow faster and operate more effectively, one could say they made the best possible choice” when they chose Raikes to replace Patty Stonesifer as CEO, says Diana Aviv of the Independent Sector, a Washington, D.C. coalition of some 600 charities, foundations and corporate giving initiatives. “Raikes is someone who isn’t intimidated by Gates’ immense wealth and who has, in his own right, been extremely successful” in amassing his own fortune—as well as working with Bill at Microsoft on key strategy, marketing, and systems engineering initiatives. Indeed, Raikes is widely credited for racking up much of Microsoft’s profits in recent years as head of its business software division, the company’s cash cow.
“One thing to understand about the foundation,” Melinda Gates told BusinessWeek in 2006, “is that it’s a lot like Microsoft in the sense that we do expect results. We are going to measure things as we go along. We are going to make changes. Sometimes you get other people who come in and do small pieces of this and then their money’s spent and they go away. They don’t stop to say: What did we learn here and how do we change or how do we replicate that in a new way somewhere else?’” Foundation insiders and philanthropy sector leaders say they expect this kind of performance measurement standard to include how well the foundation, itself, tackles its own internal challenges.
Laudable? No question. But critics say it’s not enough.
They say that in order for the Gates Foundation to earn its mantel of global leadership and contribute real value to the sector, it will need to make some critical leadership and governance reforms—and just as rapidly as it’s giving money away and expanding its ability to do so.
The loudest voices pushing change as Gates steps into his new job are those of sector leaders who complain about the fact that the Gates Foundation, despite is enormity, has only three trustees—Bill, Melinda, and Warren Buffett; and that those three, alone, should not be charged with deciding, in the end, how all of the billions get spent. “That is much too small and narrow a board to run a foundation whose combined assets will one day exceed the budgets of all but 30 percent of the countries in the world,” says Pablo Eisenberg, a senior fellow at the Georgetown University Public Policy Institute. “This offers little protection to America’s taxpayers or the national interest.”
Last fall, the foundation, responding to the criticisms, announced the creation of three advisory councils, one for each of its three program areas of focus—global health, global poverty, and U.S. education. According to Gates spokeswoman Heidi Sinclair, the expert panels will help Bill, Melinda, and Warren screen and direct funds for maximum effectiveness. But is it enough? Aviv, the Independent Sector CEO, thinks not. The advisory councils will help, she says, but “boards are wiser when they have a large number of people…because they provide people coming from different backgrounds and experiences” that provide the necessary “checks and balances” required for good decision-making and oversight.
Eisenberg says he doesn’t like the precedent it sets. “There are going to be other billionaires in the future who are going to establish $40 billion, $50, billion, $75 billion foundations,” he says. “The danger to our democracy is that we’re going to have an increasing number of these mega-foundations run by two or three family members who will dictate how these assets are spent—assets that are probably larger than the annual budgets of many countries. Their decisions are going to be made without any political process, public discussion, and that is not good for democracy.”
A second size-challenge is that the Gates Foundation, by its presence alone, threatens to monopolize activities in the sector and steamroll other players—a so-called Wal-Mart effect for the charity sector. In February, for example, The New York Times published excerpts of an internal document from the World Health Organization, a letter from the agency’s chief malaria expert to the agency’s director, Margaret Chan, alleging that the Gates Foundation was having an adverse impact on research into killer diseases. The letter, the Economist magazine reported in an article the following week, said the super-sized clout of the Gates Foundation was “distorting research priorities and quashing independent thinking by sweeping up the best scientists and keeping them ‘locked up in a cartel.’” However unintended, the Gates Foundation’s giant footprint “is squashing the peer-review process because researchers are now bunched into groups competing for Gates funding, and each member of such a group has ‘a vested interest to safeguard the work of the other,’ the magazine reported, quoting from the memo. “Gates can solve problems with money,” the memo said, “but a lot of money leads to a monopoly and discourages smaller rivals and intellectual competition.”
The Gates’ didn’t answer the charges but foundation spokesmen say they’re mostly off-base. The foundation often collaborates with other charities, including Bono’s group, the Global Fund to Fight AIDS, Tuberculosis, and Malaria. The WHO’s criticisms, some say, belie a fear that that the Gates Foundation is setting itself up to topple WHO’s authority in the public health field: the Gates’ recent grant of over $100 million to the University of Washington to evaluate health treatments and monitor national health systems is a job, some at WHO believe, better left to WHO and the United Nations.
But perhaps the most stinging criticism of the Gates Foundation so far is that it (and Buffett) has been investing its considerable charitable assets in corporations that, in many instances, have been contradicting its charitable goals—from companies responsible for heavy air pollution in the Niger Delta to pharmaceutical firms whose pricing policies have tended to keep antiretroviral drugs out of reach for HIV/AIDS patients in developing nations. Some even allege that Gates foundation investments—as well as Buffett’s—are indirectly supporting the Sudanese oil industry, whose profits some say help to support the Sudanese government’s genocide in Darfur.
Though many foundations in America similarly invest their assets in companies that don’t always stand for their own goals as organizations, the Gates Foundation has come under particular criticism for this type of disconnect: the endowment is managed by Bill Gates Investments, which handles Gates’ personal fortune. A January 2007 investigation by The Los Angeles Times found that 41% of Gates Foundation’s investments, totaling at least $8.7 billion, have been in companies “that countered the foundation’s charitable goals or socially concerned philosophy.” In addition, much of these investments have been in companies that “have failed tests of social responsibility because of environmental lapses, employment discrimination, disregard for workers’ rights, or unethical behavior,” the newspaper said. For example, the foundation has poured $218 million into polio and measles immunization and research worldwide, including in the Niger Delta. At the same time the foundation is funding inoculations to protect health, The Times found, the Gates foundation has invested $423 million in Eni, Royal Dutch Shell, Exxon Mobil Corp., Chevron Corp. and Total of France—the companies responsible for most of the flares blanketing the delta with pollution, beyond anything permitted in the United States or Europe.
Writing in the May/June 2007 issue of Contribute, a New York-based news magazine and Web site covering the sector, fundraising executive and New York University fundraising lecturer Naomi Levine criticized the foundation for failing to use its considerable financial clout to influence companies to change their policies. “[The Gates Foundation] hasn’t tried to influence other foundations to divest from companies that don’t share their socially responsible ideals,” Levine wrote. “…The foundation’s poor example here should be a siren call for reforms and stepped-up oversight.”
Perhaps most aggravating to Gates foundation critics is the way the foundation has dealt with their concerns, which some analysts suggest is a carryover from Microsoft’s highly independent and autonomous culture. When the investments story first broke in the Los Angeles Times, for example, the Gates Foundation’s chief operating officer, Cheryl Scott, told a reporter that the foundation would, for the first time, conduct a methodical review of its investments to determine whether it should divest from companies doing harm. She also acknowledged that the way the foundation had been investing its money was not “100% effective.” Days later, however, outgoing CEO Stonesifer said any changes in the foundation’s investment policies would probably not occur. Why? Her answer: “Changes in our investment practice would have little or no impact on the suffering identified in The Los Angeles Times article. [We] don’t own big-enough stakes in companies to influence their behavior through shareholder activism.”
To many in the foundation community, the episode represented a time when the Gates Foundation blew an important opportunity to seize global leadership in the philanthropy community worldwide. While the Ford, John D. and Catherine T. MacArthur, Rockefeller and Charles Stewart Mott foundations all make social justice, corporate governance and environmental stewardship key considerations in their investment strategies, the Gates Foundation has not, and does not—to the frustration of leaders in the field across the board. “With the resources that the Gates foundation has at its command, it could provide an extraordinarily important leadership role for the field if it were willing to shift its investments to more socially responsible companies,” says philanthropy historian Kathleen McCarthy. Adds Doug Bauer, senior vice president of Rockefeller Philanthropy Advisers, a nonprofit that counsels foundations: “When the No. 1 foundation is rethinking something, others are going to look at it more carefully.” The Gateses, he added, have the power to “cause a seismic shift in the field.”
AN UNLIKELY JOURNEY
Nobody, not even Bill himself, expected to find himself such a catalyst outside the technology industry. The socially awkward upstart—who, at the age of 12 began effectively debating with his father the logic of doing some household chores—became a billionaire from Microsoft’s 1986 IPO. He had initially resisted the idea of philanthropy: lawyers and accountants advised him to start a foundation “but he refused,” William H. Gates, Sr., told Fortune writer Patricia Sellers in a January 21, 2008 cover story profile of Melinda. “[Bill] said he didn’t need another entity.”
It wasn’t that Gates didn’t know any better: Gates Sr. was head of Planned Parenthood when Bill was growing up; his mother was on the United Way board and continuously urged Bill to form a United Way team at Microsoft, which he eventually did. But the young Gates, for many years, actually feared the dichotomy, seeing the push to make money and the act of giving it away as contradictory, rather than part of the same value system.
According to Gates family lore, it was Bill’s courtship and marriage to Melinda French—a girl from a middle-class family in Dallas who worked her way up to an executive at Microsoft before dating Gates—that turned Gates around. Bill’s mother, Mary Gates, also had a huge influence on Bill’s evolution, urging him, relentlessly, to become more active philanthropically: ironically, it was she who introduced her son to Warren Buffett, at a Fourth of July barbecue in 1991 that Bill only attended after Mary begged him to come. Later, at Melinda’s wedding shower in 1993, Mary presented her with a letter that, in so many words, said: “From those to whom much is given, much is expected.” Mary Gates passed away the following year; a short time later, the family created the first Gates charity, The William H. Gates Foundation. Bill’s father, with $94 million or so worth of Microsoft stock, ran it out of his basement.
Initially, the Gates’s foray into philanthropy sought to put laptops in classrooms—which some had seen at the time as a self-serving gesture by a software tycoon. But Melinda realized, Fortune’s Sellers wrote, that while volunteering in a couple of schools in Seattle at the time, the technology gap was only part of the problem. She and Bill then decided to take on education reforms more broadly, focusing on secondary schools. “No one was touching high schools,” she told Fortune. “…Bill and I like to work on the problems that nobody else seems to want to face because they’re so hard.”
One big part of Bill’s new job will be to make more public appearances and do more schmoozing with governments and corporations as part of the couple’s new advocacy for the world’s poor. “I’m uniquely able to reach out to the big companies, to ask them not just to write checks but to offer more of their innovative power,” Gates told Fortune editor Brent Schlender in a June 20 piece on the transition. “There’s a big category of my time for talking to drug companies, cellphone companies, banks and technology companies as well as talking with other people who are lucky enough to have super-big fortunes about how they want to give those back to society.”
Melinda, meanwhile, will continue to size up ways that technology—and not just software—can be engaged to further the goals of the foundation. At a recent digital tech conference in California in June, Melinda pointed out to conference attendees that of the 6.6 billion people in the world, 3.7 billion have access to a cellphone. “This opens an opportunity to use mobile technology for reworking banking for the poor,” she says. “…Technological revolutions or advances—as the price of (cellphones) really get down—how can we change things for people who live on less than $2 a day?”
Yet along with the passion and curiosity, both Bill and Melinda seem acutely aware of the daunting challenge they’ve created for themselves. “We will make mistakes,” Gates told Moyers. “But then again you’ve got to take risks and that’s one of the things a philanthropist can do that governments aren’t as well-suited to do. We in philanthropy should be doing the things that the normal approaches can’t do, whether it’s approaches to the AIDS vaccine or malaria or delivery systems. We’ve got to be out there and accept some kind of failure rate.”
Gates—who dropped out of Harvard to create Microsoft—returned to the university last year to accept an honorary degree and to deliver the 2007 commencement speech to graduates. It was, Gates-watchers agreed, probably one of his finest speeches ever, an eloquent reminder that success doesn’t always mean following the rules. Among other things, Gates told Harvard students that technological achievement is critical in the years ahead, but that “humanity’s greatest advances are not in is discoveries but in how those discoveries are applied to reduce inequity…reducing human inequity is the highest human achievement.”
No question, Bill Gates—innovator, rule-breaker, geek-turned-philanthropist—is just getting started.