Investor’s mega-pledge signals new era for philanthropy
When the billionaire investor Warren Buffett announced his plans to donate 85 percent of his vast fortune to charity,
the nonprofit world reacted with near euphoria. But almost before the ink could dry on the deal, the applause faded and questions arose.
In an unprecedented move, Mr. Buffett, chairman of Berkshire Hathaway, an Omaha, Neb., insurance and investment company, earmarked $37-billion for five charitable funds, the philanthropies established by him and his late wife, their three children, and his friends Bill and Melinda Gates.
Mr. Buffett’s commitment is the largest in philanthropic history, greatly exceeding the sums given by Andrew Carnegie or John D. Rockefeller, and could trigger a windfall for charities as other wealthy individuals are inspired by his example to donate their money.
The bulk of Mr. Buffett’s pledge, approximately $31-billion, will go to the Bill & Melinda Gates Foundation, in Seattle. Already the world’s largest foundation with more than $29-billion in assets, Gates will essentially swell to a $60-billion philanthropic behemoth, worth almost as much as the eight other richest grant makers in the United States combined. Indeed, if the Gates Foundation were a country, its assets would make it the 55th-largest economy in the world, larger than the gross domestic product of oil-rich Kuwait.
An Unprecedented Gift
The Buffett gift presents the Gates Foundation with an incredible opportunity to fight the social ills it focuses on, which include global health and failing U.S. schools, but also ushers in what some observers described as a new age of mega-philanthropy with wealth and influence heretofore unseen.
“To manage a $60-billion foundation has never been tried,” said Joel J. Orosz, distinguished professor of philanthropic studies at the Dorothy A. Johnson Center for Philanthropy and Nonprofit Leadership at Grand Valley State University, in Grand Rapids, Mich. “That’s where the devil in the details is going to be. We’ve never had a foundation of this size and now, of course, influence.”
Specifically, Mr. Orosz and other nonprofit leaders are concerned about how public the foundation will be about its grant-making process, the capability of the charities it traditionally supports to absorb billions of dollars, and the potential for increased government scrutiny of foundations brought on by the emergence of such a prominent organization.
But the primary worry is one of leadership. With only three trustees — the Gateses and Mr. Buffett, who agreed to join the fund after he made his gift — how well can the largest foundation in history make decisions that affect millions of lives worldwide?
“If there is a downside to Mr. Buffet’s gift, it’s that this is such a vast sum to entrust to the decisions of three people — any three people,” said Elizabeth T. Boris, director of the Urban Institute’s Center on Nonprofits and Philanthropy, in Washington. “The questions of accountability that arise for all foundations purporting to know and serve the public good are bound to intensify for a foundation of this size, no matter how well-intending and effective.”
Lack of Ego
To be sure, Mr. Buffett’s move prompted more praise than boos. Nonprofit leaders said that by giving to existing foundations — Gates, the Susan Thompson Buffett Foundation, the Howard G. Buffett Foundation, the Susan A. Buffett Foundation, and the NoVo Foundation, which is overseen by Mr. Buffett’s son Peter — showed that Mr. Buffett is motivated more by society’s needs than his ego.
Of course, some nonprofit groups, such as arts and culture organizations, said they applaud Mr. Buffett’s philanthropy, but are disappointed about being left out of the biggest donation in history.
Said Robert L. Lynch, president of the Americans for the Arts, in Washington: “Would I have loved the whole gift to go to the arts? One part of me says that would be fabulous, the arts themselves need a lot more help than what they are getting.”
Yet the Buffett gift may still prove helpful to groups not supported by Gates and the other foundations because it is likely to spur other giving.
“I think it’s inevitable it will be noticed by lots of people,” said David Rockefeller, a philanthropist and retired chairman of Chase Manhattan Bank, in New York. “There are lots of people who have made a lot of money, and I think it will give them a second thought before they spend it on something less worthwhile.”
Indeed, the actor Jackie Chan announced last month that he will bequeath half his wealth to help Asian youth, a move prompted in part by Mr. Buffett.
The Buffett contribution may also be a valuable fund-raising tool, said Teresa Alvarado, executive director of the Hispanic Foundation of Silicon Valley, in San Jose, Calif. She said she will point to Mr. Buffett’s giving to persuade people to support her group. “This gift is so generous and so remarkable I think I will use it as an example,” she said.
However, the nature of Mr. Buffett’s gift — giving to foundations established by other people — is unlikely to catch on, said Daniel Kurtz, a former charity regulator in New York. “It would be great if people said, ‘Listen, I don’t need my own foundation, why don’t we pool our resources into a slightly larger one,’” he said. “But it’s unlikely to happen.”
Diane Feeney, president of the French American Charitable Trust, in San Francisco, said Mr. Buffett may not change how people give, but it may change when they give. It could prompt more wealthy people to give while they are alive, she said. Ms. Feeney is the daughter of Charles Feeney, the reclusive billionaire who has given much of his fortune to charity.
“People should really think about having an impact in the short term rather than never having an end to their philanthropic goals and staying around forever and ever and ever. This is a really good model for other people out there,” she said.
Mr. Buffett had previously said he would give away his fortune once he died. He explained in an interview with Fortune magazine, however, that his view began to change when his wife, Susan, died two years ago. He said he had assumed she would outlive him and decide how to give away their money.
Annual Gifts
Gates and the other funds will not receive all of Mr. Buffett’s gift at once. For example, Mr. Buffett has earmarked 10 million shares of Berkshire Hathaway stock for the Gates Foundation. He will give away 5 percent of those shares to the foundation in 2006, and 5 percent of the remaining balance each year until his death. He said he expects the value of the stock to grow, so the ultimate dollar size of the donation may increase in the future.
The gift requires that Gates spend the full amount of the gift each year, in addition to the roughly 5 percent of assets the foundation otherwise would give annually. The move essentially doubles the foundation’s annual grant making to about $3-billion.
Gates has until 2009 to begin meeting that requirement, and the philanthropy said it probably will double its current staff size of 275 people in the years ahead in part as a result of the new money.
Big Changes
Mr. Buffett’s announcement comes as the foundation was already undergoing major changes.
Last month, Mr. Gates announced that by 2008 he will stop his day-to-day responsibilities at the Microsoft Corporation, the software company he co-founded, and assume a full-time role with the foundation (The Chronicle, June 29). He has said the move was unrelated to Mr. Buffett’s commitment of extra money to the foundation.
In addition in April the fund said it would be expanding the number of causes it supports to include agricultural projects and financial services for the poor.
Despite the new infusion of money, the foundation will continue “to go deeper into our current strategies, accelerating the work we are already supporting,” said Patty Stonesifer, the foundation’s chief executive, in an e-mail message sent to Gates grant recipients after Mr. Buffett announced his donation.
Obviously, Gates beneficiaries see the Buffett gift potentially as a great boon to their work. On the day the contribution was disclosed, the foundation received 2,000 grant proposals compared with the 300 it usually gets in a day.
“The reaction that we had is similar to a lot of nonprofits that haven’t got a lot of funding from Gates yet. We said, ‘Wow, hopefully this will mean that there’ll be more funding to support the kind of work we’re doing,’” said Janine Schooley, vice president of technical services and program development at Project Concern International, in San Diego.
The charity received $10,000 from Gates for an AIDS walk in India, but also has been rejected for other projects.
She said Project Concern will “repackage” its grant applications to Gates to emphasize what makes it innovative in the hopes that doing so will make the group more attractive. “We need a Gates strategy,” she said.
Accountability Challenges
But while fund raisers may be salivating at Mr. Buffett’s highly publicized donation, some people wonder if the foundation can double its annual spending and still provide the oversight that is required.
“That’s been a challenge for the Gates Foundation and this doubles that challenge. That’s a real significant issue for the organization,” said Richard D. Klausner, the fund’s former director of global-health programs.
Historically Gates has provided big grants to well-established nonprofit groups that often redistribute the money to smaller charities.
Chester E. Finn Jr., president of the Thomas B. Fordham Foundation, in Washington, which has received a grant from the Gates Foundation to support charter schools in Ohio, questions whether school-improvement efforts are prepared for the new influx of money.
“Given the way Gates operates in education, the wisdom and capacity of these intermediaries to absorb and intelligently deploy twice as much money is a fair question,” Mr. Finn said.
The hunger for Gates grants may also reduce how much honest feedback the philanthropy receives, said David Bergholz, former president of the George Gund Foundation, in Cleveland, and a critic of the Gates efforts to improve public education.
“When you muck about with hundreds of millions of dollars, let alone billions, people will chase after you whether you know what you’re talking about or not,” he said. Charities are unlikely to tell Gates, “Hey, guys, you’re headed down a road to ruin,” he said.
In her e-mail message to grant recipients, Ms. Stonesifer of the Gates fund made a special plea as if anticipating that type of criticism. “As we grow, truth-tellers will become ever more important to us. So please: Let us know when things are going well, and even more importantly, when they aren’t,” she wrote.
Monica Harrington, a senior policy officer at the foundation, told The Chronicle that the organization will also “formalize its advisory process” to allow for more outside experts in education, health, and other areas to influence what Gates does.
But at the highest level of the foundation’s governance, with its three trustees, observers wonder how well these voices and others will be heard and their ideas acted upon.
“It has operated with an exceedingly small board. It has got to make that bigger. The stakeholders need to have a say,” said Mr. Orosz of Grand Valley State University.
In light of its work on HIV/AIDS in Africa, for example, Ms. Feeney of the French American Charitable Trust said the foundation should include Africans as board members. The fund needs people “from the continent that is suffering the most from AIDS, people who are living these issues and can talk to [the Gateses and Mr. Buffett] and open up some of the thinking,” she said.
While the governance structure of the foundation has raised questions, Mr. Kurtz, the former charity regulator, said it breaks no laws.
“Frankly, it was their money,” he said about the Gateses and Mr. Buffett. “Who is going to know better what they want to do with it?”
But while government regulators do not see legal problems at Gates, its sheer size and the flurry of news reports about it may trigger increased scrutiny of the foundation world by public officials.
“It’s made members appreciate that this is big money we’re talking about,” said a senior aide to Sen. Charles E. Grassley, the Iowa Republican who is investigating the policies and practices of grant makers. “There are very, very significant tax benefits going on and it isn’t just an abstract exercise to say that we need to make sure these entities are performing in a manner that’s in keeping with the great tax benefits they received.”
Government’s Role
Another concern is that members of Congress and other world leaders may see the wealth at the Gates Foundation as a reason to cut government spending for education and health, believing that private donors have enough resources to cure societal problems.
Nicolas de Torrente, executive director of the U.S. arm of Doctors Without Borders, in New York, said he is happy the Buffett-Gates partnership will channel more money and attention to global public health.
But he said he worries that the growing involvement of philanthropy in this area will lessen the incentive for governments to step up to the plate. “The danger is really letting governments off the hook in the agenda-setting and the funding,” he said.
To some extent, this may already be happening.
The London School of Economics and Political Science found last year that governments were spending a small percentage on partnerships with nonprofit groups to develop new drugs and vaccines for malaria and other diseases, Mr. de Torrente said. The school’s study discovered that only 16 percent of the money for such efforts came from governments, compared with 59 percent from the Gates Foundation.
The Gateses and the foundation have stressed they do not want their money to replace government dollars. Ms. Stonesifer said the foundation will continue to work with nations and companies to make sure more resources, not less, are available for the world’s problems.
“As large as our annual grant making will become, it will always be dwarfed by the money governments and markets can bring to the table. They will continue to be the key to solving these problems, and we will partner with them rather than replace them,” she wrote in her e-mail message.
Yet can the foundation toe this line with all its newfound wealth?
William H. Foege, a former director of the federal Centers for Disease Control and Prevention who helped establish the Gates fund’s health programs, said the organization’s leaders understand the myriad concerns being expressed. But he added, at $60-billion, the philanthropy truly has become an unprecedented entity on the world stage, and therefore faces unprecedented challenges.
“Power really does corrupt,” he said. “The challenge will be to not let the power corrupt the foundation. Bill and Melinda need to be as humble giving away the money as Mr. Buffett was in donating it.”
Suzanne Perry contributed to this article.