Gates: Role Model in Need of Remodeling

The revelation by the Los Angeles Times several weeks ago that the Bill & Melinda Gates Foundation has invested its assets in many corporations with questionable practices that undermine the mission and goals of the foundation has somewhat dimmed the radiant light with which the Gates family has illuminated the foundation world.

With the exception of that newspaper series, the Gates foundation continues to elicit adulation and uncritical attention from the news media, as well as from people in and out of philanthropy. Its very size — three times that of Ford, the second-wealthiest foundation in the United States — seems to mesmerize observers into believing that it is beyond reproach.

Warren Buffett’s pledge to give the bulk of his fortune to the Gates foundation, an amount that will probably exceed $30-billion, is sufficient to send people in philanthropy into tremors of delirium.

In 2005 the Gates foundation distributed more than $1.3-billion in grants, ranging from hundreds of millions of dollars to a few thousand dollars. Its list of grantees runs to 107 pages on the foundation’s Web site. Next year, as it starts making use of the Buffett money, the foundation will be giving away more than $3-billion, one-tenth of the money distributed annually by all foundations.

That is an enormous sum of tax-deductible funds and therefore merits the most stringent scrutiny and oversight by regulators, which to date it has not received.

It is now difficult for anybody — including regulators — to obtain a clear overview or details of the foundation’s grant making. The foundation Web site offers information on its programs, a long list of grantees, and some snippets about governance procedures. But that isn’t enough to give the reader, let alone the regulators and the news media, a real feel for what is going on at the institution.

The foundation should enhance its Web site so that it is truly informative, and make available to the public a comprehensive printed annual report such as those issued by almost all the large foundations. That would go a long way toward making the foundation more transparent and publicly accountable.

Of course, it is up to government to monitor foundations, but to date the Internal Revenue Service has done a poor job of policing grant makers, partly because of limited resources and partly because of its traditional deference to wealthy individuals and institutions. The IRS will need to pay greater attention to the Gates Foundation by conducting regular audits and exercising its regulatory functions.

But since it is not clear that IRS will take these steps, here’s a checklist of items that deserve regular review by government, the news media, and other members of the public, and a look at where the Gates Foundation stands.

Governance. The Gates foundation has been run by two trustees, Bill and Melinda Gates. With the addition of Mr. Buffett’s money, the foundation put him on its board as well. That is a much too small and narrow 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. It offers little protection to America’s taxpayers or the national interest. As a draft statement the IRS has issued on good nonprofit-governance practices says, “Small boards generally do not represent a public interest.”

In a statement from a top official at Gates, the foundation justifies its position by saying that Bill and Melinda Gates are “living, engaged donors who are able to devote much time and thought to the issues we’re working on. Bill and Melinda and Warren decide on the goals and the problems we’re going to tackle, and they work with the senior team here on developing strategies to achieve those goals.”

The foundation official goes on to explain that the Gateses consult a wide variety of experts, thereby receiving the perspectives and advice needed to inform their decisions. In addition, this year they will establish advisory boards of people with expertise in each area of the foundation’s grant making. The Gateses believe that, ultimately, “accountability will be measured by the impact the work has,” not by the composition of the board, according to the statement.

The nature and size of a foundation board, however, do matter. Consultants and advisory boards are useful, but they are not decision makers. Advisory boards are no substitute for additional board members.

The Gateses’ willingness to open the board to new members would send a signal to the public, and to future mega-foundations, that the business of their foundation is more than a family concern.

Influence on public policy. American foundations give only a small sliver of their philanthropic pie to public policy, advocacy, and organizing activities. The Gates foundation is no exception.

It has chosen mostly to focus on conducting research and providing service to meet its goals, rather than advocacy. A little more activism might go a long way toward producing the social changes the foundation claims it seeks. There are some hopeful signs, however, that it may be willing to move more in this direction, if somewhat cautiously.

The foundation has provided money to a grass-roots neighborhood coalition in Los Angeles, the Alliance for a Better Community, which has worked successfully to improve the curriculum and standards in the city’s high schools.

It also has supported the San Francisco Organizing Project in its efforts to organize and train parents of students in the public schools, and a group called Sacramento Area Congregations Together to undertake programs to improve high schools.

In New York City, the foundation is supporting grass-roots efforts to push for educational improvements through grants to Acorn, the Coalition for Educational Justice, and the Urban Youth Coalition.

The foundation has also provided grants for housing and homelessness programs in the Northwest, but unless it is willing to put money into developing and lobbying for new national and state housing policies, the deplorable state of low-cost housing in this country will remain.

The foundation recently appointed a director to run a new national effort that will focus on domestic issues and problems. It is not clear, however, whether any new projects that focus on American issues will be any more activist in their outlooks.

Unless it is willing to invest in building the capacity of community-organizing and advocacy groups, thereby leveling the playing field of opportunity, Gates will make little progress in achieving social and economic justice throughout much of the country.

Grant-making priorities. Bill and Melinda Gates have made an extraordinary contribution toward the elimination of major diseases in developing countries. They have poured money into research and the development of vaccines, as well as making medicines, including HIV antiviral drugs, available at discounted rates to poor people.

But they have not yet invested in generic drug companies in India, Brazil, and elsewhere that could provide the antiviral medicines to millions of additional people at a small fraction of the discounted rates charged by the major pharmaceutical companies. Why? Are they worried about undermining the intellectual-property rights of the big pharmaceutical companies?

The Gates foundation’s response to this observation is that they “have provided approximately $528-million in grants to help accelerate HIV vaccine research and development. However, it could be many years until a safe and effective HIV vaccine is found. Therefore, we have not made grants for large-scale production of an HIV vaccine.”

Yet the latest HIV drugs are being used successfully in developing countries as well as in the United States to treat and prolong the lives of many infected persons. The problem is that insufficient numbers of people are being treated because of the costs involved. Large-scale production of existing drugs at much lower costs could be exceedingly productive today.

One might have thought that the additional money Mr. Buffett will bring to the grants table — about $1.5 billion a year — would have permitted the foundation to expand its focus on improving the dysfunctional health-care system in the United States, and that the foundation would not continue to focus solely on health issues in developing countries.

The Gates foundation official said that such an expansion is not possible since Mr. Buffett has “specifically asked that we use the resources he donated to deepen and accelerate the work already under way,” and that means sticking to two basic priorities — improving education in the United States and upgrading health care in developing countries.

Either Mr. Buffett has a more narrow vision than his investment policies, or the trustees are ignoring a responsibility to the nation’s taxpayers and the national interest.

Investment policies. The recent two-part series in the Los Angeles Times found major contradictions between the foundation’s mission and goals and the scandalous activities of many of the corporations in which the organization has invested its endowments.

The responses by Patty Stonesifer, chief executive of the foundation, in a letter to the Los Angeles Times, and by Bill Gates and other foundation officials were dismissive and tainted with a touch of arrogance.

Ms. Stonesifer said that changes in the foundation’s investment policies would have little or no impact on the issues raised by the newspaper, adding that it was naïve to suggest that an individual stockholder could stop the suffering described in the articles.

Not if that stockholder were you and me. But we’re talking about Bill and Melinda Gates, who have invested hundreds of millions of dollars in some cases in corporations that violate principles of decency. Who is being naïve? There is little doubt that the foundation could have a major impact on corporate behavior and on the investment policies of other major foundations.

One can invest in a socially responsible manner without harming financial returns. Many socially responsible mutual funds have done just that, while other investors, including state pension funds, foundations, and other organizations, are getting excellent returns on their “social” investments.

What is also curious is that Bill and Melinda Gates do screen out, if somewhat imperfectly, tobacco-related companies because, as a foundation executive noted, “Tobacco is a case where the industry profit model is built around an activity that Bill and Melinda believe is always harmful.”

Millions of other people believe that industrial polluters, exploitative pharmaceutical firms, unscrupulous lenders, and corrupt health institutions are also built on profit models that are harmful.

But the Gateses are only concerned about their one issue, acting as though the money they are dispensing is their money, not money that has been placed in an institution that serves the public interest (which is why they received big tax breaks for putting it there).

It is cavalier of them to ignore the views of those throughout the world they are trying to assist. If they can screen for tobacco, they can screen for other major activities that harm humankind.

Let’s hope the foundation listens to the criticism, rethinks its position, and changes its investment policies. With that act of humility and wisdom, the foundation could become not only the colossus but also the ethical giant of philanthropy.

Gates already seems to be serving as a role model for many large foundations, including Carnegie, Ford, and Rockefeller, and for extremely wealthy individuals who seek to mimic its focus on a few big priorities and “high impact” activities.

In a New York Times article that documented how the nation’s oldest philanthropies are changing their approaches to be more like the Gateses, Judith Rodin, president of the Rockefeller Foundation, implicitly denigrated the foundation’s venerable arts and culture program, a grant-making program she had recently abolished.

As Arlene Goldbard, one of the country’s leading experts on cultural and community-arts programs, commented on her blog, the Rockefeller program was “the most far-sighted and useful cultural funding division ever maintained by a major American foundation. Too bad Ms. Rodin hasn’t read her own foundation archives.”

One might have expected a major, respected foundation to have a clear understanding of its own history and accomplishments.

In their search for new, trendy and high-impact activities, it is all too easy for foundations to jettison some of their old, successful approaches and programs that still merit strong support.

Today the siren call of “high impact” grant making, trumpeted by the Gates Foundation and a few academic scholars, is beckoning the foundation world to follow. But grant makers do so at their own peril.

If they look hard at the Gates foundation’s list of grantees, they would discover that some of the institution’s best grants are those for relatively small amounts of money.

The history of philanthropy reveals that many of the social and institutional changes it has catalyzed are the result of small investments of money.

Small is still beautiful.

Pablo Eisenberg, a regular contributor to these pages, is senior fellow at the Georgetown University Public Policy Institute. His e-mail address is pseisenberg@erols.com.