Buffett, Gates to Test the Limits of Giving
By Brooke A. Masters and Yuki Noguchi
Washington Post Staff Writers
Tuesday, June 27, 2006
NEW YORK, June 26 -- Warren Buffett and Bill Gates stood side by side today as the new face of philanthropy, promising a charitable foundation unlike any the world has seen and one that will test the limits of what a single group can do against global problems of health, poverty and education.
Buffett's decision to sign over nearly $31 billion of his company's stock to the Bill & Melinda Gates Foundation creates a Microsoft of the charity world, a colossus that by law and under Buffett's conditions will have to give away $3 billion a year by 2009.
The foundation, already the nation's largest with a $30 billion endowment that has largely come from Bill Gates, will hand out more per year than the gross domestic product of nearly 40 countries, including Mongolia, Togo and Zimbabwe. The sheer size of the amount, which is larger than UNICEF's 2005 budget of $2.7 billion, is one of the reasons the Gates Foundation thinks it can make significant inroads with campaigns against AIDS, tuberculosis and malaria. The foundation's funding is considered a crucial part of the scientific effort to cure diseases that mostly or entirely afflict the developing world.
On the other hand, the foundation's annual outlay would amount to 5.3 percent of this year's federal education budget and is only slightly larger than the combined school budgets of Fairfax and Prince William counties. Most of the foundation's education efforts and many of its health programs have yet to come to fruition, and they face bureaucratic, political and logistical hurdles.
Two weeks ago, Bill Gates said that in two years, he will step down from daily responsibilities at Microsoft Corp., the software company he co-founded in 1975, to work full time on the foundation's many challenges.
Philanthropy experts say Gates and his wife have already shaped a new approach of giving by using a relentlessly competitive business model that involves investing in many projects, so that while some fail, others are bound to succeed. Rather than staff the foundation with experts, the Gateses back top people in each field as needed and work to create commercial markets for vaccines and other products to lure profit-seeking corporations.
Buffett, in turn, said that by giving his money to the Gates Foundation, he is simply following good investing strategy: Put your assets in the hands of trusted managers and give them the freedom to make decisions. He said he hoped that other wealthy friends "might pick up on this model" and make dazzling donations.
"I would hope they act now," Buffett said at a gathering within the marbled halls of the main New York Public Library, a system that was founded and nurtured by an earlier generation of philanthropists, including John Jacob Astor and Andrew Carnegie.
Those whom global capitalism has made rich, he said, should help the world's less fortunate. "We really owe it to society to give back," Gates said at press conference about the donation.
Leaders of philanthropic foundations said Buffett's donation was a historic event that they hoped would build momentum in the donor community.
"You have an innovator and a world business leader -- the combination of the two making such a huge personal investment of time and wealth, it does raise the bar and raise the profile of philanthropy," said Thomas M. Springer, senior editor at the W.K. Kellogg Foundation, a $7 billion organization.
Springer said the challenge will be for the Gates Foundation to resist temptation to try to do too much with the funding it has. Three billion dollars is a lot to spend in a year, he said.
Buffett's gift stands out in the philanthropic world not only for its size but also for its humility: "The perception in business is that people are greedy," and the corporate scandals in recent years have only aggravated that image, said Richard S. Shreve, adjunct professor of ethics at the Amos Tuck School of Business at Dartmouth College. But Buffett's is "an extraordinary gift of altruism" because he gave it to the Gates Foundation rather than to those founded by his family.
But to Buffett, the choice was simple: The Gates Foundation already had the staff and programs in place. "If you're accumulating wealth, it's very natural to go to somebody you know can handle it better than you can," Buffett explained. "I've found some people who are better at giving away money, and I'm turning it over to them."
In the global health arena, money from the Gates Foundation has proved potent. The group is on the verge of bringing to market its first drug -- a cure for the illness known in India as black fever. And its grants have been equally crucial for Conrad, an Arlington nonprofit research organization developing gel microbicides that prevent the transmission of sexually transmitted diseases such as HIV/AIDS.
"There's nobody else who has this kind of money who's behind the field," said Henry L. Gabelnick, director of Conrad, which has received more than $37 million to develop and test the gels. Though Gabelnick has approached drug companies about sponsoring development and trials of the drug, interest was limited because the main market is in the developing world. "Without [Gates's] support, we just would not have gotten anywhere," he said.
Buffett's gift may help the Gates Foundation expand into new areas, such as micro-lending and agriculture, particularly in poverty-stricken regions of the world, such as Africa. In Zambia, the foundation funded programs to make medicines more accessible to impoverished people, only to discover that they have other problems.
"It's hard to take [medication] if you don't have food -- they can hardly swallow their medication," Melinda Gates said at the press conference. "They need to have some way of supporting themselves if they are going to stay healthy over time." [Melinda Gates and Buffett are board members of The Washington Post Co.].
Melinda Gates said the foundation is interested in working with the Rockefeller Foundation, which has pioneered efforts to spread more productive agricultural techniques, known as the Green Revolution, to Africa.
"We're very pleased that the Gates Foundation shares our vision of the critical importance of improving agricultural development in Africa," said the Rockefeller Foundation's president, Judith Rodin.
In education, the foundation funds programs to reduce the drop-out rate among high school students, provide college scholarships to promising minority students and fund new high schools. The results, however, have been mixed. Graduation rates have improved significantly at many of the 90 small New York City high schools the foundation helped fund. But a student at one of them stood up at the Buffett donation ceremony to complain that he thought "smaller schools meant smaller classes" and that his Bronx high school still had more than 30 students for every teacher.
Locally, the Gates Foundation provides grants to schools and to organizations involved in global health efforts. The recipients include the Malaria Vaccine Initiative in Bethesda; the Aeras Global TB Vaccine Foundation, also in Bethesda; the Center for Global Development in Washington; and organizations that do work worldwide, including the Global Health Council, the Center for Strategic and International Studies and Population Services International. The foundation has also given grants to Washington area schools, including the Cesar Chavez Public Charter Schools for Public Policy, the Maya Angelou Public Charter School and Bell Multicultural High School.
Philanthropy experts said the Gates Foundation, which has 300 staff members and a pattern of convening panels of outside experts for each project, may be in a better position to handle Buffett's gift than most other foundations.
"I think with the Gates Foundation having been around for a while, they'll be able to absorb the higher annual giving in a way that the smaller family foundations might not be able to do," said Lisa Philp, head of philanthropy services for J.P. Morgan Private Bank.
Staff writers Sara Kehaulani Goo and Kim Hart contributed to this report.
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