Gates Foundation: Villain of the Week?
By Jim Hubbard Shooting Back | January 12, 2007
The good and evil of the foundation, nonprofit, corporate and even individual worlds was exposed in a hard hitting two-part investigative story on January 7th and 8th with the front page first part stating "Dark Cloud Over Good Works of the Gates Foundation" and the second installment warning "Money Clashes with Mission." This story did its damage exclusively with the headlines as most people probably did not read the entire exhaustive piece of journalism. Plus, the issues addressed, as is true when dealing with astronomical sums of money, were complicated.
The Los Angeles Times, one of the nation's reputed best papers, linked the Bill and Melinda Gates Foundation with death, destruction and mayhem - not to mention greed. Months earlier every paper in the country reported on the Gates Foundation and its collective wealth growing with the generosity of Warren Buffet. What happened?
The fear for many in the nonprofit community trying to do good is that the story could prevent other philanthropists from giving as they might be held under the microscope of a media giant like the Los Angeles Times. Most nonprofits, which are also desperate for funding from foundations, don't normally ask a funder where their money comes from or want to know how the foundations have their assets invested. They just want the money so they can attempt to help other people.
Let me offer a few examples about tax-exempt money. An extremely large nonprofit, the Catholic Church, historically has not told its parishioners who it seeks donations from that some of the funding will be used to meet the payroll of priests who molest children. When a nonprofit solicits money from the Ford Foundation they don't want to know all the gory details of where the money came from even though the Ford Motor Company has a history of polluting rivers and lakes and the air we breathe - and that's in the United States. They employ thousands, but when necessary they put thousands of people out of work.
I worked for a small nonprofit that worked with low income, at-risk youth. The organization accepted a substantial grant from an Indian gaming company. Gambling on reservations takes a high human toll on many levels - while at the same time some gaming money is used to build schools, hospitals, and cultural centers and makes some previously poor Indians rich Indians.
Could Bill and Melinda do more? Are they in a position to make significant changes in the ways some corporations do business? Of course they can on both counts. The fact is they are contributing to the health of the world with significant sums of money and every grant recipient is grateful, I am sure. Then, and more importantly, we can all do more. We in the United States are all complicit in some of the suffering of other humans including even some people within our borders.
Within three days of the story appearing, the Gates Foundation announced it would review its investments to determine whether its holdings were socially responsible. That is a good thing and something they said has long been a priority for them. There were several reactions from readers on the internet's LA Times.com, none printed in the newspaper, that expressed essentially two points of view.
Some indicated that Gates is now a fallen hero, while others berated the Los Angeles Times for slinging mud at a philanthropic hero. One writer indicated that the story may dissuade other philanthropists from generosity.
It is possible that this story may have done as much harm as good. Business is about the bottom line and has often engaged in practices, both evil and good, that wants to insure the line being black rather than red.
I really don't understand the point of the story except that the Los Angeles Times has made the Gates the "villains of the week." Would the controllers of this fine paper who approved the story prefer that the Gates do nothing and give nothing until their hands are totally clean? Dream on because humans don't come that clean.
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RELATED: The Bill & Melinda Gates Foundation responded to the Los Angeles Times story by clarifying information about their investments and processes for making decisions about them. Read the statement.
January 12, 2007 |Tags: Bill & Melinda Gates Foundation, corporate responsibility, private equity, socially responsible investments | TrackBack
Posted by: Jed Emerson on January 13, 2007 at 1:41 PM
Thank you for your thoughtful article. I, too, read the LA Times pieces and my first reaction was that the stories were quite simply, an attack on the Gates Foundation. Of course, nothing is simple, and so we can't view this as a black and white issue. But the fact remains that the Gates Foundation's aim is to do good in the world, and to do those good works as quickly and as effectively as possible. Given their unprecedented assets, it's a bold new course, and there are going to be a lot of mistakes and experimentations along the way. But in this cynical age, it makes me very upset that the LA Times would deliberately paint them in such a harsh and negative light. If this type of negativity becomes the norm, think about all the people who will be turned off from philanthropy as a result. Why bother if you're just going to be judged harshly? Look at what's happened in politics - how many well-qualified and competent people have declined to go into politics because of the climate of negative scrutiny?
Posted by: Elaine Woodberg on January 16, 2007 at 11:15 AM
Jim’s impassioned response to the L.A. Times article underscores the age-old dilemma of not wanting the best to be the enemy of the good. The Gates Foundation has not yet achieved what someday may be considered best practice in terms of how it invests its corpus in the most socially responsible manner possible. But that doesn’t mean its foundation grants won’t achieve a lot of good, now and in the future. Reasonable people could embrace the aspirations of both the Gates Foundation and the L.A. Times at the same time. What’s not reasonable is a newspaper article that tries to be provocative by emphasizing just one angle, but “man bites dog” stories have been a time-honored way of selling more newspapers. Based on the official response that the Gates Foundation posted on their website, I have no doubt they will continue to move in the direction of establishing best practice consistent with their values.
Posted by: Billy Shore on January 17, 2007 at 6:41 AM
I'm with Jed on this. I think we need to encourage not just foundations but non-profits to develop socially responsible investment strategies for any cash reserves or endowments, as we have just done at WITNESS http://www.witness.org. I would be happy to send anyone a copy of our work in progress if you would like to see it.
Posted by: Gillian Caldwell on January 17, 2007 at 1:23 PM
The LA Times article certainly sparked an important debate. It boils down to two issues. The first is to Jed's point -- What is the potential for foundations to invest more of our total wealth toward accomplishing our missions. While still a small fraction of what's possible, foundations are increasingly investing portions of their corpus through PRIs and equity investments in screened funds. The concept of mission investing has moved along the continuum from the few early adopters twenty years ago, to a much larger number of foundations that are at least interested if not actually engaged in investing beyond the 5%. The direction is right, the pace needs to accelerate.
The second issue gets to the influence of financial markets on the behaviors of corporations, and the influence of investors such as foundations within the large universe of investors. This one is more difficult but perhaps even more critical to unpack. The increase in numbers of socially screened funds is indicative of an appetite among investors to influence the way money flows to corporate behavior. The fact that most Fortune 500 companies are producing CSR Reports in response to shareholder demands is indicative that companies do respond to shareholder pressures. However, the overwhelming pressure in financial markets remains the push for quarterly profits.
Social investing has some obstacles to overcome before it wields substantial influence. First, there is little commonality. Social funds reflect a cacophony of causes. As a result they can’t yet act as a sufficiently large enough collective force for change. Second, whether you go with a pre-screened, ready-made fund or pick and choose companies on your own, capturing reliable information about the social and environmental practices of corporations is tough to do and it costs more. It easier to exclude some firms or even industries from our portfolios based on the information that we have. But if we want to reward good practices through our investments, it’s much more difficult.
Despite these challenges, this is where we need to concentrate our best minds. Ultimately financial markets reflect values and practice follows. Foundations, institutional investors and the vast majority of individuals who now are participants in the market can begin to shift the incentives.
Posted by: Barbara Dyer on January 19, 2007 at 5:58 PM
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Thanks, Jim, for your good thoughts...
I would simply say that as with many things in life this is not an all or nothing issue. Is GF a villian? Of course not. Could ALL foundations do a heck of a lot more to leverage value from their financial assets--you betcha!
The fact of the matter is that by focusing on foundations as charitable giving entities and not investors in value creation we allow them to focus on the 5% of their assets used as payout for grantmaking while ignoring the 95% of their assets invested in mainstream markets which finance corporations, some of which are bad and some good.
Bottom-line: We need to push foundations, from Gates on down, to achieve the greatest impact with their dollars and by definition that means looking not only at grantmaking, but investing, financial leverage through PRIs and so forth. The bar is incredibly low here, so there is plenty of room for innovation!
I've written about various aspects of this, so feel free to check out some options in The Investor's Toolkit and other papers at www.blendedvalue.org.
Very best to all!!
jed