Wednesday, January 28, 2009

Bill Gates' First Annual Letter on Giving

In what he says will be an annual event, Bill Gates (pictured above in a 1977 mugshot from New Mexico) has penned a letter describing his views on philanthropic giving.  Page 16 (reproduced below) contains an interesting discussion of the "Role of Foundations."  Foundations, by which I assume Gates to be talking generically about nonprofit organizations whether they be classified under federal law as private foundations or public charities ought to respond to market failure and should not be judged based on bottom line accounting.  Of course, readers can pick and choose phrases from most any written argument to support their own prejudices and I am no exception.  I think the letter supports the notion that the law ought to at least push tax exempt organizations towards intentionally (not just incidentally) helping the poor.  Anyway, here is page 8 of the letter.  The full letter is available from the link above.

A key question for Melinda and me is, Where are foundations uniquely suited to causing positive change? Foundations are not needed in areas where capitalistic market signals work well and the poorest aren’t left out. If someone told you there was a foundation looking into what kind of restaurants should be started and helping them get started, you would rightly wonder why nonprofit dollars were being spent in that way. Foundations provide something unique when they work on behalf of the poor, who have no market power, or when they work in areas like health or education, where the market doesn’t naturally work toward the right goals and where the innovation requires long-term investments. These investments are high-risk and high-reward. But the reward isn’t measured by financial gain, it’s measured by the number of lives saved or people lifted out of poverty.

Foundations are unusual because they don’t have to worry about being voted out at the next election or board meeting. But I do not hold them out as a panacea. Another way that running a foundation is not like running a business is that you don’t have customers who beat you up when you get things wrong or competitors who work to take those customers away from you. You don’t have a stock price that goes up and down to tell you how you’re doing. This lack of a natural feedback loop means that we as a foundation have to be even more careful in picking our goals and being honest with ourselves when we are not achieving them.

We work hard to get lots of feedback. Each of our three divisions has gotten great people to participate in an advisory panel that reviews their strategies. In addition, every significant grant is reviewed by a number of outside experts. And as we execute our strategies, we need to share what we learn, because the biggest leverage is in getting many others to adopt best practices. Since we are in this for the long run, we need to develop credibility by the strength of our evidence, and by not claiming to know more than we do.

Every year, Melinda and I want to make sure we are taking a hard look at where the foundation should get involved and where it should stay out. In the areas we work in, we want to make sure the foundation is drawing in other players in the best way we can. Given the business sector’s broad expertise and resources, we particularly need to get more of its innovation power focused on our issues. I have spoken a lot in the past year about “creative capitalism,” which outlines the incentives and benefits to make this happen. Next year I hope to have some examples of how this has made a difference.


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