Tuesday, July 11, 2006

The Gates of Heaven

By: The_Bell
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Bill Gates of Microsoft Corporation has announced that he will be leaving the day-to-day running of Microsoft over the next couple of years to focus on philanthropic work at the Bill & Melinda Gates Foundation, currently worth $30 billion.

Hot on the heels of this, investment wizard Warren Buffett announced that he would be giving close to seventy percent of his own $40 billion personal fortune to the Gates Foundation, apparently on the premise that Buffett is relatively old, Gates is relatively young, and "[Gate's] judgment above the ground is going to be a lot better than [Buffett's] six feet below the ground." The bequest will double the foundation's worth.

My aunt and godmother, whom I generally consider liberal in many of her political views but who is also a self-made person of wealth, was glowing to me about Gates at a recent Fourth of July gathering. She was disappointed to learn that I did not share her positive view of him.

Don't get me wrong. I am grateful that Gates would see fit to share so much of what he has amassed with society – I do not believe that his wealth obliges him to do so. I even feel a certain respect for his desire to get personally involved as opposed to simply writing out checks. Yet, for all that, I cannot say that I particularly like or admire Bill Gates, either as a businessperson or as a human being.

He and Buffett strike me as too much in the mold of tycoons-turned-philanthropists of the past – such as Carnegie, Rockefeller, Getty, and Ford – who spent thirty years cutting throats and ruining lives on their climb to the top and then engaged in self-congratulatory beneficence for the last ten or twenty.

Rockefeller used to give away shiny new dimes to children to improve his image. Gate's billions are certainly a step above that. Likewise, the Gate's Foundation seems less concerned with building things of permanence to act as monuments to Bill himself. Its chief areas of focus are eliminating problem related to global health, education and poverty. It has scored some noble victories regarding the first category while having more muted success in the second two.

There is almost a boyish gleam in Gate's eye as he talks about abolishing disease as he once talked about wiping out the competition. "Within our lifetime, I would expect . . . we would have vaccines and medicines to eliminate the [top twenty diseases]," he said at the news conference where he accepted Buffett's pledge. Forbes magazine has even come up with a name for billionaires managing their later-life munificence, dubbing it "venture philanthropy."

It makes sense intuitively. These billionaire donors clearly know how to use money to make more money. Why not turn all that energy and creativity to the service of society at large instead of a select set of shareholders. Yet altruism, by design, does not always work along the same lines as the free market. Diana Aviv, head of a coalition of charities, foundations, and corporate giving programs that includes The Gates Foundation, predicts, "I'm sure there are lots of young, wealthy individuals who have made their fortunes and who are watching this very carefully."

If that is true, then what others are learning is not only to be generous with their wealth but to insist on having a say on how it is spent. For example, the Buffett bequest to the Gates Foundation comes with two significant catches. First, all the money is to be distributed in the year it is donated, not added to the foundation's assets for future giving. This is not necessarily a bad idea but money that must be spent quickly is not always money spent most wisely. Second, the pledge also requires that Bill and Melinda Gates remain alive and active in the policy-setting and administration of the foundation.

Gates and Buffett are not the only trendsetters of this nature either. Larry Ellison, the mercurial CEO of Oracle recently reneged on a pledge of $115 million to Harvard University because he disapproved of the outing of President Lawrence Summers. Given the tempestuous nature of Summer's presidency, Harvard might have found that trade-off to their profit but other examples abound.

In 2001, Netscape founder Jim Clark withdrew $60 million of his $150 million pledge for a biomedical research center at Stanford University in protest against federal restrictions on stem-cell research. In 2002, philanthropist Robert Thompson withdrew a $200 million pledge to build Detroit-area charter schools in disgust over the city's political infighting. That same year, Washington business leader Catherine B. Reynolds reneged on a $38 million deal that would have gone to the Smithsonian Institution because she wanted more control over how the money would be spent.

And getting back to the Buffett endowment for a moment, Newsweek's Allan Sloan finds some very crafty, non-altruistic aspects in Buffett's gift to the Gates Foundation. First, even with the spending qualifiers in place, the Gates Foundation's assets are one of only a few large enough that the donated Berkshire Hathaway shares will not need to be sold immediately to provide necessary funds. That will protect share prices for Buffett's family and investors.

In addition, Buffett will convert his class A shares into class B shares and donate these to the Gates Foundation. Class A shares have one vote while class B shares have only one two hundredth of a vote. Thus, after much tough talk about his children needing to accept his selflessness, Buffett will be able to retain a significant control of his and their voting rights within Hathaway even as he publicly divests the bulk of their ownership.

I would not discourage anyone from sending Bill Gates a thank-you note for generosity with both his money and his time in setting up and now running the Gates Foundation. However, I would be loath to see anyone putting him on a pedestal for it – he still has more than enough money to build his own pedestals.

Gates was known for his hard-nosed business practices, particularly when it came to squashing the competition. As for his treatment of employees, Microsoft's reputation as a coding sweatshop is ubiquitous. As a consumer, I appreciate the stability the dominance of a single brand brought to the industry. As a manager in an IT company that features non-Microsoft architecture and platforms in our solutions, I can attest how difficult it can be for even strong, well-reviewed products to "buck the trend." Will Gates give more back to the industry and society than he cost it in competitive innovation over the long run?

Anyone can change and perhaps Bill Gates will prove to be a generous risk-taker, as opposed to a micromanaging control freak, with his foundation's money. Still, doing good things does not make one a good person by default. In the Dickens's classic, we know that Ebenezer Scrooge's sudden generosity is not hypocritical because we are there as he undergoes a transformation of spirit. The ghosts are still out on their pronouncement regarding Gates, in my opinion.

For those who insist his foundation's work and his vast contributions to it prove Gates is a good person, I am afraid I can, somewhat skeptically, go no further than to admit they prove Gates certainly acts the good person . . . when he can afford to do so.