“Every July 1, [Warren] Buffett hands over massive chunks of Berkshire Hathaway Inc. shares to the Bill & Melinda Gates Foundation, which focuse[s] on global health initiatives and U.S. education projects. The latest donation, based on the closing price of Berkshire’s Class B shares [at the time of the transfer], is valued at $1.6 billion, or 28% more than last year’s $1.25 billion.” [“Warren Buffett’s Latest Gift: $1.6 Billion,” by Erik Holm, Wall Street Journal, 2 July 2010]. I first discussed Buffett’s arrangement with the Gates Foundation in a post entitled Communities of Practice and Development-in-a-Box. In that post, I noted that comedian Stephen Colbert, on his Comedy Central show “The Colbert Report,” said, “Warren Buffett is so rich he just hired Bill Gates to spend his money. It’s a great day for capitalism!” Holm continues his article on Buffett’s latest donation:
“One condition of Mr. Buffett’s donation is that the group’s annual giving must exceed his previous year’s gift. Mr. Gates, co-founder of Microsoft Corp., has provided billions of dollars to the foundation, too. The group made grants totaling $3 billion last year to pay for vaccine research, farming projects, microfinance efforts, teacher training, and other charitable work, according to the foundation’s website. The total value of Mr. Buffett’s gift, including shares he has pledged to hand over in future years, [is estimated to be] about $39 billion. … It is the largest charitable donation in history. … Lately, Mr. Buffett and the Gateses have lobbied peers to give away more of their wealth. They announced a ‘Giving Pledge’ last month, asking the nation’s billionaires to publicly commit to donate at least half their wealth to philanthropic and charitable groups.”
One might think that a call asking you to give away half of your wealth would fall on deaf ears, but 40 of America’s wealthiest individuals quickly responded and took the pledge. Among those taking the “Giving Pledge” were Oracle Corp. founder Larry Ellison, movie producer/director George Lucas, former Citigroup Inc. leader Sandy Weill, hotel mogul Barron Hilton, New York Mayor Michael Bloomberg and oil tycoon T. Boone Pickens. [“U.S. Super Rich to Share Wealth,” by Shelly Banjo and Robert A. Guth, Wall Street Journal, 3 August 2010] A complete list of those who have taken the pledge can be found on The Giving Pledge website. An article in the Financial Times noted, “Never has there been such an attempt by a group of the wealthiest people in the world to enrol their peers in such grand scale philanthropy. And in the process Buffett and the Gateses are trying to export their model of ‘philanthrocapitalism’ or ‘venture capital’ to the world.” [“The great billionaire giveaway,” by Ian Wylie, 10 August 2010] Although one would think that the efforts of Mr. Gates and Mr. Buffett to get their wealthy peers to give away their money would be applauded, there have been critics. Wylie reports “philanthrocapitalism has come under fire from critics who say billionaires are simply buying power and control. Financial Times columnist Christopher Caldwell has warned of their ‘disruptive effects on democracy’. An editorial in The Lancet in May 2009 expressed ‘serious anxiety about the transparency of the [Gates] Foundation’s operation’ and questioned its ‘whimsical governance’.” Wylie goes on to report, “For supporters of philanthrocapitalism, it is the influence and networks as well as the funds that billionaires have at their disposal that make their commitment so important.”
Personally, I’m not too concerned that philanthropic efforts by the world’s wealthiest individuals are going destabilize democracy or that the funds are going to be wasted through poor management. After all, any destabilization of global affairs would decrease the value of their donations (since most of them are given in the form of stocks) and billionaires didn’t amass their wealth using poor management techniques. Wylie continues:
“In the current climate of budget cuts, indebted governments will be more likely to welcome wealthy philanthropists who share Mr Gates’ and Mr Buffett’s belief in cofunding and leverage – a conviction that, as Mr Buffett puts it, ‘private philanthropy can make the subsequent expenditure of public monies more effective’. The Gates Foundation, for example, has granted more than $650m in the past couple of years to schools, public agencies and other groups that align with its main education priorities. Philanthropists using their money as risk capital to help governments spend money better is an emerging theme, says [Michael Green, co-author of Philanthrocapitalism: How The Rich Can Save The World]: ‘The most striking thing Gates said when we interviewed him for the book was that the Gates Foundation is ‘just a tiny organization’. He recognized that to tackle the problems he wants to tackle he can’t do it on his own. He wants to lever government money, and here in the UK there’s scope in this idea of “big society” for that kind of partnership working.’ The pledge is a nudge too for donors to consider giving the money away during their lifetime – ‘spend down’ their endowments within a specified timeframe to meet current needs, rather than have them dribble out grants from a foundation once they are dead. Unlike the philanthropists of former times, many new billionaires are young enough to take a more active role. The initiative is also an attempt to apply a network effect to philanthropy. The more common it becomes, the more the wealthy will seek to do it, as they share experiences, plot strategies and exchange ideas. ‘It’s not just about people pledging success – it is also about inspiring more families to talk about giving and philanthropy,’ says Patty Stonesifer, former CEO of the Gates Foundation, who currently advises Bill and Melinda Gates and was present at the May 2009 dinner in New York where the idea of the pledge was hatched. The agenda includes educating the super-rich on the Buffett/Gates model of ‘high-engagement philanthropy’ and ‘results-oriented giving’, where the efficiency of the business world is injected into aid – where philanthropists ‘invest’ their donations and use venture capital strategies and research tools and techniques to manage the performance of their ‘portfolios’. According to Mr Buffett, pledge signatories will be invited to an annual summit to ‘spend a day talking about various problems of philanthropy and how better to do it’.”
Face it, rubbing shoulders with some of the world’s wealthiest individuals once a year is a great incentive to take the pledge. So far, however, the pledge has mostly attracted wealthy individuals from the developed world. To have even greater impact, it must also attract wealthy individuals from emerging market countries. One result of the publicity that the pledge has generated is that billionaires from emerging market countries have had the harsh light of the press focused on them [“Will an Indian Billionaire Take the Pledge?,” by Devin Banerjee, Wall Street Journal, 9 August 2010]. Banerjee reports that “Messrs. Gates and Buffett hope to convince billionaires in emerging economies to sign on to their pledge. The pair is set to travel to China in September and to India next March to try to establish a global foothold for the pledge.” Although I haven’t read about the outcome of their recruiting efforts in China, Gates and Buffett discovered that some wealthy Chinese individuals aren’t very interested in giving away the wealth they have recently accumulated [“Gates and Buffett look to convert Chinese tycoons to philanthropy,” by Jamil Anderlini, Financial Times, 4 September 2010]. Anderlini indicates that some “would-be donors [are] wary of being put on spot.” He reports:
“Having persuaded many of their billionaire peers in the US into giving away chunks of money, Bill Gates and Warren Buffett are travelling to China to host newly minted Chinese tycoons to sell them on the value of philanthropy. But the fear of being seduced into giving up part of their fortunes may have scared some of the tycoons away from a dinner that the crusading US billionaires are hosting in Beijing this month for their Chinese peers. The exclusive list of attendees includes Zhang Xin, chief executive of Chinese real estate developer SOHO China, and Wang Chuanfu, head of car and battery maker BYD, who counts Mr Buffett as an investor. But according to the Chinese media, the head of the Bill and Melinda Gates Foundation in Beijing is worried that some invited guests may be reluctant to come. ‘A small number of people declined the invitation to attend, while many of the invitees called to ask whether they would be required to pledge a donation at the dinner,’ Ray Yip, the director of the foundation’s China program, was quoted as saying. ‘Their biggest fear is being embarrassed and put on the spot.'”
One would think that the tireless efforts of Gates and Buffett to put their personal wealth to work for the poor would give them heroic, Robin Hood-like, status with the public. You might be wrong, however. According to a new study “people hate generosity as much as they hate mean-spiritedness” [“Too good to live,” The Economist, 19 August 2010]. The article reports:
“Selfishness is not a good way to win friends and influence people. But selflessness, too, is repellent. That, at least, is the conclusion of a study by Craig Parks of Washington State University and Asako Stone, of the Desert Research Institute in Nevada. Dr Parks and Dr Stone describe, in the latest edition of the Journal of Personality and Social Psychology, how and why the goody two-shoes of this world annoy everyone else to distraction. In the first of their experiments they asked the participants—undergraduate psychology students—to play a game over a computer network with four other students. In fact, these others (identified only by colors, in a manner reminiscent of the original version of the film, “The Taking of Pelham 123”) were actually played by a computer program. Participants, both real and virtual, were given ten points in each round of the game. They could keep these, or put some or all of them into a kitty. The incentive for putting points in the kitty was that their value was thus doubled. The participant was then allowed to withdraw up to a quarter of the points contributed by the other four into his own personal bank, while the other four ‘players’ did likewise. The incentive to take less than a quarter was that when the game ended, after a number of rounds unknown to the participants, a bonus would be given to each player if the kitty exceeded a certain threshold, also unspecified. When the game was over the points were converted into lottery tickets for meals. The trick was that three of the four fake players contributed reasonably to the kitty and took only a fair share, while the fourth did not. Sometimes this maverick behaved greedily, because the experiment had been designed to study the expected ostracism of cheats. As a control, though, the maverick was sometimes programmed to behave in an unusually generous way. After the game was over, the participants were asked which of the other players they would be willing to have another round with. As the researchers expected, they were unwilling to play again with the selfish. Dr Parks and Dr Stone did not, however, expect the other result—that participants were equally unwilling to carry on with the selfless.”
I suspect that super-rich people who are not inclined to give away their wealth feel exactly that way about receiving telephone calls from either Mr. Buffett or Mr. Gates — they would rather not speak to them let alone play with them. The article concludes:
“Follow-up versions of the study showed that this antipathy was not because of a sense that the selfless person was incompetent or unpredictable—two kinds of people psychologists know are disliked in this sort of game. So the researchers organized a fourth experiment. This time, once the game was over, they asked the participants a series of questions designed to elucidate their attitudes to the selfless ‘player’. Most of the responses fell into two categories: ‘If you give a lot, you should use a lot,’ and ‘He makes us all look bad.’ In other words, people were valuing their own reputations in the eyes of the other players as much as the practical gain from the game, and felt that in comparison with the selfless individual they were being found wanting. Too much virtue was thus seen as a vice. Perhaps that explains why so many saints end up as martyrs. They are simply too irritating.”
I’m reminded of the story of two farmers walking down a country lane. One turns to the other and says,
“Floyd, you’ve been a great friend all of these years.”
Floyd responds, “Clyde, you know that I’d do anything for you.”
“Really?” Clyde asks.
“Certainly,” says Floyd.
“If you had two houses and I needed a place to live would you give me one of the houses?”
“If I needed a tractor and you had two of them, would you give me one of them?”
“You know I would.”
“If you had two mules and I needed one, would you give me one of your mules.”
“Absolutely not,” Floyd replied.
“Why not?” asked Clyde.
“Because I HAVE two mules.”
Most of us will never receive telephone calls from either Gates or Buffett asking us to give away half of our wealth — so don’t hate them for their generosity. Personally, I greatly respect what they are doing and I hope they are successful in getting others to join their efforts. I’m particularly encouraged by the fact that they are results oriented. It would be a great waste to spend all this wealth and end up with nothing to show for it. If they are successful, however, they will help a global middle class emerge that will spur continued growth and prosperity around the world. That’s a real win-win situation.