Yesterday the Chronicle of Philanthropy reported that the Bill & Melinda Gates Foundation received $10.4 million in unsolicited donations. This isn’t suppose to happen. Donors give money to charities or they put their money into their own foundation. They don’t give their money to other people’s private foundations.
But of course the Gates Foundation is as big as it is today because Warren Buffett made the decision to give his money to the Gates Foundation rather than start his own foundation. Buffett made it clear when he made the gift that he did so because he thought the Gates Foundation was better at philanthropy than he was.
Inspired by Buffett’s gift, a 7-year-old girl named Olivia made a gift of $35 to the Gates Foundation. At the time, then CEO Patty Stonesifer said, “Do you say no to a 7-year-old girl, but yes to Warren Buffett? One way or another, she did convince us to do some deep thinking." That thinking led the Gates Foundation to make it their official policy to accept donations, albeit under strict guidelines.
Donations have been growing steadily and have exceeded $10 million for the first time this year. So what’s going on here?
I think this is direct evidence of individual donors’ increasing interest in impact.
Why did Buffett give money to the Gates Foundation? He thought they were better donors. Why did 7-year-old Olivia donate to the Gates Foundation? She thought they were better donors.
The Gates Foundation actual encourages people to give money directly to their grantees rather than to the foundation. But at least some donors seem to think that entrusting their money to the Gates Foundation is the best way to go. When these donors think that the Gates Foundation is a better donor, what does this mean? That the Gates foundation knows which nonprofits are better than others.
Investors regularly entrust their money to professionals with the belief that these professionals are better at managing it then they are. There are reasons that I think most donors will not want to do this with their philanthropy. But I do wonder whether large private foundations might become high profile “brands” that represent excellent giving. If they could attract outside donations, they could commit more capital to the organizations they fund. In fact, they could permanently increase their payout rate.
If you were going to donate to a well known foundation, which one would it be?
I think this is a great post and an interesting dilemma for the Gates Foundation.
I do think they *could* say no to the 7 year-old if they have appropriate reasons–i.e. “some donors are better than others”.
What if it costs Gates more than $35 to process the donation?
How will she measure the effectiveness of her donation rather than directly to a nonprofit grantee of Gates or even to a local nonprofit?
I’m certain that the halo effect happens with Oprah all the time.
All that aside: the best takeaway is that there is something magical about inspiring our children to be philanthropists and to see the world as place to offer their gifts.
“That the Gates foundation knows which nonprofits are better than others.”
The CEO of the Gates Foundation in fact said that they might make some bad decisions.
“Often, finding the best ways to help people improve their lives takes many years of research and experimentation.”
“Because we’re taking risks, we have to accept the likelihood that some of our grants and strategies aren’t going to get the results we expected.”
So, I think it’s a *perception* on the part of donors to the Gates Foundation that they know which nonprofits are better than others.
Oprah does bring nonprofits on her show and they get a ton of attention (and I would assume, donations). So could Gates or other large foundations become the “Oprah” of philanthropy? Where the grantees they highlighted shot up to the top of the list for many donors?
Love the analogy Eugene!
Sure I would donate to the Gates Foundation. As long as my donation buys me a seat on the Board as it did Warren Buffett. Then I could sit beside an all-knowing seven year old female fellow donor who knows that the Gates Foundation is a better donor than the Girl Guides, George Soros, and even Oprah. Maybe the seven year old and I could begin to make the Gates Foundation more accountable
I have to admit I am torn. While I agree with Eugene about any method that inspires philanthropy in the younger generation is wonderful, I do admit that giving your money to a professional to manage is typical for high-net worh individuals.
My question would be to those who give to the Gates Foundation: Would the donors be able to dictate where their dollars will go (similar to a community foundation)? If so, then maybe yes. But when a project goes south, what repercussions or liability does the Gates Foundation have?
I still think this may stem a little bit from laziness. Wealthier individuals who choose to have a “hands-off” approach, in my opinion, don’t want to do the due diligence necessary to fund good npos directly. If you are passionate about philanthropy and truly want to make a meanngful impact (and have the deep pockets to do it) should try to educate themselves instead of passing off the duty to someone else.
Just one person’s opinion.
The Gates Foundation has strict guidelines to receive gifts and does not allow them to be restricted in anyway.
I think philanthropy is a personal and passionate activity. But it doesn’t have to be for everyone. I think it is OK for people to take a hands-off approach to their wealth management, or their hope repair, or their gardening or anything else. If you want to give money and be sure it is used well, but don’t want to personally get involved in the process, I think this is an OK choice.
I *wouldn’t* donate to the Gates Foundation, as I am assuming that a percentage would go towards Foundation admin etc (and they have enough to pay for that themselves!).
I *would* donate to a Gates Foundation beneficiary directly (and unrestricted), as I assume the Gates Foundation due diligence is better than I can do as an individual.
I would also be happy to tick a box letting the Gates Foundation know that their shared information was being used to inform individual donors.
I think that makes sense Jon. However, just to play devil’s advocate, would you hire a money manager to handle your investments or invest in a mutual fund? Or would you only buy investments on your own that the professional manager was buying in their fund? Would you be willing to pay (admin expenses) the money manager or would you only work with them if they offered their services for free?
What’s the difference (there are real differences)?
Disclosure: I work at a wealth management firm.
I agree with Jason that “it’s a *perception* on the part of donors to the Gates Foundation that they know which nonprofits are better than others.” In my own limited experience the nonprofit they chose was not the best choice at all and the Foundation’s expertise in the field was nil: that probably explains why they made what I consider a very bad choice.
Since there is very little transparency the consequences of this bad choice are not public and will probably remain unknown as nobody wants to “rock the boat”.
re: devil’s fund managers (#8)
Interesting questions. The key difference (for me) is that professional money managers can profit from *not* sharing their information.
Professional foundations (e.g. Gates) can leverage their information by giving it away for free.
From a charity web broker perspective, I would argue that these foundations should share which projects they have funded on Guidestar, Big Give (UK), etc.
Considering the risks that foundations can (and should) take, it might be worth including a risk level (e.g. new & risky; trusted long-term partner; etc).
re: Philippe’s point (#9), there would be huge value in rating which foundations are “better” than others…
Disclosure: I work at theBigGive.org.uk, and know less than Sean about wealth management 😉
Being “better at philanthropy” seems to be at the crux of this discussion. But what, exactly, does that mean?
Does it mean, for example, simply asking for evidence of effectiveness (outcomes)…as a good number of investors, and many governmental agencies, do now? Does it mean taking a deeper look at the outcome submissions you get from grantee organizations to see if the outcomes they claim are meaningful, sustainable, etc.? Or does it mean taking the time and making the investment necessary to ensure that one’s grantees can actually produce such meaningful and sustainable results.
Does it mean taking a longer view, and looking beyond the usual 12-month window and engaging for the long haul like VPP and SVP do, even if that means making fewer grants? Or does it mean effectively cherry picking, investing only in the highest profile, most proven initiatives, rather than taking a chance on an upstart effort that it still taking baby steps?
I think you have opened a valuable discussion here because I am not really sure our sector has a firm consensus on what “being better at philanthropy” means. There are numerous opinions, many of them valid to one degree or another.
The point is, that until such a consensus is reached (IF it ever is) the “branding” we hear about will continue to influence certain giving decisions, and the metrics people use to form judgments about charities will remain in flux.
When I talk about donors being “better” I mean that they accomplish more per dollar than their peers do. How to measure this is another (important) issue.
But even without any measurement, it seems to me that Gates is likely to be “better” at philanthropy than a casual donor. At the least, Gates is bringing experts who work full time on these problems.