The bill gates problem, p.30
The Bill Gates Problem, page 30
11
Bloat
In 2014, the Gates Foundation was experiencing technical issues tracking and managing the charitable grants it made—a sad irony for an institution run by one of the world’s most famed technologists. Worse, when the foundation embarked on a major, seventy-million-dollar project called Clarity, to fix the problems, it appeared to lead to even more confusion.
“Clarity was supposed to overhaul cross-program systems like investment management (e.g., grant management and tracking), for which IT resources played a significant part. The project was an utter failure,” noted the findings of a 2017 lawsuit against the Gates Foundation. The lawsuit was brought by Todd Pierce, whom the foundation hired as its “chief digital officer” to help resolve its tech issues. Or, at least, that’s what some senior staff thought Pierce had been hired to do. Others, including Bill Gates, had given Pierce the impression that he would be a “digital visionary,” not simply an IT janitor.
Pierce filed a lawsuit, claiming he had been misled about his job description. He asked to be compensated for the income he would have made had he stayed in his previous job, as an executive at Salesforce. In 2018, courts ruled in favor of Pierce, awarding him almost five million dollars.
Bill Gates, the son of a corporate lawyer and someone extremely comfortable using the courts, wasn’t about to accept defeat. The foundation proclaimed its own victory, citing Pierce’s failure to demonstrate one claim, negligent misrepresentation. “We continue to dispute the findings, characterizations of fact, and legal conclusions on the other claims, which are not supported by the record and contradict well established case law in Washington State,” the foundation asserted. “A judgment has not yet been entered and the amount of any judgment is still uncertain. The foundation intends to appeal the decision.”
And that’s what the foundation did. In 2020, an appellate court ruled that a new trial court would need to review what damages Pierce should receive. Inside the foundation, staff say the litigious behavior sent a chilling message. “I think that’s when we realized, no, the foundation will kind of come down on you,” one former employee told me, explaining his reluctance to speak on the record. If Gates was willing to go to the mat with Todd Pierce, what would it do, for example, if an employee violated a nondisclosure or nondisparagement agreement?
Pierce’s story illustrates more than the culture of fear that rules the foundation. It also speaks to the bloated bureaucracy that has sapped the foundation’s energy, efficiency, and effectiveness. How could seventy million dollars disappear into the foundation’s morass of IT problems with the Clarity initiative? How much more money vanishes into the bloat of administrative costs to run the world’s biggest philanthropy? What does this mean for taxpayers who pony up something like fifty cents of every dollar the foundation spends—or wastes?
And how do we reconcile this bloat with the image the foundation so ferociously presents as a doggedly efficient, hyper-nimble private entity that can do things that lumbering government agencies cannot? This reputation is of great importance to Bill Gates, who has always imagined himself as having a kind of principled workman mentality, bringing personal values of thrift and industriousness to all his work. “I’m very well grounded because of my parents and my job and what I believe in. Some people ask me why I don’t own a plane, for instance. Why? Because you can get used to that kind of stuff, and I think that’s bad,” he said in a 1994 interview with Playboy. “It takes you away from normal experiences in a way that is probably debilitating. So I control that kind of thing intentionally. It’s one of those discipline things. If my discipline ever broke down it would confuse me, too. So I try to prevent that.”
In its early days, the Gates Foundation very much practiced the virtues that Bill Gates preached. At that time, it was extremely focused on actually giving money away. Of the foundation’s $1.65 billion in expenses in 2000, $1.54 billion was money given away in charity. “The foundation is as spartan in structure and style as an Internet start-up,” Time magazine reported that year. “There are just 25 employees, in contrast to 525 for the venerable Ford Foundation.”
In 2007, the foundation’s chief operating officer, Cheryl Scott, explained, “The most important thing a foundation does is choose a limited set of issues and develop expertise in them. Bill and Melinda have identified areas in which they think our grantmaking can help solve complex, entrenched problems that affect billions of people—like the AIDS and malaria epidemics, extreme poverty, and the poor state of American high schools.”
By the end of 2021, the foundation’s portfolio had ballooned to 41 program strategies managed by at least 1,843 employees. It was suddenly spending more than $1 billion a year—around 20 percent of its annual expenses—on administrative costs and “professional fees.” Hundreds of millions—or maybe billions—of dollars from the foundation disappeared into the coffers of professional consultants, the nebulous, self-proclaimed experts-for-hire at outlets like McKinsey and Boston Consulting Group. And Bill Gates had begun traveling on his own private jet—the indulgence he once said would debilitate and confuse him.
As the foundation grew, its culture also changed. Perhaps the most common criticism I heard from grant recipients during my reporting was how difficult Gates had become to work with because of its intense bureaucracy and micromanagement. The foundation buries grantees with checklists and phone calls and paperwork. High turnover of foundation staff compounds the problem, forcing grantees to spend even more time bringing new foundation officers up to speed—and making them feel important and smart. Some organizations say they essentially have had to create a new full-time position to interface with the foundation’s endless requests for information. One early grantee told me his first partnership with Gates took a month to finalize. His last grant, a decade later, took a year.
“It seems that a large number of staff got involved with every grant, and all their multitudinous questions had to be iteratively addressed,” the source said, describing how grant applications were endlessly run up the ladder at the foundation, encouraging any and every meddlesome busybody to weigh in with questions, most of them irrelevant or simply foolish. “The people who wrote these questions have no idea what the field is about, who has done what, what has been done in the past.” As this source sees it, the problems began when Bill Gates started spending less time at Microsoft and more time at the foundation. “We saw this day after day after day, the way in which he mismanaged the Gates Foundation.… When you’re giving away money, it’s pretty hard to detect that it’s not being managed well. Recipients don’t want to complain. Staff, I think, are under nondisclosure agreements.”
Baylor University professor Peter Hotez, an early recipient of Gates funding for vaccine development, offers a more modest assessment, telling me the foundation “continues to be a net positive, but I do think they’ve gotten so big and so pervasive that there is diminishing returns on their productivity. I think they’ve gone past the point where they’ve maximized their productivity.… The solution, I think, is to roll things back a bit and become more of a foundation in the true sense, and less of either a company or an institute.”
Bill Gates argues the exact opposite, claiming that the foundation’s virtues today derive from its evolution from a check-writing charity into a powerhouse of experts who can organize entire fields of inquiry. “The Gates Foundation in an area like global disease is an institution,” he said in 2013. “It’s hiring scientists, researchers, deciding how to give the grants. And it’s taken us ten years to get that institution to a level—sort of the level of excellence that, say, Microsoft had in 1995, where you really feel people are very analytical, on top of things. That’s hard work. It’s fun work.”
Some sources I interviewed say that the foundation’s bloat accelerated with the hiring of Trevor Mundel, who joined as its global health director in 2011 (coming from Novartis). Under his leadership, the foundation took a much more hands-on role over pharmaceutical development. Other sources question whether the foundation’s bureaucratic excesses derive from rogue program officers and executives intoxicated by the power they wield. One scientist I interviewed recounted how his grant manager at the foundation would openly say, “I love this job because I can be in control of everyone’s grant.… When I was in academia, I was the principal investigator of my own [grant] program. Now I’m the principal investigator of everyone’s.”
One of the biggest contributing factors to the bloat has probably been Warren Buffett—ironically, a renowned bloat hawk with a reputation for thrift. (News outlets routinely cite how Buffett has lived in the same relatively modest house in Omaha, Nebraska, since the 1960s.) When Buffett began making large donations to the foundation in 2006—at least a billion dollars every year—the foundation’s swelling coffers created a cash-flow problem of sorts. Under IRS rules, the foundation has to give away 5 percent of its assets each year, so more money coming in means more money has to go out. Buffett also put additional rules on the foundation, saying his annual donations had to be given away the same year he donated them—this in addition to the annual 5 percent payout requirement.
Suddenly, the foundation had a huge spending burden, and it did not have enough trusted acolytes to soak up these vast sums of money. You could call it the Brewster’s Millions effect. In the 1985 film version of the story, Monty Brewster, played by Richard Pryor, has a choice to receive a gift: accept one million dollars on the spot or take a chance at winning three hundred million. To do that, he has to undertake a challenge, spending thirty million dollars in thirty days. As Brewster quickly learns, spending very large sums of money quickly is quite difficult. In the real world of billionaire philanthropy, the Gates Foundation’s embarrassment of riches had created the same challenge.
The solution for the foundation was what it internally called “forward funding”—creating new institutions and rapidly expanding funding to its largest grantees. This allowed it to get large sums of money out the door, even if, as it sometimes seemed, it was merely parking the money in the account of one of its surrogates. “We gave like a billion dollars at a time to them, knowing they wouldn’t be able to spend it for ten years, or eight years,” one former employee told me. “It didn’t matter, because that billion was treated for us as meeting our payout requirements, and it was a place to park the money, basically. There’s nothing wrong with it as long as the organization can responsibly grow into it.”
The result has been that around 40 percent of Gates’s charitable donations—more than $31 billion—have gone toward twenty mega- organizations, some of which function as surrogates for the foundation. Top recipients include Gavi; the WHO; PATH; the Global Fund to Fight AIDS, Tuberculosis and Malaria; UNICEF; the University of Washington; the World Bank; the Rotary Foundation; the United Negro College Fund; Johns Hopkins University; the Medicines for Malaria Venture; Alliance for a Green Revolution in Africa; the Clinton Health Access Initiative (and other projects tied to Bill, Hillary, and Chelsea Clinton); the National Institutes of Health; Aeras; New Venture Fund; the Gates Medical Research Institute; TB Alliance; CARE; and the International AIDS Vaccine Initiative.
The foundation has also put billions of dollars into old-guard bureaucracies—including more than a billion dollars to a group of agricultural research stations set up by the Rockefeller Foundation and more than half a billion dollars to FHI 360, a K Street nonprofit development group with four thousand employees. Many of the foundation’s closest partners and largest recipients are domiciled in expensive locales, like Geneva, Manhattan, and Washington, DC—meaning very large sums of money disappear into salaries of staff living in these high-priced cities. When the foundation built its own offices, it likewise spared no expense, pouring half a billion dollars into its ostentatious headquarters on prime real estate in downtown Seattle.
As always, we can go back to the foundation’s superficial lives-saved logic and calculate how many lives are being lost through this excess. Every additional dollar that goes to extravagant buildings, expensive real estate, fringe benefits, bonuses, and consultants could be spent delivering vaccines and healing the poor. As Bill Gates himself has written on the subject of wasted public health spending, “Taxpayers have every right to be angry—I am furious—because when the goal is saving lives, any misspent money costs lives.”
Gates wants us to think about lives in terms of dollars—he says saving a child’s life costs less than a thousand dollars. If so, don’t we have to understand that every billion dollars lost to bloat at the foundation translates into a million lives lost? The math is pure pabulum, of course, but this is the logic of the foundation. If journalists are going to lean on Gates’s lives-saved mathematics to promote the foundation’s good deeds, don’t they also have to work out the other side of the equation?
Warren Buffett apparently was upset enough about the foundation’s bloat in the mid-2010s that he directed a small reduction in the number of its staff, which in 2015 dropped from 1,460 to 1,449. The next year, however, the upward trend resumed, with staff size jumping to 1,579. Inside the foundation, one former staffer told me, the human resources department had also put its head to accounting tricks to appease Buffett. To deflate its ballooning head count, for example, the foundation expanded the hiring of consultants and a growing army of what it calls “limited-term employees,” essentially short-term contractors who serve alongside staff but get fewer benefits. The solution to bloat, then, was more bloat—and a two-tiered, unequal workforce.
Publicly, however, the foundation has always made a big show of its ruthless commitment to efficiency. Mark Suzman, after his appointment as the foundation’s new CEO in 2020, wrote an internal email about a trip he took to Omaha to visit Buffett.
He told me then that my most important job was to guard against the “ABC” risks of decay that all very large organizations face: arrogance, bureaucracy, and complacency. He has consistently pointed out that these risks are even greater for us as the country’s largest philanthropy. He has urged us to “swing for the fences” and take risks that others cannot—always with the reminder that we should never be displacing private or public capital, but rather complementing it. Since we are not subject to the natural checks of market forces, he has reminded us to watch out for mission creep that takes us away from our core competencies—a caution that underpins my prioritization of robust internal and external checks on our budget and strategy processes to ensure we are always focused on our areas of greatest comparative advantage. And, most importantly, he has urged us to adhere to the highest standards of integrity and transparency.
Yet, what are these “standards of integrity and transparency” that Suzman and Buffett exalt? What do these standards say about the foundation’s decision to build a sumptuous, half-billion-dollar headquarters?
There is reason to believe that the “ABCs” will continue to atrophy the foundation. In 2006, when Buffett first announced his partnership with Gates, he seemed to state that most of his money after death would go to the foundation. And the Gates Foundation has been working with McKinsey consultants to figure out how to manage what might be a fifty-billion-dollar or even one-hundred-billion-dollar inheritance from Buffett. This would mean the foundation will be forced to spend ever larger sums of money, guaranteeing more mission creep and more bloat.
But it’s also very possible that Buffett will change directions. He abruptly stepped down from the foundation’s board of trustees in 2021 amid several high-profile scandals—Bill Gates’s relationship with Jeffrey Epstein, allegations of misconduct with female employees, and the foundation’s botched management of Covid-19. Does Buffett really want to continue to trust his legacy to such an embattled man? In 2022, the Wall Street Journal reported that Buffett might be planning to direct most of his wealth to the Susan Thompson Buffett Foundation, named after his late wife, rather than to Gates. If so, it would be a powerful statement about Buffett’s loss of confidence in the effectiveness of the Gates Foundation.
Whatever Warren Buffett, born in 1930, decides to do, the Gates Foundation still has to contend with Bill Gates’s personal wealth—more than $100 billion as of early 2023. Gates, born in 1955, could easily live until 2040 or later—his father died at age ninety-four—during which time his wealth will likely continue to grow. Gates has promised to donate virtually all his wealth to his foundation, which is supposed to shut down two decades after the deaths of Bill and Melinda.
This presents one more irony, or contradiction, in the Gates Foundation. For most of the last two decades, the foundation’s endowment has been growing in size, not shrinking as you would expect of an institution in the business of giving away money. Between the billions of dollars in investment income the foundation generates each year, alongside yearly donations that Buffett and Gates make to the foundation, the foundation’s coffers will continue to swell. With hundreds of billions of dollars potentially coming into the foundation in the decades ahead, it is very difficult to understand the endgame.
Internally, the foundation has reportedly brainstormed ideas to address its spending problem and the potential for a sudden windfall of cash, for example, if one of its benefactors died. One idea, apparently, is creating a massive savings account for poor children. Of course, it would be wholly un-Gatesian for the foundation simply to give poor people money to use as they wish—and that doesn’t appear to be the plan. Rather, as described in media reports, the idea is to create a savings account on behalf of children. Presumably, beneficiaries will have to jump through hoops to access the funds and use the money in ways narrowly prescribed by Gates. Presumably too Gates will create a massive new surrogate to manage the money, with someone from the Gates family on the board in perpetuity.
