Published on: May 3, 2012
Buffett Should Do More than Give to Gates
Five years ago Warren Buffett pledged to give $31 billion of his $44 billion fortune to the Bill & Melinda Gates Foundation. The pledge gets paid in installments that total $1.7 billion annually, on average. To date, he has already made good on $8.1 billion. The Foundation says that Buffett "wants us to accelerate and deepen our work on the tough issues we're working to solve." Translation: The funds will be spent on causes like global development and global health.
Instead of directing the money to specific causes, Buffett could have revolutionized the system, or the context within which the causes he cares about have to operate. Had he done that, he could have multiplied the impact of his gift by God knows how many times and changed the face of charity as we know it.
George Overholser, founder of Nonprofit Finance Fund Capital Partners, makes a distinction between building something (for example, funding a some brilliant new fundraising program that can turn $1 million into $10 million annually in perpetuity) and buying something (for example, directing that a $1 million gift be spent on breast cancer research, in which case, you just "bought" $1 million of breast cancer research and that's the end of it.) Warren Buffett could have built something — a new system for dramatically expanding charity in America. Instead, he bought something. He could have multiplied his money. Instead, he annihilated its multiplication potential. How strange for a man who made his fortune by multiplying. And yet how entirely normal in the scheme of what the affluent do with their philanthropy.
Here are the things Warren Buffett could have done to achieve massive systemic change with about $1.7 billion annually:
$376 million: Execute a sexy, exciting annual advertising campaign — the equivalent of what Apple spent on advertising last year — to transform the way the public thinks about charity. These campaigns would contain provocative and powerful messages — the likes of which the public has never seen — on the difference between low overhead and actually solving community problems and on the need for the sector to invest in the long-term. Imagine SuperBowl ads that tell you to think differently about charity. Know how much the humanitarian sector spends right now on advertising to the public — you know, the way "Got Milk?" did? A big fat zero. As a result, some 70% of the population thinks charities waste either a great deal or a fair amount of money. This reality undoubtedly suppresses retail giving.
- $300 million: Fund an iTunes for charity to evaluate every one of America's approximately 140,000 active health and human service charities. Fund a Peace Corps labor force that would gather rich, objective information on each of these organizations and update it annually. People would know exactly what their contributions are being spent on. Instant transparency and accountability; instant boosts in public confidence; instant boosts in giving.
- $376 million: Fund an annual ad campaign to publicize the existence of the iTunes for Charity, making it a household name and driving donors to the service instead of to the scattered, fragmented, woefully inadequate patchwork of small charity evaluators that currently exist and whose grading systems often reinforce donor's bad habits (focusing on overhead rations rather than results, for instance). Every American could easily get up-to-date information about any charity's impact on social problems. Every American would be looking at the same data. No charity would be able to game the system. Impact would become king.
- $50 million: Fund an annual training program for attorneys general and other regulatory officials to help them understand the importance of measuring an organization's commitment to effectiveness rather than to good watchdog grades and public relations.
- $50 million: Fund a campaign to train the media on the same issues.
- $100 million: Launch a venture fundraising movement to fund the most innovative fundraising ideas, fundraising entrepreneurs, and fundraising professionals. This fund would vet and nurture people and ideas in the same way the VC community does for the likes of Facebook and Groupon. The venture philanthropy movement sought to find the best programs and fund them. This new movement would find the best programs and fund the fundraising operations that can multiply the money available for programs. My former company launched the Breast Cancer 3-Days, for example, with a $350,000 initial investment. In five years that turned into $194 million in net proceeds for breast cancer research — a multiplication factor of 555 times the initial investment. If you could achieve only a multiplication factor of 5, this $100 million would generate $500 million annually in new fundraising revenues.
- $500 million: Give the remainder to Gates Foundation programs every year.
Charitable giving in the U.S. has remained constant at 2% of GDP ever since we've been measuring it. That amounts to $300 billion in annual giving. The initiatives outlined above could transform public opinion and understanding and generate massive new fundraising. If we could boost annual giving rates just by one half of one percent, that would increase funds available to charities by $75 billion annually — 30 times what Buffett is giving to Gates each year.
Warren Buffett could have re-invented the entire humanitarian sector. He and the Gates Foundation still can. We don't need smart people making program grants. We need them to transform the sector, and let the public bring in more new money for programs than we ever dreamed was possible.