Gates Foundation: Smaller funds, hard decisions

The impact of the global financial crisis on the Bill & Melinda Gates Foundation, was brought home late last year, when a lengthy memo began circulating internally.

It highlighted how the downturn was changing health philanthropy as much as governments and the private sector.

Bill Gates, the co-founder of Microsoft and of the world's largest philanthropic organisation, may still have been one of the richest men on the planet, but the downturn had knocked more than 20 per cent off the value of his endowment, paring it back from nearly $40bn to closer to $30bn.

Just as important for staff and beneficiaries, Mr Gates had only recently stepped down from his executive position at Microsoft, and was intensifying his involvement in the management of the Foundation. The memo was one result.

Addressed to those working in global health, the Foundation's largest activity, it began bluntly: "I am asking for us to start over the 2009 budgeting process ... The current budget process has not worked and if we went ahead with it we would be spending on the wrong things and in the wrong ways."

It went on to critique the minutiae of planned grants, the ways budgets had been drawn up, and whole swathes of existing structure, priorities and strategy.

Mr Gates put vaccines among his top interests, reflecting his belief that they are the most effective way to reduce the burden of disease.

He was scathing of large travel grants for meetings: "rich people flying around to talk to other rich people". And his conclusion was clear: "Our net effect should be to save years of life for well under $100, so, if we waste even $500,000, we are wasting 5,000 years of life."

Under Jeff Raikes, his newly appointed chief executive, some changes were already under way, including cost-saving measures and new systems designed to tackle waste.

The financial crisis added a new sense of urgency. Mr Gates and his wife and co-trustee Melinda initially responded by pledging that they would help make good the lower investment returns of the endowment by increasing its annual pay-out from the 5 per cent minimum mandated under US tax rules to 7 per cent.

They were helped by the fact that they had resolved that their objective was not the maintenance of the foundation in perpetuity, but that it should deliver results and spend itself out of existence within 50 years of the death of the last of its three trustees. Warren Buffett, 79, is the third of these.

More recently, the trustees have approved efforts to shift some funds away from simply grant-making, with plans for an initial $400m series of "programme-related investments" such as loans, guarantees and equity investments designed to support relevant for-profit as well as non-profit activities.

That reflects a broader effort to persuade donors - whether philanthropists, governments or companies - to join forces and increase the funding available to health. The appeal is not easy, with many arguing, even before the crisis, that the Foundation had taken responsibility for global health issues and they could provide support elsewhere instead.

It comes at a particularly sensitive time, when many supported projects are reaching expensive late-stage development that requires substantial funding. There are also multi-year commitments to existing programmes, so the prospect of a "flat" budget is intensifying the fight for funding.

The result has been the beginnings of a backlash, with criticism about the lack of accountability and information provided by the Foundation and debates among past and prospective grant recipients over how the money should be spent.

Robert Black at the Johns Hopkins Bloomberg School of Public Health in Baltimore led calls in medical journal, The Lancet, for a shift "from purchase of commodities to research, from discovery and development to delivery research, from heavily funded diseases to truly neglected diseases (such as pneumonia and diarrhoea), and from the high-income-country institutions to those in settings where the problems exist."

Tachi Yamada, head of global health at the Foundation, plays down external polemics and Mr Gates' memo alike, and says he remains committed to transparency, accountability and the mission: "To help find technology-based solutions that will have a big impact on the people we are trying to serve."

But the past few months show that pruning grant-making after a period of largesse will be a difficult task indeed.

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