Gates Foundation Backing Off From Its Pledge to Review Investments

Update: CEO Patty Stonesifer of the Gates Foundation confirmed this report writing in a Sunday LA Times editorial:

It would be naive, Stonesifer said in a letter published today on the editorial page of the Los Angeles Times, to think that changing the foundation's investment practices could stop the human suffering blamed on the practices of companies in which it invests billions of dollars.

Original post:

I got a tip tonight that the Gates Foundation has backed off their commitment to review their investment portfolio's level of social responsibility and significantly altered the public statement on their Web site to reflect the policy shift. The current copy of the statement is here: Our Investment Philosophy and pasted below. The new version is a mix of meaningless gobbledygook - which I'll get to in a moment.

In "Gates Foundation to review investments", the Seattle Times reported "The Bill & Melinda Gates Foundation is planning a systematic review of its investments to determine whether it should pull its money out of companies that are doing harm to society, Chief Operating Officer Cheryl Scott said Tuesday." The LA Times added this in "Gates Foundation to reassess investments", "...Cheryl Scott, chief operating officer of the foundation, said it would determine whether it should pull its money out of companies that harm society. ... On Wednesday afternoon the foundation removed the new investment policy statement from its website. A spokesperson said the statement would be reposted with additional information."

The new Foundation statement also hints at this: "I also want to clarify some aspects of our policy that may have been unclear in previous statements."

Apparently what wasn't clear is that they won't be altering their investment strategy. I'm told that Gates is not a fan of socially responsible investing and asked that the Foundation's public announcement be changed...significantly. If anyone has a copy of the earlier announcement, please email it to me.

Back to the content of the current release, it's ridiculous meaningless corporate PR. From my read, they are now committing to nothing. Essentially, they are throwing up their hands and saying that determining the relative level of harm from their investments is too hard for them and would distract from their mission. I encourage you to read the whole thing but here are the lowlights:

"Two recent articles in the Los Angeles Times have raised questions about whether we should spend time evaluating companies and shifting our investments away from the ones that get a low score on some ranking criteria. We want to make it clear why the foundation focuses on our grantmaking, rather than on such evaluations, and we want to explain Bill and Melinda’s investment philosophy."

"Bill and Melinda oversee the investment of the foundation’s endowment. In giving guidance to the investment managers, they have chosen not to get involved in ranking companies based upon factors such as their lending policies or environmental record. There are dozens of factors that could be considered, almost all of which are outside the foundation’s areas of expertise. The issues involved are quite complex...Which social and political issues should be on the list?"

"Many of the companies mentioned in the Los Angeles Times articles, such as Ford, Kraft, Fannie Mae, Nestle, and General Electric, do a lot of work that some people like, as well as work that some people do not like. Some activities might even be viewed positively by some people and negatively by others."

"Shareholder activism is one factor that can influence corporate behavior. The foundation is a passive investor because we want to stay focused on our core issues."

The only situations the Foundation will not invest in: "1) if a company’s profit model is centrally tied to corporate activity that we find egregious. This is why the foundation does not own tobacco stocks." or "2) if owning shares in a company would represent a conflict of interest for Bill or Melinda." Profiting from toxic pollution and predatory lending - that's okay but cigarettes, no way!

This sure seems to be a different tune than the headlines on the LA Times and Seattle Times follow ups. In fact, it seems to me that the Foundation is now saying that it is not planning to do anything differently.

Would anyone from the Gates Foundation care to respond to this?

I would like to recommend that they read my article in the Seattle Weekly about how I invested my money from Microsoft, "Investing for Change". I'd hate for the Gates Foundation to be perplexed by this whole SRI-thing, I mean they are so under-resourced and need to focus. Seriously, my article is a great primer for any billionaire who wants to do more good and do less harm but may not have the time to hire thousands of people to do this for them.

Related links:
Gates Foundation invests in firms accused of abuses

Update:
LA Times reports on the second statement from the Gates Foundation

Technorati Tags: bill gates, gates foundation, Gates Foundation investments, patty stonesifer, socially responsible investing, sri, stonesifer

Full text of Foundation Statement as of Thursday 10:58 PM January 10th:

Our Investment Philosophy

A note from chief operating officer Cheryl ScottView printable version

I want to take this opportunity to follow up on recent media reports about the Bill & Melinda Gates Foundation’s investments and our processes for making decisions about them. I also want to clarify some aspects of our policy that may have been unclear in previous statements.

While we do not anticipate any change in our approach to investments, we have not previously described in writing the philosophy of the foundation and its co-chairs. This is an important topic, and we believe the following statement will clarify our position.

***

The goal of the Bill & Melinda Gates Foundation is to make sure that all people—no matter where they live—get the chance to live a healthy, productive life. Two recent articles in the Los Angeles Times have raised questions about whether we should spend time evaluating companies and shifting our investments away from the ones that get a low score on some ranking criteria. We want to make it clear why the foundation focuses on our grantmaking, rather than on such evaluations, and we want to explain Bill and Melinda’s investment philosophy.

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.

Our foundation is building expertise in these areas and bringing together partners to tackle them. We work with governments, non-profit organizations, businesses, and individuals to solve tough problems. We have been able to encourage good actions by some corporations, including financial services and pharmaceutical companies, by creating new incentives for them to get involved in solving these problems. By supporting grantees who work in the areas we’ve chosen, our programs can have enormous impact on people’s lives.

Bill and Melinda oversee the investment of the foundation’s endowment. In giving guidance to the investment managers, they have chosen not to get involved in ranking companies based upon factors such as their lending policies or environmental record. There are dozens of factors that could be considered, almost all of which are outside the foundation’s areas of expertise. The issues involved are quite complex. Should a company get a failing score if 1 percent of its output is used in cigarette packaging, or if 1 percent of its stores’ sales are in tobacco? How far back in time do you evaluate behavior? If a company disagrees with your assessment, what appeals process is available? Which social and political issues should be on the list?

Many of the companies mentioned in the Los Angeles Times articles, such as Ford, Kraft, Fannie Mae, Nestle, and General Electric, do a lot of work that some people like, as well as work that some people do not like. Some activities might even be viewed positively by some people and negatively by others.

There are many important issues that the foundation does not focus on, such as lending laws and environmental regulation. The organizations that do work on those issues—together with governments and all of their legislative, executive, and judicial resources—play a critical role. We do not want to duplicate that role.

Bill and Melinda have prioritized our program work over ranking companies and issues because it allows us to have the greatest impact for the most people. They also believe there would be much room for error and confusion in such judgments, and that divesting from these companies would not have an effect commensurate with the resources we would divert to this activity. The foundation’s not owning a tiny percentage of a company or selling it to another investor would often go unnoticed, and Bill and Melinda would not be comfortable delegating this kind of judgment.

Shareholder activism is one factor that can influence corporate behavior. The foundation is a passive investor because we want to stay focused on our core issues. But as responsible shareholders, the investment managers do vote proxies consistent with principles of good management and good governance, and have voted against management’s recommendations when they have disagreed with them.

Of course, all investors face decisions about where to put their money, and where not to. Bill and Melinda have defined two instances in which the foundation will not invest:

1) if a company’s profit model is centrally tied to corporate activity that we find egregious. This is why the foundation does not own tobacco stocks. It’s unlikely that this choice has affected the activities of these companies, but Bill and Melinda have decided not to own these stocks in any case.

2) if owning shares in a company would represent a conflict of interest for Bill or Melinda.

The investment team will continue to enforce these two exceptions and to do regular reviews with Bill and Melinda on these and other investment issues. As part of these reviews, they will consider whether there are other exceptions. The team is also part of ongoing discussions with outside investment managers and consultants on a wide range of topics of interest to people who manage large endowments. Bill and Melinda’s decisions of course are also informed by their independent learning and by the conversations they have with people who bring different perspectives to this issue.

There has been an implication that we have been secretive about our investments. In fact, each investment is listed on the foundation’s tax forms, which are posted on our Web site. Anyone who wants to know what stocks, bonds, and other instruments we invest in can find out by examining our public tax records, as reporters have been doing for years.

Bill and Melinda recognize that they have been extremely fortunate. In giving the money they’ve earned back to society, they have chosen to focus this foundation’s energy and expertise on program work because it has direct impact on people most in need. They are so excited about the possibilities that they have committed the foundation to spending every dollar within this century.

This is the way we are working to improve lives, and it is the best investment we can make.

Comments

[Matt]

I note after reading your linked article ("Investing for change") that you came to your social consciousness AFTER you profited hugely from a company (Microsoft) whose main purpose seems to be hurting others. To your credit, you do touch on this at the end of said article.

So, can someone be successful in this country *without* harming others? I believe the answer is, not in the way success has been defined in this country (I believe your article termed it "security" - most of us would say, "having lots of money.")

Can someone with millions do good with it? Enough good to undo the harm done making those millions? That's the issue I feel you are just as vague as Gates on.

Don't get me wrong; I applaud your attempts at ethical investing, and even the "BM Gates" foundation's attempts to do some good in the world.

But terming you "the pot" and this piece "calling the kettle black" is where I stood after reading it (linked from Slashdot).

Good luck.

[keith]

the problems you know about are ez to solve
good of you to inform the good doers.

[Matt]

If a company gets large enough, chances are someone's not going to like it for one reason or another. That's life...

[eric]

Raving generalizations don't mean anything, though. It's not that "someone doesn't like it," it's that the Foundation invests in companies whose production makes the humanitarian goals of the BMGF more difficult to achieve. This has nothing to do with preference or the law of averages and it has a real solution. If in fact you are suggesting nihilism as an unspoken option, that's a first for me.

[Jeandré]

"There are a thousand hacking at the branches of evil to one who is striking at the root, and it may be that he who bestows the largest amount of time and money on the needy is doing the most by his mode of life to produce that misery which he strives in vain to relieve." - Walden (1854), Chapter 1: Economy, Henry David Thoreau

[JP]

The Gates' have it exactly right. Determining whether a company is "worth investment" given its allocation decisions is enormously complex, from any perspective. If they hired the battery of lawyers and accountants and other specialists required to do the job, donors (represented in part by the LA Times, no doubt) would ask why overheads are so high, and philanthropic grants consequently so low.