Thoughts on the Gates Foundation's Investment Practices

The Bill and Melinda Gates Foundation is transforming global health care by using its financial heft to alter the economics of fighting disease. Yet having taken on malaria, tuberculosis and AIDS, the foundation says it has met its match in the challenge of investing its assets responsibly.

The Los Angeles Times last week reported that 41 percent of the foundation's assets are invested in corporations operating counter to its mission. Having declined to comment as the Times prepared its articles, after their publication the foundation pledged to perform a comprehensive review of investing practices.

Then the foundation changed its mind. In a letter to the Los Angeles Times, Gates Foundation CEO Patty Stonesifer wrote, "Changes in our investment practices would have little or no impact on these issues." This response is not credible.

I know a little about money, investing, philanthropy and Bill Gates. I worked at Microsoft for eight years. During this time, I founded two socially responsible coffeeshops in Seattle that gave profits to community charities. Later, I wrote about Microsoft's corporate practices and my own efforts to responsibly invest the $5 million I earned there.

I have been attacked for biting the hand that fed me, just as the Los Angeles Times has been attacked for criticizing the Gateses. Some people think the good works of the foundation should insulate it from criticism. And in fairness, the Gates Foundation has done nothing illegal or unusual. Its investment strategies are like those of most private citizens and even quite a few foundations. The mutual funds most widely held by Americans in turn invest in Exxon Mobil, Nestle, and Ameriquest—companies cited by the Los Angeles Times as examples in the Gates portfolio whose practices are harmful in some ways.

There is also the issue of scale. Investing the Gates Foundation's $65 billion inevitably requires owning some large companies whose ways of doing business are offensive. But this is an opportunity for the foundation to apply enormous influence and ingenuity to fundamentally change the landscape of corporate practice.

As chairman of Microsoft, Gates unapologetically directed the company during the time it broke antitrust law, sold technology to China that enabled Internet censorship, dodged hundreds of millions of dollars in taxes in Washington state and outsourced thousands of quality technology jobs abroad. These practices generated the wealth that endowed the Gates Foundation. In using that wealth to do good, why stop at how it spends the return on its investments?

I once attended a fundraiser led by Bill Gates Sr., Bill's father, who was successful in his own right as a prominent Seattle lawyer. He spoke articulately in support of the estate tax. I was struck by the disconnect between his vision and his son's company's donations to the Republican Party and its platform to abolish the estate tax.

The Los Angeles Times now points out a similar disconnect in the Gates family's philanthropy. It's a disconnect we all share to one degree or another.

Why do our laws allow shareholders like the Gates Foundation profit from corporate pollution? Why do our regulations allow predatory lenders to continue their abuses? Why do we allow corporations to perform acts that you or I would be arrested for? The disconnect is inherent in our lifestyle, the products we love and the corporations that make them. It is cultural.

As wages and benefits for the middle class decline and the cost of living rises, investing in the stock market is a last vestige for us to sustain a high-quality, independent lifestyle. It's not surprising that critics of corporate behavior and those invested in those companies evoke a visceral backlash. These critics appear to threaten our way of life.

Our Revolution was initiated by wealthy men not unlike Gates revolting against the tyranny of taxation. Aversion to financial restraints on profit is our heritage.

The limited liability corporation is a legal construct to shield individuals from financial responsibility for causing harm. Deregulation is code for allowing corporations to profit indiscriminately, regardless of damage to people and the environment. And in lobbyist-infested Congress, regulation is code for letting the corporations write the rules.

When Americans look deep inside themselves, they know this is wrong.

Thoreau wrote in Walden, "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."

With a laissez-faire response to the implications of investing, the Gates Foundation lost an opportunity to lead. It's time for the rest of us, at least, to acknowledge that the unrestrained acts of our corporations are anathema to our values.

Jeff Reifman is a former Microsoft manager and founder of the citizen journalism Web site NewsCloud.com.

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