Facing the Limitations of Scale in Philanthropy—Some Thoughts for Bill and Melinda Gates

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Editor’s Note: The Bill & Melinda Gates Foundation gives out more grants in a year than the next 18th largest grantmakers combined. That includes the Ford Foundation, the Walton Family Foundation, the Robert Wood Johnson Foundation, and the W.K. Kellogg Foundation, grantmaking behemoths themselves. It has more assets than Ford, Robert Wood Johnson, Kellogg, and the Hewlett Foundation. Noting that the Gates Foundation has slowed its pace of grantmaking despite having grown to a staffing of over 1,200—not including the variety of contractors and intermediaries that help push out the dollars—Buzz Schmidt, the founder of GuideStar and GuideStar International, sees some practical limitations to the evolution of such a large-scale philanthropic enterprise. Other critics in the past have decried the growth of the Gates Foundation as too large to be good for society, both here and abroad, and too much concentrated in the hands of a tiny group of people to be good for democracy. But the proposed solutions—somehow making the Gates Foundation spend down even faster—are simply not practical. With an eye to the intersection of pragmatism and the advancement of societal good, Schmidt poses an intriguing solution that NPQ thinks is worth serious attention.


In his May 26 New York Times’ DealBook article, “As His Foundation Has Grown, Gates Has Slowed His Donations,” Randall Smith chronicled some of the challenges facing the Gates Foundation as it strives to give away $4 billion annually. It makes you wonder if Warren Buffett now questions his own dramatic decision to commit what may ultimately be $50 billion to augment an opportunities-challenged, Gates-grantmaking strategy. It also suggests that, as in other lines of endeavor (as Bill Gates would surely realize), there are often practical limits to the effectiveness of dominant, large-scale enterprises. For Pete’s sake—no one has ever attempted to operate a global philanthropic enterprise granting the equivalent of a $100 billion foundation (making it more than seven times the size of the distant second Ford Foundation) and comprising over 10 percent of private foundation capacity.

If Gates surmounts the challenges of its current scale, however, it won’t be time to claim victory and head home. In fact, the foundation’s annual grantmaking challenge will grow appreciably with the passing of Warren Buffett, and it will grow again as Bill and Melinda Gates anticipate their own deaths and fulfill their public commitments to moving the bulk of their wealth—not just to their foundation but beyond, to recipient charities and causes—during or shortly after their lifetimes.

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Despite the challenges of over-scaling, there is no need to despair so long as the Gates Foundation is willing to accede a modicum of control and share some responsibility for the ultimate distribution of its largesse. Here are grantmaking strategies Gates might attempt that would be at once highly effective and transformative for philanthropy generally:

  1. Award one hundred grants (in formal Gates accounts, to avoid outright gifts to other private foundations)—each committing $12.5 million per year for ten years to interested grantmakers through an RFP process. Warren Buffett might have pursued this strategy beneficially rather than committing all his money to Gates. In so doing, Gates would be establishing a first-order level of grantmaking accountability that thus far does not exist in foundation philanthropy. This would move $2.5 billion annually.
  2. Award three thousand grants (average $1 million) per year to each United Way for ten years. This would benefit small and rural communities more—in a proportional sense—than it would large communities. And, encourage local bottom-up solutions to local problems, and document the heck out of all the experiments being tried. This would move $3 billion annually.
  3. Award $10 million per year each for ten years to one hundred community foundations to organize and fund resident action around specific knotty issues: for example, implementing universal zero-to-five education, establishing community resilience in the face of climate change, and rehabilitating critical physical infrastructure. This would move $1 billion annually.

In each of the above cases, Gates would be reinforcing an active and engaged citizenry. Gates must require regular reporting and full accountability for subsequent regranting to implementing organizations from each private foundation, United Way, or community foundation—but for the purposes of informing practice more quickly and highlighting what works. Any of these very visible strategies would in one moment transform the expectations, reporting, and, thereafter, the practices of institutional philanthropy. Each strategy would be a cathartic event for the sixty thousand entities now making grants, and exert positive signals throughout the nonprofit sector.

Of course, in advancing these grantmaking strategies, I’ve passed over the other huge strategic challenge/opportunity facing Gates and other philanthropies: how to deploy the foundation’s endowment itself (in this case, the $40 billion that is under Gates’ immediate control) most effectively for its mission. The foundation has already stuck its toe tentatively into the “impact investing” waters. In so doing, it recognizes implicitly that some “market-returning” investments are more valuable for society, or for the things about which Gates’ cares, than are mission-blind investments. An opponent of this approach could say that the lack of “flow” for the relatively small-scale private equity deals that typify the emerging field would make it nearly impossible to assemble a meaningful complement of impact investments for such a large endowment. Further, the opponent might point to the risk inherent in a portfolio made up primarily of such investments—if they could be found in sufficient quantity in the first place.

But a more conscious “impact investing” intention across its portfolio need not constrain Gates’ participation in the area nor increase the risks it faces. All enterprises, including every public company, contribute (both positively and negatively) to society’s regenerative capital—and all of our enterprises, at one level or another, are impact investments. Judged in terms of their “net contribution,” our enterprises occupy a broad continuum, from net negative (depleters) to positive contributors. By applying its own values to these calculations, Gates could build a low risk portfolio across the full population of small and large enterprises that more nearly matches its views of the needs of a future world. It will take a lot of work to develop the protocols and information to support such judgments, but Gates, under the leadership of our greatest investor, Gates trustee Warren Buffett, is very well situated to address this challenge through its own research, its relationships with investment intermediaries, and its own grants program.

Gates must double down to find ways to deploy its resources (grants and investments) in significantly greater quantity, if it is to fulfill its pledges. With the need so vast and the unfunded talents so great across the social and business sectors, Gates has an historic opportunity to be strategic, effective, and transformative. To seize the opportunity, Gates must escape the confines of traditional institutional philanthropy. Let us hope it does.

Arthur “Buzz” Schmidt is principal of Building Wherewithal LLC, founder of GuideStar, and chair of the F.B. Heron Foundation.


  • Margot H Knight

    Excellent suggestions for devolving grantmaking AND effectiveness. . . I would add two things–a sliding scale of granted $ based on the grantmaking budgets of United Ways and community foundations so that the new moneys can be integrated into current strategies and/or used for a significant multi-year initiative and not overwhelm the recipient organization. Sometimes an infusion of too much cash can cripple an organization.

    AND, secondly, make similar grants to ARTS grantmakers at the state and local level. There are 56 state arts agencies, six regional ones and a little over 3000 local arts agencies. The effects of a 10-year initiative to grow their capacity to revitalize communities through the work of artists and other local cultural assets would have a long tail.

  • Michael Wyland

    The biggest difficulty with this scenario is that it runs counter to the giving patterns of both Bill & Melinda Gates and Warren Buffett. They are intellectually driven and personally involved philanthropists. The concept of devolving their giving in a “hands off” fashion to established intermediaries would be a tough sell. When the Gates Foundation partners with other agencies and supports causes, it seeks to be an active partner in program and service design. It also seeks to extract meaningful evaluation data from its grantees, believing (with what might be referred to as an engineer’s mindset) that evidence-based philanthropy is the best hope for improving charitable missions.

    Further, most of the intermediaries mentioned do not share the charitable mission of the Gates Foundation. Big philanthropy may be hard, but the founder of one of the world’s largest companies and the world’s largest charitable foundation is unlikely to shrink from the challenge of big philanthropy. The Gates Foundation may fail, but it’s their right to fail, just as it’s the right of any charitable organization to pursue it mission in accordance with applicable law and regulation, with due consideration of – but not blind obedience to – philanthropic best practice. “Escaping the confines of institutional best practice” should not mean abandoning the playing field just because the game is becoming more challenging.

    Margot Knight alludes to the difficulty of a charity receiving “life changing money” (my term, not hers). I agree, though in my opinion the issue she raises actually weakens her case for support of Mr. Schmidt’s ideas. It would be doubly unfair for the Gates Foundation to solve its problem of having an embarrassment of riches difficult to distribute by dumping relatively large sums on charities that may be unprepared to accept and distribute it. First, even apparently stable organizations can be destabilized by large gifts, and I’ll freely posit that not all community foundations, United Way chapters, arts councils, etc., are equally high-performing and able to cope with a single large gift. Second, what if the Gates Foundation set acceptance criteria as life-changing as the dollar amounts involved? Two specific criteria that could upend a recipient charity are approved scope or nature of activities and administrative/reporting requirements.

  • George McCully

    It’s great to hear from Buzz Schmidt again.

    It is true that the sudden explosive appearance of the Gates Foundation presents new challenges to philanthropic traditions—yet another creative/disruptive factor in the current paradigm-shift pushing American philanthropy out of its 20th-century comfort zone.

    The Gates’ certainly understand their own need to innovate technically and procedurally. I believe that is why their Philanthropy Program is focusing so intensively on Big Data and developing ways to integrate mutually incompatible and incommensurable datasets. What they seem to me to be seeking is an integrated technologically-based system that will identify, for any region of the globe, philanthropic needs on the one hand, and philanthropic/government resources on the other, so they can then systematically fill in the gaps year after year,issue after issue—a global philanthropic system created primarily for their own needs to invest the yield on a super-endowment of over $140 billion and climbing, but also potentially useful to other grant-makers. Good luck to them in this entrepreneurial inquiry.

    I would, however, caution against wholesale distributions of mega-grants to existing institutions, because in a period of paradigm-shift it is almost impossible to tell who are dinosaurs on the way out, and who are their successors in a New Paradigm for the 21st century. Innovations are all around us, but some will turn out to be ephemeral while others will gain traction, connect, and grow into a flourishing new complex and collaborative structure. Paradigm-shifts are serious business—both destructive and creative. It would be the height of foolishness and arrogance for any one powerful institution to try to pick the winners and losers at this point.

  • Edward R. Penn

    A fallen Officer and a website started by a remarkable young man. In a time of grief that includes those not in the immediate family, we search for a solution. I find helping those cope with something tragic such as this helps me cope and feel better. This young boy Jacen is helping so many. He is raising money to buy Bullet proof vest inserts that stop rifle rounds.


  • Craig

    Hi Bill and MELINDA. I know you are doing some good with your foundation. I received a email from you today saying you will donate 5 million dollars to me. Is this true cause I could use this for me and my family plus others. Thank you and wishing you good health.