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February 13, 2007
The Gates Foundation and Mission Related Investing: Room for Alignment?
    by Bill Baue

An investigative report into the investment practices of the Gates Foundation has reinvigorated the debate over the obligation of foundations to align their missions with their investments.

Should foundations pursue their missions exclusively through their program work and grant-making (typically involving five percent of their assets), or should they also seek to align their investing (typically 95 percent of their assets) with their missions? This question, which the socially responsible investing (SRI) field first answered a decade ago in crafting mission-related investing (MRI), was posed to the world's largest foundation in a January 2007 Los Angeles Times investigative report. The $70 billion Bill and Melinda Gates Foundation responded by explicitly rejecting mission-based investing, which comprises positive, best-in-class, and exclusionary screening, shareowner engagement, and active proxy voting, among other elements.

"Gates never read Gandhi: reduce the dissonance between creed and deed," said Steve Viederman, who helped pioneer MRI when he served as president of the Jessie Smith Noyes Foundation. "Obviously, they are the elephant in the room--their repetition of myths helps others deny that they can add value to their grants through asset management."

One such myth is the notion that the impact on a foundation's mission through its program work is necessarily more significant than through its investments.

"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," reads a statement by Cheryl Scott, the Foundation's chief operating officer, posted on its website in response to the report.

Considering where the lion's share of the Foundation's assets is devoted, it is not safe to assume the direct impacts of program work necessarily outweigh the indirect influence of investing. If corporate practices supported through investment conflict with the mission, this could counteract the positive influence of grant-making. MRI recognizes that investing is not neutral, so better to align investment with mission than risk having the two primary tools of foundations working at odds with one another. The statement also focuses on the "ranking" of companies according to their environmental, social, and governance (ESG) performance, which forms the basis of SRI screening. However, it is only one component of SRI strategies and MRI.

"As universal owners, screening is not the key issue," said Mr. Viederman, referring to the notion of "fiduciary capitalism" where institutional investors necessarily diversify their portfolios across the entire economy. It is precisely because of this broad ownership that investors have significant influence--not through screening but through active stewardship of their investments.

"In the last ten years an increasing number of small foundations--such as Tides, Needmor, Hazen, Educational Foundation of America, and Funding Exchange--have followed in the footsteps of leaders like Nathan Cummings, Jesse Smith Noyes, and As You Sow foundations in becoming actively involved in shareholder advocacy, including the filing of resolutions," said Tim Smith, president of the Social Investment Forum (SIF) and vice president of Walden Asset Management. "Larger foundations such as Ford, Boston, and Rockefeller Brothers as well as mid-sized ones such as the Vermont Community Foundation have created extensive and thoughtful proxy voting policies--Ford's have been in place for over 30 years."

Monica Harrington, senior policy officer at the Gates Foundation, explained the Foundation's proxy voting practices in general terms.

"The investment managers vote proxies for the Foundation's holdings--and they vote the proxies consistent with good governance and good management," Ms. Harrington told "When instructing the investment managers, Bill and Melinda also take into consideration other issues beyond corporate profits, including the values that drive the Foundation's work."

Howerver, she did not respond to's request for a copy of the Foundation's proxy voting policy nor answer the question of whether one exists, making it impossible to assess how the Foundation's proxy voting takes into consideration the values that drive its work.

While the Foundation acknowledges that "shareholder activism is one factor that can influence corporate behavior," it does not engage in such activism in order to "stay focused on our core issues." This suggests the Foundation believes its core issues and shareholder activism are mutually exclusive, when in fact the two may be complementary.

The Foundation does not engage directly with companies as a shareowner, but it does do so in its program work, according to Ms. Harrington. For example, the Foundation partnered with Merck (ticker: MRK) and the government of Botswana on a multi-pronged program to fight the spread of HIV/AIDS.

"The African Comprehensive HIV/AIDS Partnerships (ACHAP), which was launched in 2000, is making tremendous progress, particularly in expanding access to HIV treatment and care," said Ms. Harrington. "More than 50 percent of those who can benefit from antiretroviral (ARV) therapy--and 85 percent of those with advanced HIV infection--are now receiving these lifesaving drugs . . . these are the highest rates in Africa."

Dan Rosan, program director for public health at the Interfaith Center on Corporate Responsibility (ICCR), a coalition of 275 faith-based institutional investors that conduct shareowner activism, applauds this work, and sees it as paving the way toward SRI and MRI.

"The Foundation has been focal point of debate because it is very, very big, but the issue is not specific to the Gates Foundation as all foundations have an obligation to align missions and investment practices," Mr. Rosan told "The Foundation is also a lightning rod because it is very, very good at everything else it does--it has given more money to HIV and AIDS programs and demanded more accountability and effectiveness from those programs than previous players."

"It is precisely this leadership that shifted the public discourse around global health, and this record of leadership makes me optimistic the Foundation will, at the end of the day, be a leader in socially responsible investing," he added. "The Foundation has immense financial credibility because of the business acumen of Gates and immense moral leverage because of its grant making--few institutions in the world are as well positioned to bridge the gap between global pharmaceutical companies and the communities most impacted by those companies in Nigeria or South Africa or Thailand."


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