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Despite the Headlines, the Gates Foundation Has Evaded Scrutiny

Allegations of financial misconduct against Michael Larson, who manages the foundation’s money as well as a portion of Bill and Melinda’s personal wealth, should prompt a closer look.

By Tim Schwab

June 7, 2021

Bill Gates, left, and Michael Larson.(Getty Images; Scott Olson / Getty Images)

Is it finally time to investigate the Gates Foundation?

Following weeks of allegations that Bill Gates has acted inappropriately toward female employees, The New York Times last week reported that the Gates Foundation’s money manager also stands accused of sexual misconduct—as well as bullying and racism.

The allegations against Michael Larson, which he denies, are both long-standing and long known to both Bill Gates and Melinda French Gates, according to the Times, and they contribute to a widening institutional crisis around the Gates Foundation, whose leadership is characterized as negligent, dysfunctional, and abusive.

But buried in the Times story is also an allegation of financial misconduct that governance and tax experts say should trigger official investigations into the foundation, and prompt us to rethink governance rules over billionaire philanthropy.

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In the Times’ reporting of Michael Larson’s alleged bullying, it noted that when one of his employees found a job at another company, Larson retaliated by making financial trades designed to hurt that company’s stock price.

Larson doesn’t deny trading the company’s stock, but told the Times that he did not do so out of spite. Larson and the Gates Foundation both refused to respond to press inquiries, and it remains unclear if Larson made the trades using the foundation’s funds or the Gates family’s personal funds, both of which he manages.

But if it is shown that Larson made the financial transactions according to some personal animus, and if he did so with the Gates Foundation’s money, it would show him recklessly using charitable funds to advance his own interests—one of several red flags and irregularities that experts say should be investigated.

“If I were the Washington state attorney general, this state of affairs would highlight for me how unusual the governance structure of this organization is,” notes Brian Galle, professor of law at Georgetown University. “You have the largest private foundation, which has three officers [Bill Gates, Melinda French Gates, and Warren Buffet], and it seems like maybe that’s not enough to make sure they are responsibly supervising the behavior of people who have a lot of control over the organization.”

Experts also cite additional financial concerns, including the potential overlap between the two enormous funds that Larson oversees—managing both the Gates Foundation’s $50 billion endowment and some portion of the Gates family’s personal wealth, estimated at $130 billion.

One worry is that the two funds Larson manages could be traded in ways that benefit or hurt each other—or other interested parties. In 2002, The Wall Street Journal reported that the Gates Foundation and Bill Gates each secured large shareholder positions in Cox Communications on the same day, which also coincided with a business partnership Microsoft was pursuing with Cox. The story reported that Michael Larson was involved in at least one of the trades.

“There’s enough evidence to warrant much more thorough investigation by public agencies,” says Ralph Nader, a longtime consumer advocate and one of Bill Gates and Microsoft’s fiercest critics from the 1990s. “The intricacies of the dealings back and forth, the signs of conflicts of interest, and the likelihood of direct or indirect inurement [benefit] calls for official investigations.”

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“It doesn’t pass the smell test, as corporate lawyers say,” Nader noted.

Congress and the IRS, like the attorney general in the state of Washington (where the Gates Foundation is located), have the ability to investigate the Gates Foundation, but historically have devoted few resources to monitoring foundations.

The Silent Partner

Judith Chevalier, a professor of finance at Yale University, says that when billionaires give their money to a private foundation, it no longer is their money—but rather part of a charitable trust that is required to be spent for philanthropic purposes. That the Gates family has continued to exercise such tight control over the foundation’s money, Chevalier says, should have raised questions a long time ago.

“They haven’t really diluted their control over it in a way which is customary,” Chevalier notes. “It’s just good practice to have a substantial and independent board of directors.”

Chevalier and others point to the power that Warren Buffet has in pushing for institutional changes through his role as one of the foundation’s largest donors. In 2006, Buffett announced that he would give most of his wealth to the Gates Foundation, which he has done through annual donations of Berkshire Hathaway stock. In 2019, he gave $2.75 billion in stock to the foundation—while Bill and Melinda French Gates themselves contributed less than $600 million in total giving.

Though Buffett is one of three trustees at the foundation, he has long stayed in the background of the organization and has not spoken out about the foundation’s current crisis.

“He is the one person who wasn’t in the [Gates] family who was actually making a substantial donation to the foundation,” notes Chevalier. “And just like I don’t want to give money to a nonprofit that I think doesn’t spend its money well, I would have thought he would have given some substantial thought to the governance structure [of the Gates Foundation] before he handed over his money.”

Brian Mittendorf, a professor of accounting at Ohio State University, says Buffett’s donations to the Gates Foundation appear to have been based on “faith and trust,” a striking departure in character for a money manager renowned for being “cautious and careful and conservative.”

“People are paying a lot of attention to the relationship between Bill and Melinda Gates right now, but how this whole thing is playing out in the mind of Warren Buffett also is pretty important, given his gift,” says Mittendorf. “But it also highlights how what’s going on in the mind of one person should not have that much impact on a $50 billion organization.… The organization’s future shouldn’t hinge so much on any one of those three [trustees].”

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The Gates family’s grip on the foundation’s spending also raises questions because of the tax benefits embedded in the practice of philanthropy. Tax experts widely regard charity as highly publicly subsidized, noting that as much as 70 cents of every dollar spent by private foundations might actually be public funds—money that billionaires like the Gates would otherwise have to pay in taxes.

Brian Galle likens charity to government contracting, where private entities receive taxpayer money to do work for the government. The difference, Galle says, is that “government contractors are subject to several orders of magnitude more oversight and regulation than charities are.”

“Given that they raise…similar concerns, it’s kind of interesting that we’ve developed the law of public contracting so much but really haven’t changed the law of charity at all in 100 years,” Galle said, apart from one overhaul by Congress in 1969.

In many ways, private foundations are left to regulate themselves—as borne out in recent reports that Bill and Melinda are considering addressing the foundation’s institutional problems through a self-directed reorganization of the charity. Such changes reportedly could include the creation of an independent board, which follows expert advice on best practices, but such a change may come too late—and be too influenced by the Gateses—to address the foundation’s governance problems.

A newly created independent board, for example, ought to have a keen interest in investigating the allegations of sexual misconduct that surround Bill Gates. If Gates, who denies the allegations, personally helps organize the new board of directors, that puts him in a position to potentially influence any investigation.

Melinda French Gates might be in an equally compromised position—possibly desiring to pick board members who will preside over a tough investigation of her former spouse, whose alleged inappropriate behavior with female employees at the Gates Foundation, as reported by The New York Times, may factor into their ongoing divorce proceedings.

The Gates Foundation did not respond to multiple inquiries.

Following the Money

Over the decades, journalists have many times raised questions about Bill Gates’s use of charitable funds. In 1999, the Times profiled a Gates-funded charitable effort to donate computers loaded with Microsoft software to libraries, prompting criticism that the gifts were really designed to advance the commercial interests of Microsoft, the company Bill Gates founded.

In 2002, the Times and The Lancet reported on the Gates Foundation’s donation of $100 million to battle HIV in India—one day before Microsoft announced a $400 million investment in the country, raising questions about whether the foundation’s donations were part of a charm campaign to expand Microsoft’s market share in India.

In 2020, The Nation uncovered more than $2 billion in charitable grants the foundation has given to private companies—including a quarter-billion dollars to companies in which the foundation’s endowment was invested, like Merck, Novartis, and Medtronic.

The foundation’s expansive donations to private companies may also overlap with Bill and Melinda’s personal investment portfolio. The Gates family zealously guards the details of their private wealth, making it impossible to investigate such overlap.

But there are some documented examples where the Gates Foundation’s giving could be seen as advancing the Gates family’s personal interests, like $80 million in charitable donations the foundation has given the elite private school that Bill Gates and his three children attended.

Tim SchwabTim Schwab is a freelance journalist based in Washington, D.C., whose investigation into the Gates Foundation was part of a 2019 Alicia Patterson Foundation fellowship.


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