Gates/Buffett Giving Pledge: thoughts by Peter Karoff

Gates/Buffett Giving Pledge

by Peter Karoff

A few years ago I was in NYC with a TPI client of very substantial wealth - $800 million - who told me he had decided to leave each of his three children a mere $1 million and give the rest away, not because he was that charitable, but because he was concerned that too much money would ruin his kids. I repeated this story to a good friend, who also has a great deal of wealth, and one Sunday afternoon he said to his two entrepreneurial sons, successful in the real estate business, but always in need of more capital – “Peter told me about this rich guy who has decided to leave just one million to each kid – what do you two think of that?” There was a pregnant pause in the room, and then one of the sons said – “Dad, do you remember the Menendez brothers?” I think the comment was made in jest, but who knows?

But when David Rockefeller made public in 2009 his decision to give away most of his wealth in a series of major gifts including $100 million to MOMA and $300 million to the Rockefeller Brothers Fund – I asked his eldest daughter Peggy Dulany how she felt about that, and her answer was – “Isn’t that terrific? We are all so proud of him!”

While the Buffett/Gates Giving Pledge to give away 50% of one’s wealth is primarily directed at billionaires, the reality is that the allocation question – that is allocation between family and society, is one of the biggest conundrums that those with substantial wealth face.  In this case, I would define substantial as more wealth than any individual or family can use or spend in their lifetime, which is a lot less than a billion. As the two anecdotes above illustrate, the conundrum often has as much to do with one’s perception of how much is too much, as it does with being philanthropic. There are no hard and fast rules in such decisions.

What is excessive wealth to one set of parents may be just fine to another. In fact, it is very hard to know what the right number is to assure a basic level of financial security. Despite the stereotype that too much money to the next generation inhibits ambition, encourages sloth, and leads to a general lack of competence to lead one’s life, there are many examples of families where that is not at all the case. There are, of course, many examples where money has a huge, debilitating, impact on future generations. So it all depends on the specific family situation. 

The Gates/Buffett Giving Pledge raises all of these interesting questions, and perhaps one does not care whether the decision to be philanthropic is because you are charitably inclined, or because it is a default reaction to the perceived difficulties that come with wealth. In the same way you might not care if a gift is made primarily because of the tax benefit. I don’t think, however, that to make the case that Mr. and Mrs. Gates and Mr. Buffet wish to make based solely on either rationale will actually prevail. It is a mix of both that has a shot.        

One other factor complicating the allocation question is the almost universal assumption within the wealth management industry – money managers, estate and financial planners – that the name of the game is preservation, conservation, and appreciation of assets. Playing the philanthropic card in a big way runs counter to the advice – some of which may well be self-serving to those who make money managing wealth – that clients are routinely given. What that does is create a flow and a culture that makes it easy to give philanthropy short shrift.   

The biggest factor, and the one that TPI and our clients have been challenged by for twenty years, is how difficult it is to give away money well. To achieve real impact on major social issues, or even on individual lives, is both an art and a science, and it does not come easily. One of TPI’s early mentors, Mike Sviridoff who was Vice President of the Ford Foundation, and founder of LISC (Local Initiatives Support Corporation), one of the most successful nonprofit organization in America, was fond of saying – finger wagging – “Social change is incremental at best,” and Mike was right. Smart donors quickly learn that is so, and satisfaction from giving is often elusive. One really needs to have some evidence that you are making a difference in order to sustain that giving. 

I worry that when the billionaires gather under the inspiring leadership of Mr. and Mrs. Gates and Mr. Buffett, and get excited about the romantic notion of ramping up their giving, they will not stay the course. The best piece of advice I can think of, one based on TPI’s work with 300+ very wealthy individuals and families, is for those involved to invest the time in a considered process of discovery, both personal and programmatic. That process begins with the articulation of values and passions, which are the underlying, and sustaining, motivation for philanthropy. The next step in the process is to become a listener and a learner which creates the context to approach the issue or issues of interest, and out of which can come your operating guidelines (see The Gates Foundation’s Operating Guidelines).  The final step is the work itself based on research, strategy and evaluation.

If these simple steps are followed, then I think the opportunity to significantly increase the amount of smart philanthropy is very great indeed. Meanwhile thank you Mr. and Mrs. Gates and Mr. Buffett for your wonderful clarion call.