Byron Wien on Philanthropy
The following essay on philanthropy is excerpted from Morgan Stanley Dean Witter's "US and the Americas" Investment Perspectives dated 12/10/1997 and is reproduced here with the consent of its author, Mr. Byron Wien.
On Philathropy
All of us in the investment business should recognize that we have been extraordinarily fortunate to have been in the right place at the right time. For the past sixteen years stocks and bonds have compounded together at a mid-teens annual rate, and that has never happened before in all of economic history. Some of us have worked for firms that have been sold at a premium price, and others have had venture capital investments that worked out well. Many have accumulated more capital than their most ambitious dreams coming out of college or business school, even when inflation adjusted. While this good fortune supports a com-fortable lifestyle, assuming you have time to enjoy it, the accumulation of wealth, in my mind, also carries with it a significant responsibility.The world is a far from perfect place, and each of us should use some of both our time and money to improve it. While that concept is as American as apple pie, I continue to believe that we all should do more. Let’s look at some examples of what a few high-profile people are doing. Warren Buffett is probably the most successful investor of all time, and he is a hero to many of us. He has often stated that he plans to donate his fortune to a foundation he has established, which will be administered by others, including some family members. The foundation will focus on population control, but Buffett has had a hands-off attitude toward it so far. He said he doesn’t want to get 50 letters a day from anti-abortionists: "It would change my life too much." Until now he has supported some local charities and the United Way.
Bill Gates has amassed the largest fortune of any private person in history and is in an extraordinary position to have a profound impact on the world through his philanthropy. So far, he has shown an interest in libraries and education with a commitment of $200 million to bring American and Canadian libraries on-line. He has also acquired the Leicester Codex, a notebook of Leonardo’s drawings and text that he plans to exhibit publicly. Over time I expect he will prove as innovative in philanthropy as he has in technology. He plans to give 95% of his money away.
Finally, George Soros has largely disengaged himself from money management to devote himself to his Open Society Foundations and other projects. His work in Eastern Europe certainly contributed to the Berlin Wall coming down, and in the United States, he has been willing to take on contro-versial issues like seeking approval for the medical applica-tions of marijuana and needle exchange programs for drug users. He also has an interest in reducing the prison popu-lation and helping immigrants.
Serious charity means making the effort to identify a cause you deeply care about and then devoting time as well as money to it. I discussed this with a group of about fifteen investment people at a lunch this past summer, and several comments stuck in my mind. One individual said that some of the organizations he supported wanted to do things their way and did not welcome his involvement. This fit in well with his frenetic work schedule and family obligations. One pointed out that some chief executives discourage their people from becoming involved in not-for-profits. Giving money was okay, but they wanted their people to devote 100% of their attention to the company. Another, who spends much of his week at a major New York hospital, said that almost every not-for-profit he knew yearned for professional management assistance. "Anyone who thinks that just giving money is enough is kidding himself. These organizations need your time," he said.
Steve Jobs of Apple established a foundation in the 1980s, but closed it down because it was too time consuming. Kirk Hanson, a lecturer at Stanford University who has made a study of philanthropic practices, described the attitude in Silicon Valley: "If you get distracted, you’re missing out on once-in-a-lifetime opportunities. And if you make money today, there will be time in the future to be a good citizen."
Philanthropy has come a long way from the days when the Metropolitan Opera presented its annual deficit projection to Otto Kahn, a Kuhn, Loeb partner, and he wrote them a check. Paul Tudor Jones’ Robin Hood foundation tests the management ability and financial health as well as the re-sults of organizations it supports. The board of Robin Hood pays the administrative costs, so all contributions go directly to programs. Henry Kravis said, "I was astounded to see how much was spent on administration when people came to me to ask for money. I thought I’d rather set up my own program." Kravis established the $60 million New York Fund by getting 60 individuals to contribute $1 million each. The fund lends money to companies that relocate or hire people in disadvantaged New York neighborhoods.
In thinking about the places to give money away most usefully, I am persuaded by some comments made to me by John Whitehead, former co-managing partner of Goldman Sachs and former Under Secretary of State. I have served on some boards with him over the years, and he once convinced me to become chairman of an organization because he was going to provide continuing spiritual and practical support. Today, at 75, he sits on thirty boards, devoting his full energy to not-for-profits. "If you included government and religious groups, one out of ten people in the United States work for non-profits, and these organizations account for 7% of the gross domestic product. They are generally poorly managed," he said. He has given $10 million to Harvard Business School for the training of not-for-profit administrators. Since non-profits lack conventional measurement standards such as profitability, it is difficult to judge performance. He views his charitable giving as an investment process. Gifts to something like the Metropolitan Museum of Art in New York are similar to putting money in government bonds. It is a great organization. You are taking little risk. He prefers a venture capital approach, trying to identify entrepreneurial not-for-profits that are engaged in noble, but risky ventures. He takes a portfolio approach knowing that out of ten "investments," three will flop and perhaps three will be big winners. He said you have to be watchful for "rackets" when you support less established organizations.
Whitehead believes that you should try to give your money away in your lifetime rather than leaving the task to others after you are gone. I agree. I have witnessed enormous family arguments over how a considerable fortune designated for charity should be distributed. He told me that over the years, he thought his not-for-profit activities had helped him grow as a person and made him more effective professionally. In his days at Goldman Sachs he had seen this happen to the legendary Sidney Weinberg and Gus Levy. He wants his life to be judged not by how big a fortune he accumulated but by what he did with the money. It is good advice.
During the period when I was researching this essay, I attended a lunch where Ted Turner was the speaker. As anyone who has met him knows, his self-effacing charm is disarming. Using no notes, he talked about his wealth ingenuously. "I mean, once you’ve got $100 million, that’s enough," he said. At the end of 1996 he was worth $2.2 billion, but Time Warner stock did well this year, and by the end of the third quarter his net worth was up a billion dollars to $3.2. He was 44th in the Forbes 400 list based on year-end 1996 figures, so he asked his accountant to determine where he’d be based on the September figure, assuming others stayed the same. The accountant told him he would move up to 27th. "Hell, that’s no big deal. If I had placed in single digits, that might have been something. Since other people earned the money for me, I might as well give the billion away." And so he did.
No good deed goes unpunished, and Turner has received plenty of criticism since he made his gift to the United Nations. He even invited some of it by basically saying to Bill Gates in his speech to the U. N., "Match this, rich boy." The "Journal of Commerce" described Turner’s gift as "one of the most haphazard and ill-thought-out of all time." Actually the gift is for United Nations programs like healthcare and refugee relief and not for running the bureaucracy. It may inspire other wealthy people to make the grand gesture. Right now, about 4% of all taxpayers account for 23% of all giving. Almost 80% comes from the 95% of the population with incomes of less than $100,000, according to one study. When it comes to estates left at death, 80% leave nothing to charity. About half of the $150 billion in total annual charitable contributions goes to churches and other religious organizations, some of which helps the poor. Only about 10% of all giving helps the poor directly.
One of the great philanthropists is Walter Annenberg, who has long been interested in education and has given more than $100 million to the University of Pennsylvania and the University of Southern California. In 1990 he set up a $50 million challenge grant for the United Negro College Fund, which supports a coalition of 41 historically black schools. Annenberg admits to having no grand plan for his giving. "I’ve got to be moved by things," he said. His most ambitious project is the commitment of $500 million to innovative public school programs in New York, Chicago, Los Angeles, and Philadelphia. I have had some experience with charter school programs and know it is an uphill fight, but these creative efforts within the public education system are our only hope of breaking the union stranglehold and making primary and secondary education vital again.
After studying this issue and thinking about it for several months, I have reached some conclusions. As the English philosopher Francis Bacon advised, "Defer not charities until death." Andrew Carnegie took it further: "He who dies rich dies disgraced." I believe you should play an active role in selecting the organizations that receive your gifts. To do this you will have to carve out a part of your life while pursuing your business interests, and perhaps more importantly, commit a good portion of your time in your retirement years. Recognize that giving money away intelligently is considerable work and requires analytical ability as well as effort. Bill Gates said, "Giving money away effectively is almost as hard as earning it in the first place." Focus on education, healthcare, and social service organizations The major arts organizations carry plenty of social cachet, and there are a great number of people attracted to them because of this. They are important, but they already get enough attention, in my opinion. Smaller, adventurous ones need help, however. Concentrate on reducing human suffering. There is plenty of it, and the federal government is not the answer. The world has turned out to be a terrific place for many of us. We all should spend a part of our lives making it better for others.
For those who are interested in a thoughtful guidebook to giving, one has been written by Claude Rosenberg, founder of RCM, the investment management firm in San Francisco. It’s called "Wealthy and Wise: How You and America Can Get the Most Out of Your Gifts of Time and Money". Rosenberg gave me a copy several years ago, but it wasn’t until now that I realized how much helpful advice it contains. Its thesis is that we can all afford to give away more than we think. He may have played a role in Turner’s gift, since the two had a long lunch in Montana to discuss philanthropy earlier this year.
Some of us on Wall Street are perhaps afraid to give away too much of what we have earned. A bear market may be coming, and we don’t want to go back to where we started. To some extent, giving away money we won’t need in our lifetime forces us to think about our own mortality, and that is not something we want to focus on. Perhaps we should be mindful of the advice of one of John D. Rockefeller’s advisors, given in 1905: "You must give it away. It is rolling up like an avalanche that will crush you and your children and your children’s children." George Soros sees it another way. Quoting Francis Bacon, he says,"Money is like muck, not good except it be spread."
Research assistance for this essay was provided by Lois Macri.