Giving the Buffett way

Warren Buffett's announced gift to charity is stunning in its generosity. Much of his $44 billion fortune will go to improve world health and education. His largess and causes, though, may matter less than the manner of his giving.

In choosing the Bill & Melinda Gates Foundation as the main recipient for his big-heartedness, Mr. Buffett has selected an organization managed with a businesslike efficiency that's a new model of philanthropy.

Andrew Carnegie, that American icon of business and charity, warned how easy it is to waste donated dollars, claiming that 95 percent of philanthropy was useless or harmful. That's a harsh assessment but a fair warning, as Americans have seen at some big-name aid charities in recent years.

Donors, large or small, want to be sure their gifts are used wisely, and the world's second-richest man expects nothing less.

Buffett's someone who knows how to stretch and grow a dollar. He turned a faltering textile company into an investment powerhouse – and still lives in the same house in Omaha, Neb., which he bought in 1958 for $31,500. He's known for "value investing," picking undervalued stocks that may suffer short-term losses, but due to their intrinsic worth, usually grow over the long term.

It's not surprising then, that he settled on a philanthropy whose leaders share his investment and spending philosophy – and friendship.

The Gates Foundation began in 1994 with a corporate eye to the bottom line, maintaining lean staffing and renting a nondescript building in Seattle. Its work is focused, concentrating on disease prevention in poor countries and improving education – especially by promoting small classroom sizes in the US. It seeks to leverage its dollars by working in partnership with other charities and governments, and applies a system of standards to evaluate the success of projects.

Yet, like Buffett's investment strategy, the Gates Foundation is in its causes for the long haul. This week, Melinda Gates suggested a time frame of 15 to 25 years for one key health project.

That's an example of how a well-run philanthropy should depart from much of corporate America, so focused on quarterly profits. Many established companies are also risk-averse, researching only products or applications with an expected and quick market payback.

A good philanthropy takes the more entrepreneurial, long view, and embraces risk in pursuit of projects of general benefit to mankind, or of help to those underserved by society, business, or government. Indeed, the Gates Foundation has made mistakes – it has a mixed record in education, for instance – but Buffett likes that. "In business," he said this week, "you look for the easy things to do. In philanthropy, you take on important problems and it is a tougher game."

The Buffett-Gates handshake also presents a challenge. To the Gates Foundation, it's a challenge to stay efficient despite doubling its size. To other wealthy individuals, it's an invitation to give more. And to everyone else, it's a call to catch the spirit of Buffett's selfless generosity (he didn't start a charity in his name). In the end, it truly is a billion-dollar heart, not wallet, that makes a difference.

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