A Message From Patty Stonesifer

For a foundation as young as ours, every year feels different from the one before. We’re constantly learning and adapting. Rapid advances in science, technology, and communications can add to the feeling that we’re moving faster than ever. Even so, none of us will soon forget the big news of 2006.

On June 26, Warren Buffett announced an astonishing pledge to the foundation—10 million shares of Berkshire Hathaway Inc. stock worth more than $31 billion at the time. Most of us at the foundation had two reactions when we heard the news: Wow—Warren has made an incredible statement. And Holy cow—we have a lot of work to do.

As I told foundation employees in a lively meeting shortly after Warren’s announcement: Giving away money isn’t hard. But giving it away effectively sure is. We were already making about $1.4 billion a year in grants. Last year, the total jumped to $1.6 billion, thanks to Warren’s pledge, and we’ll be giving away a projected $3.2 billion a year by 2009. We’re not making the jump all at once; our annual grantmaking will increase by about one-third in each of the next three years. To prepare for this growth, in 2006 we created a two-trust structure, which is explained in more detail in the Financials section of this report.

People frequently ask me: How can the foundation give away so much money and do it well? Believe me, we think about that tremendous responsibility every day. But as a foundation, I believe, we’re in a better position than ever to translate these immense resources into billions of people living healthier lives, getting a better education, and lifting themselves out of poverty. Warren’s unprecedented gift gives us the opportunity to double our impact on some of the world’s most pressing—and distressing—problems. Let me tell you some of the things we’re doing to get ready.

For one thing, we’re staying focused. When Warren made his pledge to the foundation, he urged us to accelerate our work in the areas we’d already identified, rather than adding new areas. Bill, Melinda, and I agree. Last year we reshaped the foundation so it could focus on our three main areas of giving: Global Health, Global Development, and the United States Program, with a president to oversee each area. We also brought on a chief operating officer, who is responsible for building the infrastructure—teams in legal, finance, impact assessment, and so on—that will support the programs in their grantmaking.

Because we are a foundation with three engaged donors as our only board members, we recognize the need for outside voices to help guide our strategies and stretch our thinking. We’ve used advisors in a variety of ways over the years, but in 2006 we decided to formalize the process with advisory panels for each of our program areas. By giving us expert counsel and critical feedback, these three panels will play a significant role in making sure we’re doing a good job of listening to diverse voices and learning from our mistakes. We’ve begun discussions with some potential members of these advisory panels, and we’re creating the internal team to support them. We plan to announce the members of our Global Health advisory panel this summer and the panels for our U.S. and Global Development programs in the fall.

We go into greater detail about the advisory panels in an enhanced section of our Web site. This new information also answers common questions about how we work. It describes the steps we take to turn our values into strategies and to turn those strategies into specific grants. It’s a rigorous process that includes identifying a problem, scoping the landscape for what has already been tried, and creating the approach that will have the most impact. At every step in the process, we work with partners and experts.

Some of those expert voices come from outside the foundation, but as we grow, we’re also working hard to bring more people in house who can guide us on our core issues and help support our mission. We’re taking great care to create the right jobs and then recruit people who can help us make real progress against the world’s most glaring inequities.

The addition of all these new employees will require us to spread out in several buildings in Seattle, along with our offices in Washington, D.C., and Delhi, India. Eventually our Seattle employees will move into a new headquarters near the Seattle Center.

It’s a tall order to pull off this kind of growth. But the thing that worries me most about our growth is that it might cause others to shrink from the critical problems in health, education, and poverty. The last thing we want is for anyone to think that we’ve got things covered.

All the issues we address—from slowing the spread of AIDS to improving the output of family farmers in developing countries to increasing high school graduation rates in the U.S.—are difficult by nature. They defy simple solutions. That’s one of the reasons we chose to focus on them. They cause immense harm and attract too little attention.

As a foundation, we’re in a great position to take big risks, and we’re willing to make changes when we learn new information. But we can’t solve these problems alone. For one thing, as immense as they may sound, our resources are a drop in the bucket compared to what’s needed. To put it in perspective, in the past nine years combined, our foundation has spent less than $2 billion on HIV/AIDS. By contrast, the United Nations predicts that in 2008 alone it’ll take more than 10 times that amount—$22 billion—to fight HIV/AIDS in middle- and low-income countries.

Clearly, government support is critical. But government can’t do it alone either. It will take widespread public will and creative collaboration across all sectors—public, private, and nonprofit—to find solutions to these problems and get them to the people who need them. Ordinary people have to take responsibility for these issues. We need to commit to solving them together.

I’m optimistic because we’re already seeing it happen. These kinds of vigorous partnerships are behind our most successful efforts to date. Partnerships like the Global Alliance for Vaccines and Immunization (GAVI) are working. Through GAVI, donor governments, governments in developing countries, nongovernmental organizations, private donors, and pharmaceutical companies are all working together with a shared goal: to give lifesaving vaccines to children in the developing world. According to the World Health Organization, their collaboration has already helped prevent 2.3 million deaths in the past seven years.

This is truly an exciting time in history: Improving the lives of billions of people is within reach. The more deeply we get involved in these issues and see what’s possible, the more all of us want to do. Shortly before Warren’s gift, Bill Gates announced he would transition out of his day-to-day role at Microsoft by 2008 to devote more time to the foundation and the issues we’re focused on. Melinda Gates also let us know that she will be spending even more time on the foundation’s work. Their increased participation coincides with our growing sense of urgency and possibility. Warren has made it clear that he wants his money put to work in the next 25 years or so, and Bill and Melinda have stipulated that their endowment won’t continue into perpetuity.

We want results in this lifetime. Children dying of malaria and AIDS can’t wait. People struggling to feed their families can’t wait. And young Americans who drop out of high school without the skills to survive in today’s economy can’t wait. We’re willing to take big risks with our partners to make sure they don’t have to.

P.S.: In last year’s annual report, I wrote both a letter from the CEO and a Management Discussion and Analysis (MD&A), and I promised the MD&A would be a regular feature of future annual reports. This year it made more sense to combine the two. I hope I’ve provided the same kind of information—just more efficiently.