Bill Gates Page 15

  In the exceptionally expensive high-tech home, he describes small spaces as well as large spaces; one of these is designed to accommodate up to 100 people at a time. When he wrote about hosting events, the only references were to Microsoft-related activities; his company was present in his mind even when designing and describing his new home.

  Gates appears to earnestly believe that the innovations he implements in his house might become commonplace in the future. He talks about an example of William Randolph Hearst in 1925 in the design of a much more ostentatious home. Hearst also saw a limitation in technology at the time, which was related to changing channels on the radio with a manual tuner knob by hand. His response was to simply have many radios in the basement and each was set to a different station—by pressing a button in his room, he could “change the channel” (actually, changing the radio he could hear). Technology did catch up in the intervening years, and radios are now easily adjustable by pressing buttons instead of manually tuners.

  Each visitor receives a pin upon entering the home, which connects the user to technology. This includes turning lights on as one walks through the home, having a movie one is watching follow the user seamlessly on televisions from one room to the next, and only ringing the phone nearest to the user—apparently, Gates did not envision the rapid expansion in the prevalence of cellphones that were already available in 1995. The pin also remembers user preferences and controls which features of the home can be accessed.

  Access to the various forms of media was a very profound idea in 1995. The thousands of images is very easy to understand, as Bill Gates already owns the company Corbis and has knowledge of Internet browsers that deliver images to users, which did not exist before NCSA’s Mosaic. However, the prompt access to recordings, movies, and television programs pre-dated much of the technology that we associate with the ability to select media easily today.

  When we think of the ability to select videos, movies, and television programs on demand, the options we readily think of came a few years later. For instance with video and movies, Netflix was founded in 1997 and didn’t start delivering video until 1999; Hulu was founded in 2007. In Music, Napster was founded in 1999 and faced legal issues related to file sharing, and Apple’s iTunes came along in 2001.

  Gates’s vision of being able to search for music and video in his home by attributes like colors, actors, or location is like other services we take for granted today. In fact, this description is much like Google searches and indexes; however, Google’s founders started working on their first search engine at Stanford in 1996. Apple’s Siri application on the iPhone came about in 2011. In various ways, Gates did understand the processes many of us would use to search through information and media in the years to come.

  US News and World Report followed in 1997 with an article about the completed home itself. The gatehouse for security functions alone, at 3,000 square feet, exceeded the average home size in the United States, and in the 1990s already had an X-ray machine installed. The article also noted the building does sit in an earthquake zone, so there are architectural features that greatly exceed the standards required for building in that location. Although the Gates’s house was described as 11,500 square feet of personal space, their “inner sanctum is surprisingly modest, with four bedrooms and quarters for a nanny.” Of the nontraditional components of the house, there was “a trampoline room with a 20-foot ceiling.”23

  TECHNOLOGY FAILURES

  In his 1998 interview with Barbara Walters, Gates revealed that there was indeed a downside to the extensive technology in the home, for which he had planned physical switches that could override any technology glitch:

  The first night in his new house, Gates told Walters, he watched a big-screen TV that pops up out of a console in his bedroom. But things went awry when he tried to go to sleep.

  “He couldn’t get it to go down, he couldn’t get it to turn off, so he just put a big blanket over the thing,” she said. Gates has joked that everything from light switches to music speakers goes on and off unexpectedly in the house, which is run by a high-end PC network built on Microsoft’s Windows NT system.24

  Chapter 10

  ROLE IN CORPORATE GOVERNANCE, ACTIVISM, AND OUTSIDE INTERESTS OF BILL GATES

  In his post-Microsoft role, Mr. Gates has provided his expertise to inspire others, lobbied on behalf of Microsoft, became active in social media, served on the board of directors for Berkshire Hathaway, and moved most of his wealth outside of Microsoft into his private company called Cascade Investment.

  INSPIRING OTHER BILLIONAIRES

  While Bill Gates is the richest and most famous Harvard dropout, there’s a close second in helping to revolutionize how information is used and shared in the modern economy. Mark Zuckerberg, the CEO of Facebook, and Eduardo Saverin, a Facebook cofounder, had an encounter with Bill Gates early in that company’s history at Harvard University. In February 2004, Bill Gates gave a talk in the Lowell Lecture Hall that was attended by the two in an era when Facebook had yet to register users off the campus of Harvard University. The site was popular but far from global.

  Bill Gates’s talk and mannerisms are addressed briefly in the book Accidental Billionaires as well as The Crimson, Harvard’s student newspaper. The book also mentions how Bill Gates interjected a few jokes along the way, such as dropping out of school because he “had a terrible habit of not going to classes.” In addition to cracking jokes, Gates also included:

  some pearls of wisdom—that AI (Artificial Intelligence) was the future, that the next Bill Gates was out there, possibly in that very room. But Eduardo specifically saw Mark perk up when Gates answered a question from one of the audience members about his decision to leave school and start his own company. After hemming and hawing a bit, Gates told the audience that the great thing about Harvard was that you could always come back and finish.1

  For Zuckerberg as the leader of the fledgling firm, Gates’s acknowledgment that the next billionaire technology innovator might be in that audience was influential. And the recognition that the risk could pay off or lead to a return to Harvard later to complete a degree was empowering. For his colleague Saverin, the same interaction was troubling. “Eduardo understood that entrepreneurship meant taking risks—but only to a certain degree. You didn’t risk your entire future on something until you figured out how it was going to make you rich.”

  The article in The Crimson provides more details as to projects underway at Microsoft. While Gates had ceded day-to-day control of Microsoft to Steve Ballmer, his involvement with the firm was still apparent based upon his talk. He lamented “the world as a whole has a shortage of elite, computer science people,” but responded to one student question that completing the degree at Harvard first would be beneficial, rather than following his own path to founding Microsoft (the path and comments that inspired Facebook’s Zuckerberg in the same talk).

  Gates showed the audience a Microsoft device that was similar to an iPod, as well as what was called a “smart watch” that had various capabilities. He also reverted to a mantra that he had expressed fairly consistently over the past 30 years related to intellectual property. In this instance, he actually described some of Microsoft’s own products allowing the intellectual property of others to be violated, noting that the absence of the use of various digital technology available to prevent illegal file-sharing had “made it too easy for people not to license.”2

  Microsoft did learn to profit from Facebook’s model. In fact, Microsoft invested directly in Facebook in 2007, before shares could be bought and sold on a stock exchange. “After a brief and highly public bidding war with Google, Microsoft bought a 1.6 percent stake in the company for 240 million dollars, roughly valuating Facebook at over 15 billion, or more than one hundred times its 150 million dollars in annual revenues.”3 How well did that investment work for Microsoft? Facebook was valued at over $130 billion on January 1, 2014, which suggests that $240 million investment became more than $2 bi
llion in a little more than six years.

  WOMEN’S EMPOWERMENT

  The mantra of the Bill and Melinda Gates Foundation is that every life has equal value. Gates also believes that everyone in society is a valuable contributor—although flatly stating the vast majority of the population should not be allowed to program computers—and was quoted in the book Half the Sky about one of his speeches where the men and women in the audience were segregated:

  Bill Gates recalls once being invited to speak in Saudi Arabia and finding himself facing a segregated audience. Four fifths of the listeners were men, on the left. The remaining one fifth were women, all covered in black cloaks and veils, on the right. A partition separated the two groups. Toward the end, during the question-and-answer session, a member of the audience noted that Saudi Arabia aimed to be one of the top ten countries in the world in technology by 2010 and asked if that was realistic. “Well, if you’re not fully utilizing half the talent in the country,” said Gates, “you’re not going to get too close to the top ten.” The small group on the right erupted in wild cheering, while the larger audience on the left applauded tepidly.4

  ELECTION TO BOARD OF BERKSHIRE HATHAWAY

  In December 2004, Bill Gates was elected to the board of directors of Berkshire Hathaway, the conglomerate run by his bridge partner Warren Buffett. Bill Gates replaced Susan Buffett, Warren’s wife who had passed away in July 2004. As reported by USA Today,5 the Berkshire director job does not pay well and Gates does not receive officers and directors insurance for his service—directors of a firm can be held accountable for their actions or omitted duties on a board. Shortly thereafter, Gates resigned from the board of directors of ICOS, which was a biotechnology company later acquired by Eli Lilly. Berkshire Hathaway, as an investment company, owns dozens of companies across a wide array of businesses, such as the BNSF Railroad, Brooks Shoes, GEICO, International Dairy Queen, NetJets, and See’s Candies.

  LINKEDIN PRESENCE OF BILL GATES

  In mid-2013, Bill Gates created a LinkedIn account, where he posts approximately one article a month as an influencer. He speaks about what he has learned and how he envisions making the world a better place through the initiatives where he has passion. After attending the Annual Microsoft Conference for faculty teaching computer science, he posted about how experts in various academic disciplines—such as computer science—could contribute, for instance by developing models on the spread of disease.6 In another post, he spoke of the three most important things he had learned from Warren Buffett, with the two major takeaways being that Buffett is a highly sophisticated investor—much more so than Gates has originally believed—and that the same approach used for investing makes Buffett an excellent advisor for the Bill and Melinda Gates Foundation’s philanthropic efforts.7

  DWINDLING OWNERSHIP INTEREST IN MICROSOFT

  Despite Gates no longer serving as CEO of Microsoft after 2000, he did use the chairman’s role between 2000 and 2014 to continually promote the interests of Microsoft. Examples are testimony before Congress at a U.S. competitiveness hearing discussing the need for reform to the H1-B Visa program for talented computer programmers. As Gates stated to Congress, “These top people are going to be hired. It’s just a question of what country they’re hired in. And if these top engineers are forced to work in India, we will hire students from India to work around them.” In other words, Gates was saying that he needed to have employees near the best programmers in the world; if those programmers could not come to the United States, Microsoft would have to allocate more employees abroad to learn from those experts.8

  Although Gates has expanded involvement in organizations other than Microsoft, he had simultaneously come under criticism for maintaining his role as chairman of Microsoft’s board of directors as a result of a few distinct facts: the firm has launched products not seen as overly successful, the departure of Steve Ballmer from the CEO role—which occurred in February 2014—and Gates’s own divestment of shares in Microsoft. In fact, disclosures required by the federal government (SEC Form 4s) show that Gates has sold more than 30 percent of his personal shares in Microsoft in a period of less than two years. SEC Form 4s show that Gates’s stockholdings in Microsoft have decreased from 515,980,456 shares owned on January 24, 20129 to 357,990,173 shares owned on January 1, 201410 as part of his scheduled divestment process, with smaller numbers of shares awarded as stock option grants each year. Gates uses the proceeds and his Microsoft dividends to make investments in other firms and contribute to his foundation. If the current rate of divesting shares continues, Gates will own zero shares of Microsoft by 2018.

  With Gates’s shrinking ownership in Microsoft and ownership of less than 5 percent of the firm, his continued service as chairman of the board of directors at Microsoft and involvement in replacing Steve Ballmer as CEO created a quandary. Upon the announcement of the appointment of Satya Nadella to the role of CEO of Microsoft in February 2014, the firm had elevated a 22-year veteran of the company to the primary leadership role on a day-to-day basis. Concurrent with that announcement, Gates stepped down from the powerful role of chairman of the board of directors and became the technology advisor, a new position that will help guide the new CEO on technology matters but may detract somewhat from what Gates has described as his full-time work from 2008 through the rest of his life: the Bill and Melinda Gates Foundation. Of the new CEO, Gates accentuated characteristics of Nadella that had often been said of himself: “Satya is a proven leader with hard-core engineering skills, business vision and the ability to bring people together. His vision for how technology will be used and experienced around the world is exactly what Microsoft needs as the company enters its next chapter of expanded product innovation and growth.”11

  EXTERNAL SHAREHOLDINGS

  Bill Gates now maintains most of his wealth outside of the firm Microsoft. Unlike Microsoft, which is publicly traded and requires extensive reporting, a firm owned by a single individual does not require those forms of disclosures. There are multiple advantages to Mr. Gates for holding his wealth inside a personal corporation, which is common for individual with a high net worth. Given that he purchases and sells shares of many companies, the use of a limited liability company (LLC) allows him to decide when to take money out of the company, without paying taxes on any gains until he decides to remove funds from the firm. The result is controlling how much has to be spent each year in income taxes while also maintaining business interests and building funds that can be distributed later as part of his pledge to donate the vast majority of his net worth during his life (or within 20 years of the passing of the last surviving spouse).

  CASCADE INVESTMENT, LLC

  Bill Gates’s investments outside of Microsoft, the Bill and Melinda Gates Foundation, and Corbis are held under the name Cascade Investment, LLC. As a private corporation, many of his holdings do not need to be reported under applicable law. However, information can be ascertained about the types of organizations Gates invests in through regulatory filings (when required) as well as news releases. His chief investment officer is Michael Larson, who has held that position since 1994. In corporations where Gates holds more than 10 percent of the company, Larson often represents his interests on the board of directors.

  Gates owns 47.5 percent of the company Four Seasons Hotel Inc., the Four Seasons brand name, and the property management division. During the last three months of 2013, he also bought three hotels using the Four Seasons brand. In September 2013, he bought the Four Seasons Houston for approximately $140 million, October saw him acquire the Four Seasons Atlanta for $62 million, and December saw him purchase the Four Seasons Resort Punta Mita—near Puerto Vallarta, Mexico—for $200 million.12

  Gates owns over 16 million shares of the car dealership firm AutoNation, and Larson serves as the chair of the committee that determines executive compensation. Gates, much like his good friend Warren Buffett, also shows an interest in innovative firms that are in industries that are considered low-tech. Fo
r instance, Gates owns just under 90 million shares of Republic Services, which deals with waste and recycling, far eclipsing the next largest shareholder with fewer than 14 million shares. There Larson currently serves as the chairperson of the committee that nominates new directors and reviews corporate governance. Gates owns almost 28 million shares of EcoLab, which is largely known as a food, water, and environmental safety firm, yet holds over 5,300 patents, inventing new products at a high rate. Larson represents Gates’s major shareholding by serving on two committees of the board of directors.13

  Berkshire Hathaway, the company controlled by Warren Buffett, bought all of Burlington Northern Santa Fe (BNSF) railroad, and that form of investment apparently appealed to Gates, who purchased over 43 million shares of the Canadian National (CN) railroad, and is the largest single shareholder. He also purchased more than 8 percent of Deere and Co, known for the John Deere products seen on lawns, farms, and construction sites. Bill Gates bought almost 6 percent of Spanish construction company FCC (Fomento de Constucciones & Contratas), in the belief that the Spanish economy was recovering in October 2013.14

  And Gates also invests directly with his friend Warren Buffett. “Cascade, which the billionaire solely owns, also controls 4,350 Class A shares of Omaha, Nebraska-based Berkshire Hathaway Inc.” While that does not sound like many shares compared to Microsoft or other firms where Gates owns millions of shares, each Class A share of Berkshire Hathaway was worth $177,900 when the year 2013 ended; his shares of Berkshire Hathaway alone were worth over $750 million.15

  CORBIS

  The initial company founded by Gates is now called Corbis but was originally called Interactive Home Systems. At the time of founding in 1989, Gates made a slight miscalculation in his belief that individuals would want to purchase images that could be used and projected in the home, like on television sets.