14 Dec. 2015 | Comments (0)
The philanthropy world has stirred with the recent announcement from Facebook co-founder Mark Zuckerberg and his wife Priscilla Chan that they will donate 99 percent of their Facebook shares in their lifetime to the Chan Zuckerberg Initiative. At current valuation, that equates to about $45 billion. On the surface, this is just another example of a tech billionaire directing his excess wealth to charitable causes, but dig a little deeper and the water gets murky, so much so that many question the philanthropic intent of the move altogether. In this piece, I summarize the arguments from both sides and consider whether corporations will follow the lead.
The Chan Zuckerberg Initiative is not a traditional charitable foundation with nonprofit status, but rather a limited liability company (LLC) that can invest in whatever it chooses, including nonprofits, for-profit enterprises or political advocacy. Chan and Zuckerberg say the initiative’s initial areas of focus will be personalized learning, curing disease, connecting people, and building strong communities. It all sounds charitable enough, but does the decision to undertake this work outside the confines of the nonprofit sector make it un-philanthropic?
Before I dive into the issues, I want to point out that I have purposefully decided to ignore the tax implications of the LLC move. I understand that the answer of whether or not the Chan Zuckerbergs will witness a huge tax benefit from this move could get to the crux of the issue of whether they are being philanthropic or not. But I believe the complexity of the tax situation warrants a much deeper look than can or should be provided on this platform. It is also too soon to know whether or not the move will have a favorable tax outcome for the couple. So, tax aside, onto the other arguments.
It is not philanthropy
Much of the argument for why Chan and Zuckerberg’s move should not be considered philanthropic centers on the fact that by establishing an LLC the couple are effectively just “moving the money from one pocket to the other.” Pro Publica’s Jesse Eisinger and others say that the absence of a charitable foundation makes the announcement nothing more than a public relations stunt. Eisinger says: “[Zuckerberg] remains completely free to do as he wishes with his money. That’s what America is all about. But as a society, we don’t generally call these types of activities ‘charity.’”
The phrase “completely free to do as he wishes with his money” is loaded with intrigue. Chan and Zuckerberg can use rhetoric as much as they want to convince the world that what they’re doing is for social good, but the LLC will not be subject to the same rules and oversight that regulate the rest of the philanthropic world. In particular, Bloomberg Business points out, there are rules that stipulate a nonprofit foundation must give away 5 percent of its value every year, not to mention transparency requirements usually fulfilled through the completion of a Form 990.
The other regulation that an LLC allows Zuckerberg to bypass regards political lobbying. According to the Internal Revenue Service, a 501(c)(3) nonprofit is “absolutely prohibited from directly or indirectly participating in, or intervening in, any political campaign on behalf of (or in opposition to) any candidate for elective public office.” That’s not going to work for the Chan Zuckerberg Initiative, which says: “We must participate in policy and advocacy to shape debates.”
Policy and advocacy are undoubtedly effective ways to achieve social change, but some question whether it’s appropriate in a democracy for a billionaire to lobby for the issues he or she deems important. This is a heavy philosophical question that doesn’t necessarily get to the core of whether Chan and Zuckerberg are philanthropic in their intent, but it does reiterate the fact that they consider their own view and understanding of the world to be superior to others and therefore their efforts to pursue social change in that mold shouldn’t be restricted.
How can such grandstanding be considered philanthropic?
It is philanthropy
Supporters of Chan and Zuckerberg’s philanthropic agenda point to the rhetoric they used to announce the initiative, which has all the hallmarks of people who are genuine in their intent to create social change. For example, in a post on the Chan Zuckerberg Initiative Facebook page, Zuckerberg says: “The role of philanthropy is to invest in important areas that companies and governments aren't funding—either because they may not be profitable for companies or because they are too long term for people to want to invest now.”
The pervasive view from the “yes” camp seems to be that we shouldn’t be asking whether or not this is charity, but whether charity as we know it is enough and whether we need someone like this to explore other ways.
To many, the Chan Zuckerberg Initiative is acknowledging that social impact doesn’t have to come solely from the nonprofit sector. For-profit enterprises in particular have proven to be hugely effective at generating social impact all around the world (see, for example, a recent Giving Thoughts Q&A with Synergos Institute’s George Khalaf). That is perhaps the most interesting part of all this—at least for this audience—that Chan and Zuckerberg have a sophisticated understanding of modern philanthropy and are intent on disrupting the industry in an extension of the “hacker philanthropy” philosophy that Facebook co-founder Sean Parker espoused in a June Wall Street Journal piece.
Michael Massing summarized it as a philosophy that is “anti-establishment, believes in ‘radical transparency,’ is given to problem solving, and has an ability to identify weaknesses in long-established systems and to disrupt them. With this ‘hacker elite’ now seeking to upend philanthropy, Parker exhorted them to resist the urge to institutionalize and instead treat philanthropy as ‘a series of calculated risks’ and ‘big bets.’”
Forming an LLC allows Chan and Zuckerberg to bring this philosophy to life and to disrupt philanthropy with the banal regularity with which he has disrupted technology and business. And for many in philanthropy, that is long overdue.
The effect on corporations
I can’t leave this discussion without a reflection of what Chan and Zuckerberg’s move means for the corporate sector. Perhaps at this early stage, there’s very little to learn, but it can be instructive to speculate, especially when so much of the corporate social investment world is grappling with whether foundations are the most effective giving vehicles in an age of burgeoning social enterprise.
Have Chan and Zuckerberg changed philanthropy such that corporate-backed LLCs with a social benefit mission will emerge in place of foundations? You could argue that it’s already happened, that companies were the first to realize the freedom of non-foundation giving, which is why so many have moved to a corporate giving model alongside (and sometimes in place of) a foundation. But such giving strategies typically take a fairly short-term view and that is not the case with the Chan Zuckerberg Initiative. Perhaps the appeal of a longer-term social investment strategy could encourage companies to form separate entities that aren’t foundations for their social investment.