Thursday, December 10, 2015
Is the Chan Zuckerberg Initiative Good for Philanthropy?
The Chan Zuckerberg Initiative introduced last week by Facebook CEO Mark Zuckerberg and his wife, Dr. Priscilla Chan, has the philanthropic and business communities talking. But they aren’t talking about the fact that two people are giving 99 percent of their Facebook shares worth $45 million to support efforts over the coming decades to advance human potential and promote equality. No, the conversation is because of the three letters that appear after the Chan Zuckerberg Initiative’s name: L.L.C.
“What could they be thinking?” asked some leaders in the philanthropy world, because traditionally the wealthy have set up nonprofits, donor-advised funds or foundations to make their charitable donations. The use of an L.L.C. is a radical, new idea for high-net-worth donors seeking flexibility, autonomy and privacy in their investments. It’s structured partly like a corporation and somewhat like a business partnership and it gives the owners more control over their assets and grants (expenditures) than a private foundation would.
They can have much more flexibility when investing in for-profit social enterprises and supporting political causes. They won’t have the private foundation’s 5 percent payout requirement and they won’t have to disclose their tax documents publically. They also will not have to disclose any contracts they might have with for-profit businesses or nonprofits.
While Chan and Zuckerberg won’t receive an immediate charitable tax deduction for any shares they give to the initiative now, as they would with a foundation or public charity, they will see the deduction when the initiative makes grants to nonprofits.
After the initial announcement, Zuckerberg wrote a follow-up post on Facebook. “By using an LLC instead of a traditional foundation, we receive no tax benefit from transferring our shares to the Chan Zuckerberg Initiative, but we gain flexibility to execute our mission more effectively,” Zuckerberg wrote. “In fact, if we transferred our shares to a traditional foundation, then we would have received an immediate tax benefit, but by using an LLC we do not.”
In a New York Times article, GuideStar CEO Jacob Harold said, "It's buying optionality, so that down the road they could still decide to direct money to nonprofits or they could choose to invest in really cool solar energy companies that are doing a lot of good... and it will enable the creative and flexible use of capital over time."
It makes me wonder what people in Cleveland were talking about 100 years ago when a man named Frederick Goff said that his vision was to pool the charitable resources of Cleveland’s philanthropists, living and dead, into a single, great, and permanent endowment for the betterment of the city. According to the Cleveland Foundation’s history, “Community leaders would then forever distribute the interest that the trust’s resources would accrue to fund such charitable purposes as will best make for the mental, moral, and physical improvement of the inhabitants of Cleveland.” This had to be just as radical as the Chan Zuckerberg Initiative is today. And look where Goff’s vision is today…
[photo courtesy of Facebook]