Give it to them, baby: Mark Zuckerberg’s philanthropy

Mark Zuckerberg’s promise this week to give away 99 per cent of his shares in Facebook, worth about $45 billion, could make him one of the greatest philanthropists in US history, in the tradition of the Carnegies and Rockefellers and alongside Bill Gates today.

But Zuckerberg’s announcement, made in the form of an open letter to their newborn daughter, Max, from the Facebook founder and his wife, Priscilla Chan, has been greeted as much with scepticism as with enthusiasm.

The couple told their daughter that the shares would go to the Chan Zuckerberg Initiative, a new organisation, with two central goals – advancing human potential and promoting equality – focusing initially on personalised learning, curing disease, connecting people and building strong communities.

“Today your mother and I are committing to spend our lives doing our small part to help solve these challenges. I will continue to serve as Facebook’s CEO for many, many years to come, but these issues are too important to wait until you or we are older to begin this work. By starting at a young age, we hope to see compounding benefits throughout our lives,” Zuckerberg wrote.

Unlike traditional philanthropists, he is not making a donation to charity or setting up a nonprofit foundation, which would be exempt from tax but restricted in what it could do. Instead he is establishing a limited-liability company, or LLC, which can invest in businesses and make a profit, as well as funding nonprofits, engaging in lobbying and running political ads.

In a Facebook post on Thursday Zuckerberg said that using an LLC would give his initiative more flexibility, adding that any profits it made would go back into the initiative. He also dismissed suggestions that it would allow him to avoid paying more tax than if he had established a charitable foundation.

“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,” he said.

“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. And just like everyone else, we will pay capital gains taxes when our shares are sold by the LLC.”

One of the world’s foremost experts on philanthropy, Paul Schervish ran Boston College’s Center on Wealth and Philanthropy for three decades until his retirement this year.

He believes the focus on the vehicle Zuckerberg has chosen is misplaced, describing the use of LLCs for philanthropy as “the latest fad” favoured particularly by entrepreneurs, but one that can help donations to work more effectively.

More important, he argues, is the arrival of so many billionaires into the philanthropic field in recent years, with 160 already committed to the Giving Pledge, an initiative by Gates and Warren Buffett under which the ultrarich pledge to give away at least half of their wealth.

“They’re just so large, these amounts, that they are creating the future. And that’s the real question. What is the future that these people are creating?” Schervish says.

“And the major question for them is the same question they have in their business. The question is: where is there a gap between a need for something and a supply? And they’re going to bring their entrepreneurial creativity to address areas where people didn’t even know there was a need, such as Facebook, maybe a latent need. So they’re going to be addressing issues we haven’t even heard of yet.”

Undermining democracy

Critics of philanthropy complain that, despite its apparently benign impact, it undermines democracy by allowing wealthy individuals to use their money to influence public policy. The near-consensus within big philanthropy in the United States in favour of the charter-school movement has, for example, persuaded many cash-strapped cities to agree to turn public schools into charter schools, despite thin evidence that they are more successful.

Schervish says that the argument about democracy and philanthropy is an old one but that the issue is deeper than that.

“It’s not only about democracy. The question is also raised about the legitimacy of having concentrated so much money,” he says.

“They are capable of extraordinarily important and careful accomplishments, effective and significant accomplishments. And they are equally endowed with the potential to disrupt and carry out policies that may not be good for the society.”

Kieran McLoughlin, president and chief executive of the Ireland Funds, which raise money around the world for Irish causes, says donors are no longer content to write a cheque and hope that good things happen. They want to be intimately involved in dealing with the issues that concern them, offering their time and talents as well as their money.

Instead of working to replace public-sector activity or to lean on policymakers, he says, philanthropy at its best can support democratically endorsed public policy objectives.

He cites, as an example of what he calls “a public-philanthropic partnership”, Music Generation, a musical education programme sponsored by the Ireland Funds and U2.

“Five years ago Music Generation was an untried concept, the idea being that you introduce musical training to kids at local level through communities and they benefit from all the attendant outcomes of that, particularly those who are marginalised or might have special needs,” he says.

“The Government could not and should not have risked taxpayers’ money on something that was utterly untried. U2 and ourselves as private philanthropists could take that risk.

“Now the programme has been proven, and 26,000 kids across the country are benefiting; 330 jobs have been established. So the State is now going to play a part in keeping the existing programmes running, while we will use additional philanthropic monies to build more programmes around the country.

“There you can see a public policy objective being delivered through a partnership between philanthropy and the State, but with philanthropists taking the risk.”

In 2010, in response to the economic crisis in Ireland, the Ireland Funds launched a campaign called Promising Ireland, aimed at raising $100 million. Eighteen months later it doubled the goal to $200 million, raising an average of $500,000 a week; the campaign has now raised $218 million.

Although the funds operate in 12 countries, 90 per cent of their revenue comes from the US, reflecting the fact that philanthropy is a way of life for Americans, with 75 per cent of households engaging in it.

In Ireland, by contrast, efforts to engender a philanthropic culture have borne little fruit, although McLoughlin says that Ireland remains one of the most generous countries in the world when it comes to charitable giving.

“However, a lot of our giving tends to be reactive. It can be an immediate response to a disaster, a famine or a tsunami, or homelessness, closer to home,” he says.

“So the Irish have the inclination to give. The only difference between a charitable donation and a philanthropic donation is that a philanthropic donation is ongoing, that one makes a commitment over a longer period of time to support a particular cause.

“We’re seeing it in the mental-health arena in particular. You’re seeing it in response to charities like Pieta House, the Walk in the Darkness, et cetera. I think people are really beginning to sense that through their time, their involvement, as well as their money, they can make a significant impact on a social issue.”

“From success to significance”

McLoughlin hopes that Zuckerberg can inspire other young entrepreneurs to think about what they want to do with their wealth and to understand that they don’t have to wait until their declining years to start giving.

“We say to our donors that we can help them to move from success to significance,” he says.

Schervish is not sure if giving most of his money away will make Zuckerberg a better person, but after a lifetime of researching philanthropy he is certain that it will make him a happier one.

“The root word for philanthropy is philia. And that means friendship or love. And that means mutual nourishment. And the first experience of that is in the relationship between parent and child, says Aristotle . . . One of the great thrills in life is to be able to do things freely that nourish other people. We all experience this in our personal relations: care of family, care of relatives, care of neighbours,” says Schervish.

His research shows “there is no question” that giving helps the donor as well as the beneficiary – and may even benefit the donor more. Schervish says that he has heard philanthropists, lower-end givers and the ultra-wealthy all say: “I am convinced this does more for me than it does for the people I’m helping.”