This week’s $45 Billion pledge announcement has been all over the news, but it has lacked a lot of important information.
As you likely have seen this week, Mark Zuckerberg and his wife, Priscilla Chan, made the announcement that they are pledging to give 99% of their Facebook stock, estimated at $45 billion, to charity some time “during our lives.” In an open letter to their daughter, born this week, they are opening the Chan Zuckerberg Initiative, to manage this money, through a limited liability corporate structure (LLC). “Our initial areas of focus will be personalized learning, curing disease, connecting people and building strong communities,” they wrote.
The immediate reaction in the press and on social media was to praise this incredibly generous announcement, without digging too deep into the facts. Initial news reports came out before many of the details of how they plan to make this work were available. As with most large financial transactions or charitable gifts, there is a lot of nuance that goes unpublished.
1. The Chan Zuckerberg Initiative is an LLC … not a public charity. Why does this matter? Because money going into this LLC is not tax deductible and does not follow the same restrictions the IRS puts on foundations and nonprofit organizations.
Pro: Flexibility is good. This gives room to approach “social change” from a very wide ranging perspective, from investing in other companies to actively participating in advocacy and lobbying work. All of which would be limited if they set it up as a charitable foundation.
Con: Removed from the IRS restrictions, they also set themselves aside from standard nonprofit governance, which includes a great deal of transparency. While it is their money and their choice, what they have done is distinctly not “charity.” If they had set up a charitable foundation, for example, they could not take the money out for anything other than making donations. With this set up, they are free to move it however they decide.
2. Zuckerberg’s history of giving. Why does this matter? According to the filing, they pledged to sell or give no more than $1 billion each year, for the next three years. In order to receive the tax deduction for these billion dollar gifts, they have to make the contribution to an IRS deemed charitable organization.
Pro: At least for the next three years, it is safe to assume huge contributions will be made to charity.
Con: Last December, Zuckerberg made a $1 billion gift to the Silicon Valley Community Foundation, where he has a donor advised fund. Think of a donor advised fund (DAF) as a charitable checking account. The money sits in this account, his fund, until he decides to disperse it. There are no IRS requirements on community foundations to disperse a minimum percentage of assets each year. So arguably, the gifts Zuckerberg makes to “charity” could still just sit while earning interest.
3. Loose restrictions on pledge. Why does this matter? The world is changing rapidly, and the approach to how we solve problems and view charitable work continues to adapt. The IRS has strict rules governing nonprofits and charitable foundations, which in some cases can stifle innovation.
Pro: When Chan and Zuckerberg talk about this gift over the course of their lifetime, they realize a significant amount can change. So setting this up in a financial way that protects them but also allows them to adapt to whatever need arises should not be overlooked.
Con: There is no guarantee this money goes to organizations doing day to day charitable work. The money is still entirely controlled by Chan and Zuckerberg, to the point they can even change their minds about the pledge or use the LLC as a personal investment fund.
Overall this has potential to be a very positive announcement. They show passion and willingness to do what is necessary to create social change. It shows incredible vision to be prepared for whatever opportunity arises. It is also important that the public understand some basics about what the commitment is they announced. While the headline, “Zuckerberg pledges $45 Billion to charity” is at best, misleading, they have said in coming months there would be more information coming out about their plans. For now, let’s hold off on the celebration of their generosity until we find out more, and it goes beyond simply moving money from one pocket to another.