No one can fully judge the effectiveness of any philanthropic commitment before it happens.
By Richard Marker
Almost a week ago, the Chan Zuckerberg family announced a gift of $45B to change the world. The announcement came out while we were in the air somewhere between the coasts, which meant that by the time we landed, the press had already begun to accumulate definitive quotes and comments. There were a number of messages from journalists who were all working under deadlines so by the time I alit at JFK, the times to contribute had mostly passed. In retrospect, maybe that was lucky since almost none of us had the full story underlying this announcement in those first few hours.
Days later, almost every hyperbole that can be attributed to this couple and this announcement has been espoused:
- There are those who celebrate this as the cutting edge investment in changing the future.
- There are those who are skeptical, or worse, of their underlying motivations.
- There are those who say that this gift cements Mark Zuckerberg’s generational leadership in a way that will encourage younger generation wealthy to take philanthropy seriously.
- There are those who are shocked and disillusioned by the choice of the LLC vehicle.
- There are those whose naiveté about the philanthropy sector, its practices, and the laws surrounding it have led to extraneous and extraordinary charges.
And I am sure that I haven’t even seen all of the thoughtful and not so thoughtful commentary.
It seems that some context and some clarity may prove helpful going forward.
- No one can fully judge the effectiveness of any philanthropic commitment before it happens. No one vehicle, and no articulated mission, can fully anticipate the decisions that will be made and whether the decisions match the aspirations. That is a core reality of all philanthropy, and it is a core reality of all change initiatives. One can intelligently define risks but no one can guarantee the future. So it is fully impossible, and a fool’s errand, to try to predict whether this gift and the vehicle through which it is given is a wise one and money well spent. Time and experience matter: There are many long-time well-respected foundations and philanthropists who might be quite embarrassed to be judged by their early philanthropic commitments.
- That doesn’t mean that thoughtful people are exempt from understanding the implications of their decisions and to make informed decisions from the beginning and along the way. There are those in our sector who are able to navigate the fads, do not get trapped by jargon, are sufficiently secure not to be intimidated by the number of zeros after the number, are experienced enough to bring a wealth of wisdom to the discussion, and are open to new ideas that may challenge their own orthodoxies. There aren’t as many of these people as should be, but enough.
- Philanthropy is only incidentally related to taxes. Every known culture has some sort of philanthropy and voluntary behavior. Long before there were tax deductions in the USA, there were institutions fully dependent on the generosity of others. Some were charity – dealing with pressing human need; some were more generally philanthropic, creating and supporting quality of life institutions. Every study has shown that tax deductibility influences how people choose to give, but not if or why. Nations with no tax advantage for philanthropic behavior still have an abundance of altruism and generosity. Which means that the choice of vehicle does not tell us very much about the charitability of the funder.
- Even people with far fewer zeroes still need to decide on the pro’s and con’s of various vehicles: DAF’s or Private Foundations or certain kinds of Trusts or checkbook giving – for them! Anyone making these decisions needs be very cautious of an advisor who always thinks one vehicle is the superior approach. Therefore, I am quite reluctant to start out with any a priori judgment about the Chan Zuckerberg choice of an LLC. Indeed, were they to be residents of most other countries, a foundation structure would have given the Chan Zuckerbergs the same flexibility they sought in the LLC.
- In fact, the choice of an LLC shouldn’t surprise us. Not because others have used this vehicle before, which some have, but because it is a reflection of the indisputable trend that defines our era. The truly systemic challenges of our time defy single sector solutions. Illiteracy, homelessness, human trafficking and slavery, food insecurity, refugees and migrations, infectious diseases could never be solved by philanthropy alone, by the private sector alone, by the public sector alone or by the ngo sector alone. They all require some levels of collaborations to even begin to imagine solutions.
- This recognition of inter-sector interdependence has led to funders not feeling bound by playing in any one sector, or even by classic definitions of the roles of each sector. This has been true for a while now: venture capitalists doing venture philanthropy; hedge funders supporting disruptive philanthropy; foundations organizing as shareholder activists or seeking impact investing opportunities with the corpus of their endowments; and more. Is it any wonder that Chan Zuckerberg created a veritable inter-sector entity?
- The capacity of private philanthropy is also worth consideration. The new Chan Zuckerberg LLC is to be created with a $45B commitment; the Gates Foundation, still the largest foundation in the world, has a corpus of about $40B. Those are huge dollars, but they pale in comparison to the worth of many private sector companies. To take just 3 recent examples of mergers and acquisitions: Anheuser Busch is buying SAB Miller for $105B; Aetna’s purchase of CIGNA is for $52B; Pfizer’s pending purchase of Allergen is estimated to have a value of $120B. The scale of private sector resources makes even the largest private foundation seem modest in comparison. And rounding errors in public funding, even after years of decimating cutbacks in public services, also overwhelm the capacity of private philanthropy. So it should hardly be surprising that one who has benefited hugely and quickly from private sector capitalization is more inclined to create a private sector entity than a philanthropic one.
- Finally, there is no consensus on the role of private philanthropy. As confidence in the public sector has eroded, to say nothing of funding cutbacks, there has been greater reliance on the voluntary sector to step up. Private philanthropy funders are no longer being asked to provide society’s risk capital, but to be key players in redressing poverty and human service shortfalls that government refuses to fund. These last 15 years have put burdens and expectations on private philanthropy not seen since before the 1930’s. And, en passant, left large funders open to criticism by those with prior agendas for private philanthropy. The non-transparency of a privately held company not only gives unlimited spending flexibility but, perhaps as important, protection from the transparency mandated by the 990PF. You may or may not approve, but one can understand why one might choose that protection.
I am sure that there are commentators on this unfolding story who have uncovered nuances I have missed, or shared insights well beyond mine. But as we await the creation of an enterprise nominally committed to improving the world for generations now being born, it is important for us to be a bit patient. As we have seen, there are surely many chances for failure in this sphere; the skeptics may well have their day. But there are also chances for game changing breakthroughs, and we owe it to the Chan Zuckerbergs to see if they succeed. If they do, we will all be their “friends.”
Richard Marker teaches and advises funders from around the world through both the NYU Academy for Grantmaking and Funder Education and the Wise Philanthropy Institute, both of which he founded. His blog can be found at Wise Philanthropy.