Since Mark Zuckerberg’s $45 billion philanthropy pledge announcement, critics have derided he and his wife Priscilla Chan’s decision as blatant tax dodging and mere power consolidation. Zuckerberg’s detractors are justifiably suspicious of mega-billionaires’ self-proclaimed altruism through charity, especially as wealth inequality in America peaks. Moreover, cynicism about the ultra-rich’s munificence is fair because often their social spending is only made possible by their wealth-generating businesses that exacerbate society’s most pernicious problems.
In reality, Zuckerberg and Chan did not vow to donate 99% of their wealth to charity. They did something far greater for humanity. Or, at least they took a crucial, pioneering first step toward doing so.
At face value, all Chan and Zuckerberg did was create a legal entity with the amorphous mission of “advancing human potential and promoting equality.” Though unusual for prominent philanthropies, the Chan-Zuckerberg Initiative isn’t structured as a private foundation like the Bill and Melinda Gates Foundation. Rather, CZI is a Limited Liability Company (LLC).
There are vast differences between LLCs and foundations, which both underpin the criticism of CZI and reveal the intentions of its founders. While private foundations typically make grants to other non-profit organizations, LLCs have greater flexibility in what activities they can undertake.
In Zuckerberg’s own words: “We’ll donate to good non-profits and invest in good companies. The key is to be able to fund whoever is doing good work, regardless of how their organization is structured. Many foundations can’t do this, but because of our structure we can.”
The keyword is “invest,” and therefore, that’s precisely what CZI is: an investment vehicle. So, with proceeds from selling the Facebook stock it owns, CZI will invest in mission-driven, for-profit companies. Such investments may generate uncapped profits for CZI, which Zuckerberg insists would be entirely re-invested into additional social spending.
Yes, at face value, and under the theory that Zuckerberg is a status quo techno-baron, this is frightening. What’s stopping Zuckerberg and Chan from following the likes of the Koch brothers to fund an agenda that makes them and their fellow billionaires richer? Frankly, nothing besides bad PR. Of course, if they were to have opted for a foundation structure, then they’d be forced to give money to more conventionally charitable causes.
Still, I’m more optimistic about Zuckerberg and Chan’s intentions and eventual impact. After all, they’ve made past gifts exceeding $200 million to public school systems in Newark and the Bay Area as well as investments in education companies like MasteryConnect.
Many doubters nevertheless cite that one of those donations, of $100 million to Newark schools, financed an undemocratic and ultimately failed reform process. As Zuckerberg and Chan’s first foray into massive-scale philanthropy, an initial outcome of mixed results is acceptable, particularly if the donors have recognized their mistakes and learned from them.
Yes, CZI’s LLC structure lacks the accountability mechanisms that apply to government programs and publicly-traded companies. However, at the same time, the LLC gains an advantage in that its administrators won’t have to pander to voters for reelection every few years or placate shareholders every quarter.
Consequently, Zuckerberg believes CZI can “make long term investments over 25, 50 or even 100 years” due to more freedom from short-term thinking. A prime example he offers in his Facebook announcement is: “Today we spend about 50 times more as a society treating people who are sick than we invest in research so you won’t get sick in the first place.” Almost certainly, CZI will fund such medical research and other innovations that can have long time horizons, which are unappealing to other donors and investors along with government.
Besides the time horizons of these investments, it’s clear that Zuckerberg and Chan are employing a portfolio strategy in deploying their capital similar to what’s common in the venture capital industry. In taking the risky bets others shy from, they accept and expect that not all of their donations and investments will yield positive results, but that a select few will bring outsize social benefits. And for the huge successes of their portfolio, they hope that the positive magnitude of those successes will far outweigh the negative magnitude of the failures.
Better yet, unlike a private foundation that must annually donate 5% of its endowment, as an LLC CZI can donate, invest, and spend as little or as much as Chan and Zuckerberg see fit. Thus, CZI can provide adequate financing for the opportunities and at the times it deems best for humanity.
Even if Zuckerberg and Chan have so far directed relatively little of their vast fortune into social benefit initiatives, the CZI launch is perhaps the strongest indicator yet of a new paradigm for philanthropy. No longer will issues like global poverty and climate change remain the exclusive purview of gridlocked governments and donor-dependent non-profits. Zuckerberg and Chan (though hardly first movers) are building a future in which solutions to social and environmental problems will be designed as for-profit businesses that receive investment from funders seeking financial returns.
In fact, in that hard-to-imagine, radically-different future, Silicon Valley moguls won’t be the only participants in effecting change. Partly because more capital will flow into profitable approaches addressing our most dire challenges, more and more of us will work with the organizations that people like Zuckerberg and Chan are supporting. Better yet, when more examples prove this burgeoning philosophy, as employees and investors we’ll make more money by working with and supporting these companies.
Now what we most need to spark this shift is a mission-driven company to become as highly valued and prominent as Facebook is among its conventional peers. Only then will similarly oriented businesses be able to convince the most promising talent and most risk-taking investors to join them. Until then, the brightest minds and most money will continue to flow into comparatively more lucrative yet less socially beneficial industries.
Ultimately, I applaud Chan and Zuckerberg for making a bold decision about how to use their privilege and power to advance society, in spite of the wide-ranging reproval their announcement drew. True, it’s healthy to distrust the billionaire class, but let’s recognize and defend their imperfect yet promising nontraditional efforts to do the most good for the most people.