The other day, Mark Zuckerberg and his wife, Dr. Priscilla Chan, welcomed their daughter, Max, into the world with a major announcement on Mark’s Facebook page (of course): In an effort to leave the world a better place for Max and the next generation, they’re planning to give away about 99% of their stock in Facebook, roughly $45 billion, over the course of their lives.
The news was greeted with much praise, although there was one detail that seemed to stick out to some in the media. Rather than set up the organization as a traditional 501(c)(3) nonprofit, Chan Zuckerberg Initiative is incorporated as a limited liability company (L.L.C.). Among the mostly positive coverage there were some naysayers and cynics who questioned the integrity of the endeavor.
I think that’s the wrong way to view it, or, rather, it’s short-sighted. It’s a natural impulse to question whenever someone approaches a tried-and-true activity, setting up a foundation, in a new way. The concerns that it helps them avoid paying taxes or that all the money won’t necessarily go to charitable organizations – or Zuckerberg could possibly profit from the organization’s work – may be legitimate in the abstract, but they have no bearing at this time.
Instead, as nonprofit attorney Errol Copilevitz pointed out in Fast Company, establishing an L.L.C. allows Chan and Zuckerberg more flexibility in how the money is distributed and used. It may be a slightly “avant-garde approach,” says Copilevitz, but it’s legal to have nonprofit L.L.C.s under California law. And the current state of philanthropic work doesn’t lend itself to that flexibility. To retain their nonprofit, tax-exempt status they are bound by what they can do and how they can advocate. By not seeking the traditional nonprofit status, the Chan-Zuckerberg Initiative has more control and flexibility to work across industries and organizations.
This debate reminds me of the TED Talk by Dan Pallotta. For those who are unfamiliar with Pallotta, he is an entrepreneur and humanitarian activist who created such big-ticket fundraisers as the Breast Cancer 3-Day walks, AIDS Rides and Out of the Darkness walks. Against the status quo, Pallotta believes that our approach to philanthropy is backwards and limiting to the amount of money nonprofits can raise, often thwarting the creativity needed to find that next great idea. He says that traditional nonprofits can’t generate scale to solve massive social problems because they are disadvantaged compared to for-profits. Namely, nonprofits can’t use money to lure talent; they can’t advertise on the scale of the for-profit sector; they can’t take the same risks for returns; and they can’t use the stock market and other sources to fund their initiatives.
Pallotta’s concerns are real for many nonprofits. Chan and Zuckerberg’s L.L.C. model tactfully avoids many of these dilemmas.
I think the best explanation of why they likely chose to go with an L.L.C. instead of a traditional 501(c)(3) was in the New York Times. Rather than apply the old cynicism to new business leaders, Emmett D. Carson, the CEO of the Silicon Valley Community Foundation, has a simpler explanation:
“We are at the cusp of a new renaissance in philanthropy, where younger donors in the tech industry are making commitments at a much younger age and are prepared to make much larger commitment.”
Viewed through that prism, sidestepping tradition to create your own model makes sense. The current model used for charitable and philanthropic endeavors has definite drawbacks, as we saw earlier. With so many regulations and restrictions on how a traditional charitable organization can both raise and spend funds, in addition to the almost omnipresent fear of being “outed” for not returning enough to charities, few nonprofits tend to be willing to take chances on redefining the model.
Setting up an L.L.C. may have some personal benefits to Chan and Zuckerberg, but it also gives them a 360-degree view on the issues they want to address. They’re not limited on who they can work with, where and, more importantly, how they can spend their money, and are free to support policy initiatives. They’re not limited in the voices they hear or the opinions that can be expressed. They’re not as isolated as in the nonprofit arena, while elsewhere in the for-profit realm, their efforts might be duplicated due to lack of coordination. That freedom doesn’t just help Chan or Zuckerberg. It can ultimately help the organizations, both for-and nonprofit, that they choose to work with.
Chan and Zuckerberg are still young and the policies and issues that are at the forefront today will likely be supplanted in 20, 30 or 50 years’ time. An L.L.C. allows them the ability to shift focus as needed as well as the option to partner with other for-profit companies that are developing important, new technology that, while not strictly “charitable,” can have a major impact on our lives.
With the Chan Zuckerberg Initiative, we now have a very large and very public organization trying a new approach. It could fail. It could, ultimately, spend a lot of money and not accomplish much. But it could help alleviate childhood hunger, find a vaccine to prevent the spread of HIV or rebuild the American public school system back into the greatest in the world. All that’s in the future. Right now, they’re announcing the birth of their first child by setting up an organization that, if handled well, could redefine how we approach the biggest problems facing us.
I think that’s a cause for celebration.
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Screenshot courtesy of The New York Times.