Some thoughts on the Chan Zuckerberg Initiative and CBC’s The Exchange
Topics: News, Global Giving
I had the pleasure of being on The Exchange on CBC on December 11, 2015 to discuss the Chan Zuckerberg Initiative ("CZI") with Bruce MacDonald, CEO of Imagine Canada. You can watch the segment of The Agenda here (at approximately 18:35).
Here are some quick points on the CZI:
- Mark Zuckerberg and Dr. Priscilla Chan wrote a letter to their daughter Max which they published on Facebook. In the letter they discussed how they were taking about 99% of their Facebook stock and transferring it to a limited liability company (an LLC).
- According to Wikipedia "A limited liability company (LLC) is the United States-specific form of a private limited company. It is a business structure that combines the pass-through taxation of a partnership or sole proprietorship with the limited liability of a corporation. An LLC is not a corporation; it is a legal form of a company that provides limited liability to its owners in many jurisdictions. LLCs do not need to be organized for profit. The primary characteristic an LLC shares with a corporation is limited liability, and the primary characteristic it shares with a partnership is the availability of pass-through income taxation. It is often more flexible than a corporation, and it is well-suited for companies with a single owner."
- Many newspapers and media outlets made the mistake of thinking that this was a charitable donation. It is not. That does not mean that it will not have a long lasting positive impact - but it is not a gift to a charity or a charitable initiative. It would be better seen as a personal investment vehicle and social justice project with limited liability.
- I think it can be argued that the Chan/Zuckerberg’s mistake was in terms of communications. They might have achieved a temporary PR coup with all the media coverage but it is not a charitable gift and they should have anticipated that it would initially be viewed by many as a charitable gift.
- This poor communication upset some people as they felt they had been duped. It unnecessarily tarnished what could be a very interesting approach to making the world a better place.
- There is nothing wrong with using different vehicles to achieve different results. Sometimes for maximum flexibility it is best to have a number of different vehicles as they each have advantages and disadvantages. One can make the world a better place as an individual, a for profit entity, a non-profit, a registered charity and in many other ways.
- There is nothing wrong with using for profit vehicle to improve the world - keep in mind that for thousands of year businesses have been doing both good and bad. Some owners of some businesses are more concerned with improving their communities than they are with making a profit.
- I am pleased the Chan/Zuckerberg's have decided to use their resources to improve the world. Unfortunately we will not know for a while what type of impact or how much impact the initiative will have.
- One thing that has been lacking from Zuckerberg's past philanthropic initiatives is humility. He has underestimated the difficulty of the problems facing society and his attempts to reform public education in New Jersey were apparently a failure. They were neither careful nor rigorous. Too much was spent on consultants. Will they focus on their personal interests or aim for investments in improving the world with the highest marginal utility?
- There is a big structural problem in the US and many other countries where one person can accumulate $45 billion in wealth and pay almost now taxes. Not great tax policy. How does a country fund important programs - for example in Canada there is a social safety net and the charity sector receives 68% of its revenue from government.
- We don't know exactly why the CZI was established as an LLC. Here are some ideas:
1) it allows them control of the stock and funds;
2) the funds are still personal and they can change their mind and give it all to their daughter if they decide to do so;
3) they can control the voting shares of Facebook and therefore continue to control the company;
4) they have more flexibility than a charity (or 501(c)(3) would have (especially in terms of political activities (partisan or otherwise) or investing (in one stock or avoiding prudent investment rules);
5) they don't appear to need the tax benefits of donating to a charity at this point as they are not selling their shares and would not have to pay a capital gains tax;
6) they can selectively donate to charity to avoid paying taxes when they come up for decades to come;
7) there is no legal requirement for transparency (unlike a charity); and
8) there is no requirement to disburse any funds (not even the 5% that US private foundations must disburse every year).
- this structure is probably less about taxes and more about flexibility and control.
- they have suggested that the two broad themes will be "advancing human potential and promoting equality".They wrote “If you fear you'll go to prison rather than college because of the color of your skin, or that your family will be deported because of your legal status, or that you may be a victim of violence because of your religion, sexual orientation or gender identity, then it's difficult to reach your full potential.” Some of their work will be controversial in some quarters.
- they argue that lives will be so much better in future – if that is the case why wait so long and why not spend the money now when it is most needed.
- there will presumably be a focus on personal interests – such as the internet (remember Facebook) and personalized education. While access to the internet may help some it might be of little assistance to others. It may just increase disparities in wealth.
- while the CZI sounds huge at $45 billion keep in mind that it is only about 1% of the US annual Federal budget of $4 trillion.
- in The Exchange there was a question about the concern with the very rich having so much power to influence public policy (they are like oligarchs or overlords). Yes this is a concern but I don't think that Mark Zuckerberg's fortune makes much of a difference when you have so many wealthy corporations and individuals pouring money into the US political process.
- If I was a charity and had a choice of someone who is really smart, perhaps a little obnoxious who has made the money himself, versus a foundation leader who has not made the money but is intent on hoarding the money and spending it on pet projects it is difficult to know which is better.
- The success of the CZI is going to depend on it having significant positive impact. Hopefully they will consult stakeholders broadly, help those who are most marginalized, and try to avoid mistakes but at a minimum learn from those mistakes.