Leaders at grant-seeking charities say they are excited to see what Facebook co-founder Mark Zuckerberg and his spouse have in mind for the $45 billion they pledged to doing good in the world — and wary of the broader impact it may have on philanthropy.
The couple says their Chan Zuckerberg Initiative will give money to nonprofits, invest in for-profit companies, and participate in public-policy debates.
What isn’t part of the current Zuckerberg-Chan philanthropy plan? The creation of a traditional foundation. Instead, they’ve structured their new enterprise as a limited-liability company, which operates on a different set of rules.
“He has chosen a path that is different from what Bill Gates has done and what Warren Buffett has done, but it is his right,” said Lt. Col. Ron Busroe, spokesperson for the Salvation Army, which ranked as the third largest charity in the United States in 2014 with $2.1 billion in private support. “It is his money.”
The dollar value of the commitment from Mr. Zuckerberg and Priscilla Chan — it represents 99 percent of the Silicon Valley couple’s Facebook stock holdings — and the structure of the new entity have little precedent.
“If we transfer our shares to a traditional foundation, then we would have received an immediate tax benefit, but by using an LLC, we do not,” Mr. Zuckerberg said in comments on Facebook Thursday, two days after the announcement. “And just like everyone else, we will pay capital-gains taxes when our shares are sold by the LLC.”
Most important is the flexibility of the LLC to allow him and his spouse to give to the best-performing organizations, regardless of their structure, he said.
‘Disruptive’ Opportunities
That attitude is welcomed by some executives at grant-seeking organizations.
“This is the world of disruption, and it is disruptive to have such a big gift come in a nontraditional manner,” said Alex Gulotta, executive director of Bay Area Legal Aid in San Francisco. “I just think that this gives us huge new opportunities that maybe the current structure doesn’t support very well.”
But the decision to use an LLC, rather than a foundation has triggered unease in some corners of the nonprofit world. The Chan Zuckerberg Initiative will not be subject to the disclosure requirements of foundations, such as reporting the salaries of its highest-paid employees, some pointed out. Others expressed skepticism that for-profit investing will pay dividends for the public good.
Jacob Titus, executive director of the Beacon, a community center in South Bend, Ind., said that his chief concern is whether Mr. Zuckerberg and Dr. Chan will support people and organizations in their own community. Philanthropy has examples of big donors who forgo teaming up with groups already doing successful work to launch their own efforts in areas where they lack understanding, he said.
“From what I do understand about their structure, we may never know if this is happening with their charitable giving because of the secrecy the LLC will provide,” Mr. Titus said in an email.
Access to Capital
Irv Katz, interim chief executive of the National Human Services Assembly, a major charities association, said that there is no debate that private business creates products and enterprises that deal with critical needs. Some — like getting technology into the hands of underprivileged children — are possible only with the kind of capital found in the for-profit sector.
“Nonprofit organizations could do change-the-world innovations if they had access to capital as well,” Mr. Katz said in an email. “Not to mention the fact that many nonprofit organizations already include business enterprises as a part of their business plans.”
Nonprofits should be viewed not just as grant recipients but as enterprises with which to team up and invest, just as one would with someone with a business solution to a social need, Mr. Katz said.
“Many nonprofits offer two significant advantages: They have great depth of experience with the populations to be engaged and served; and nonprofits have accountability to the public,” he said.
The mixed reactions were not lost on Mr. Zuckerberg. He took to Facebook to respond to individual comments on his announcement and to offer additional explanations — there were lots of questions, he acknowledged — in a follow-up Facebook message on Thursday.
Additional information will be forthcoming, he said.
And many charities leaders pointed out that there are still a lot of unknowns.
Melanie Shakarian, director of development and communications at the Legal Aid Society of Cleveland, said there are some in the nonprofit sector who worry the LLC model could become the Super PAC of the philanthropy world.
“However, we must remember that philanthropy has grown in the United States over time because of creative tactics of many smart people who came before us,” she said in an email.
It’s possible that the Chan Zuckerberg Initiative could become such a Super PAC, she said, but she is nevertheless looking forward to watching how it plays out: “I’m hoping Chan and Zuckerberg are onto something cool.”
