Opinion
December 08, 2015

3 Key Ideas on the Power of the Zuckerberg-Chan Pledge

In 2006, Warren Buffett walked into the New York Public Library and stunned a who’s who gathering of donors and nonprofit leaders when he committed the bulk of his fortune — then valued at about $44 billion — to the Bill & and Melinda Gates Foundation, rather than creating his own philanthropy.

There is a direct line from that gift of almost a decade ago to last week’s blockbuster announcement by Mark Zuckerberg and his wife, Priscilla Chan, that they were giving $45 billion in Facebook shares to mark the birth of their first child.

Mr. Buffett’s decision led him to work with the Gateses on the Giving Pledge, the effort to encourage the world’s billionaires to give big — and one of those early signers was Mr. Zuckerberg.

Those connections mean that what we have witnessed in just a decade is the transformation of the giving style of three generations:

Members of the oldest generation wrote big checks to organizations they thought were doing the best work; the middle generation created an operating system to push philanthropy to be more strategic and driven by metrics; and the youngest is attempting to disrupt traditional philanthropy with an approach that has great promise — but also should invite a close Congressional examination because of its potential to damage organizations that have long depended on philanthropic largess to deal with the toughest problems in the world.

The move by Mr. Zuckerberg and Dr. Chan could well persuade many young people to steer away from the Buffett and Gates (and Rockefeller and Ford) models and toward a broader corporate structure for social influence (with some charity attached.)

The vision of social innovation Mr. Zuckerberg and Dr. Chan embrace is exciting, but I’m skeptical their model will work. I’m also worried about what their approach means for traditional charities, which already don’t get enough of the money they desperately need from foundations.

It’s essential that all of us in the nonprofit world embrace what is smart about their announcement and raise tough questions about the downside. As we all have had more time to absorb the news, here’s what is essential to keep it mind:

The Chan-Zuckerberg charity plan will be only the second-most-important social-change vehicle under Mark Zuckerberg’s direct control.

While it’s true that $45 billion and a new organization, still under development, represent a major new element in philanthropy, it’s only the second-largest initiative under Mr. Zuckerberg’s control — and easily the second most important. After all, he runs Facebook, the largest networked for-profit social enterprise in the world. From the start, Mr. Zuckerberg has sought vast social impact through Facebook, based on the radical idea of connecting everyone on the planet so they can share events of the day, major and minor. Sure, it’s become an enormous global business, but that social ambition remains.

Moreover, Facebook (the business) clearly sees nonprofits and social causes as an important strategic challenge, and it’s been moving to encourage more people to use the social network for fundraising, crowdsourcing, and campaigns run by nonprofits. Given its billion or so users and the need for social causes to have a place on the network, it’s entirely possible that how Mr. Zuckerberg deals with the nonprofit world on Facebook may, in the long run, be more important than how the Chan-Zuckerberg charity money is spent. Free advertising, expanded fundraising capabilities, and new storytelling techniques on the largest online social network can actually change how nonprofits raise money, how social entrepreneurs create new ventures, and how Americans support causes.

The largest American philanthropic commitments in the last decade are actually pretty small on their own.

Multibillion-dollar philanthropic commitments instantly create major players in the nonprofit world, providing much-welcomed new sources of funding for social ventures. But keeping the scale in mind is vital, especially as we debate the relative democratic merits of big-dollar philanthropy, the tax structures involved, and the effect a few wealthy donors can have on public policy.

Consider the Gates Foundation, the largest in the nation. Its endowment is $41 billion and change, according to the last filing, and in 2014 the foundation made almost $4 billion in grants. These are huge numbers for organized philanthropy. Yet that $4 billion made up just over 1 percent of American philanthropy in 2014. And the U.S. foreign-aid budget is about the same, on an annual basis, as the largest foundation’s total endowment. Domestically, the contrast becomes even larger. For example, government spending on public education in 2011 was $621 billion, while Gates spent a bit over $400 million on education in 2014.

No matter how large $45 billion might be, it won’t go that far in directly tackling the world’s problems and paying for programs to solve them.

The definition of a U.S. philanthropy is shifting so radically and quickly that Congress should act.

Mark Zuckerberg and Priscilla Chan should be congratulated on a plan to spend a gargantuan fortune on improving the lives of millions, rather than on a fleet of the latest mega-yachts or a private island. Nonprofits should seek to engage with them, provide insight and dialogue, and encourage continued discussion of policy and priorities.

But I also think Congress should act. The tax code and its definition of private foundations may be fatally compromised by the couple’s decision to put their social-change money into a limited-liability corporation, especially if other young philanthropists-investors takes this path.

On Facebook, Mr. Zuckerberg wrote: "This enables us to pursue our mission by funding nonprofit organizations, making private investments and participating in policy debates — in each case with the goal of generating a positive impact in areas of great need. Any net profits from investments will also be used to advance this mission." Later, he vowed that the initiative would, indeed, pay taxes.

Yet the special status granted to nonprofits and philanthropists to shield revenue and income from taxes — and the shared responsibility of our democracy — is a huge privilege that must be taken seriously.

Congress must examine what will happen to a major source of nonprofit income if more billionaires decide to move to the LLC approach. They won’t face the requirement to make a distribution of assets every year, as foundations do, and they won’t be required to disclose any information about their assets, work, board members, or staff, as grant makers do on their IRS informational returns. If nonprofits don’t have access to the money or information foundations now provide, we’ll see the social safety net in greater tatters than it is today.

So let’s watch the Zuckerberg-Chan initiative closely. But let’s also encourage our elected representatives to do their job and update a clearly antiquated tax code to redefine the privilege of tax-free contributions to the public good. Indeed, perhaps forcing us all to reconsider philanthropy is this country will be the Zuckerberg-Chan charity plan’s greatest accomplishment.

Tom Watson is president of CauseWired, a consulting firm that advises nonprofits, and a lecturer at Columbia University. He is a regular columnist for The Chronicle of Philanthropy.