Mark Zuckerberg recently revealed that he and Dr. Priscilla Chan, his wife, plan to direct 99% of of their wealth into the Chan Zuckerberg Initiative (CZI) and the announcement triggered quite the firestorm of controversy. That’s because, although the entity is aimed at using the couple’s approximately $45 billion for charitable purposes, it’s also structured as an LLC and, say critics, that has suspect tax implications.
But other observers point out that what the structure really does is allow the couple to make a substantial commitment to impact investing.
The negative reaction, “comes from a way of thinking that is dated,” says Jacob Gray, senior director of the Wharton Social Impact Initiative. “It presupposes that philanthropy and investment are two ends of a spectrum with nothing in between.”
The specifics of the plan, of course, are that Zuckerberg and Chan are giving up a charitable deduction for their pledge but, in return, have maximum flexibility to give to charity, make investments and lobby. Goodbye upfront certainty about tax deductions, hello long-term flexibility in whatever vehicle they want to use. Certainly, if some of their stock is donated to charity, they won’t have to pay capital gains on their returns. But, “There will be other transactions they’ll likely make for which they will pay taxes on gains,” said Cathy Clark, director of the Center for the Advancement of Social Entrepreneurship’s CASE i3 Initiative on Impact Investing at the Fuqua School of Business, in an email.
One downside to the LLC plan is a lack of transparency: no obligation to publish where the money goes, for example. But the Zuckerberg initiative, according to Clark, “Is not publicly responsible; it’s still a private pot. Really it’s no different from other wealthy people who use money to influence society and politics.” And it can address that thorny issue in a few ways: Make public where the money goes, whom they hire, and what the results are, for example, as well as creating an impartial board of directors and including people they’re trying to impact into decision-making.
“I would love to see them build their impact funds in a way that really experiments with these critical elements: transparency, engagement, constituency and accountability,” said Clark. “If they do this, there is the potential to forge a new model for other philanthropically-minded wealth holders.”