Charity- begins at home?

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Yesterday, I spoke about the need for us to donate to charity.  Many of us do that because we want to help those less advantaged than ourselves, others do so to save money on their taxes.   Today, I’ll talk about the what Mark Zuckerberg (and his wife, Dr. Priscilla Chan) recently announced- after I introduce the Gates/Buffett pledge program.

Five years ago, Bill Gates and Warren Buffett proposed the Giving Pledge program.  The goal is to entice the wealthiest among us (probably the 0.1%- but they would love it to be the top 1 or 2%) to promise to transfer the bulk of their wealth (at least 50%) not to their children and families- but to promote philanthropic causes.   As of this writing, some 121 pledges have been made- and the wealth being donated is on the order of $ 400 billion or more.

Giving Pledge

While Zuckerberg and Chan are considered among the pledgees, what they are promising is entirely different than what most of us would consider as philanthropy.  Instead of donating their money to various causes (one or more), they are transferring their stock holdings (99% of their Facebook holdings) to an LLC- a limited liability corporation.

Now, an LLC is not a foundation.  It has ZERO requirements on its efforts.  Charitable foundations are required to transfer a given percentage of their assets each year to advance their goals.  The foundations where I serve as director provide some 5% of their current assets.  A few charities where I serve as advisor actually yield virtually all their current donations to the causes that are listed in their charter.

But, as I said, an LLC is not a foundation.  And, Zuckerberg’s LLC will use its assets to invest in firms and efforts that tickle the fancy of Zuckerberg and Chan.  The $ 45 billion stock portfolio will be donated over their lifetime to the Chan Zuckerberg Initiative (CZI).  (That is the name of the LLC they formed.)  The initiative will advance “human potential” and promote “equality”- but not quite.

Because the value of the assets will not be transferred to non-profit entities.  Instead, the holdings will capitalize entities that operate in health care (like the San Francisco General Hospital, which changed its name to the Zuckerberg San Francisco General Hospital after Mark’s $ 75 million donation), education (like the Summit Public Schools, the San Francisco charter program he has funded), and other areas that can promote “human potential” and “equality”.   (Hmm.  Maybe I should contact them about my new initiative to preclude folks from developing kidney failure.  It’s a potential profit-making enterprise that will save scores of thousands from a dialysis regiment or transplantation.)

The logic (sic) is, as I mentioned yesterday, many charitable efforts don’t monitor any measure of success or have no means to determine if they are doing any good.  So, the CZI plans to employ the profit motive to achieve their pilanthropic goals.  Both a financial return (to be sustainable) and a social goal (saving lives, educating children, etc.) need to be effected to obtain continued funding from CZI.  Instead of being good at raising money, these entities will have to be successful to stay in business.  (I have a less sanguine concept as to how one will monitor the achievement of the various social goals.)

The real reason behind the concept of the CZI is probably not philanthropic, however.  When making a “donation”,  current tax law requires one to sell stock to fund a foundation.  By transferring the stock to an LLC (that they own), Zuckerberg-Chan maintain control of the stock- and, therefore, of Facebook. (After all, the stock has voting rights- and the LLC’s voting rights are controlled by its owners.  The control of Facebook won’t change as the stock moves from personal holdings to the CZI.)  So, no one will be replacing Mark Zuckerberg at the helm of Facebook any time soon.

Also, if the investment (yes, not donation) picks are chosen well, the profits will swell the value of the LLC. That’s a benefit- because those additional funds can actually provide even more money to achieve the stated goals of CZI.

But, it’s not quite a donation. Unless and until Mark Zuckerberg and Dr. Priscilla Chan meet their demise- many, many years from now.

 

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