Is criticism of Zuckerberg philanthropy justified?
08 December, 2015
The announcement last week by Mark Zuckerberg that he and his wife would donate 99% of their Facebook shares to a new charitable foundation was initially greeted with awe and adulation but in recent days the critics have emerged. What are they suggesting here?
Initially, Zuckerberg was hailed as a modern day hero, the heir apparent to Bill Gates, who of course with his wife Melinda, has embraced philanthropy on a scale that few others of this generation or before have matched.
The announcement came soon after Zuckerberg had made a similarly ground-breaking announcement — that he would take two months paternity leave to stay at home with his wife and new daughter, Max. In making this announcement he used his status and position to champion paternity leave, paving the way for other men wanting to take time out of their careers following the birth of a child. In so doing, he was lauded as a dad-of-the-future, balancing career and family.
But then, even as recently as a few hours ago, the green-eyed monster and other critics have emerged, and all manner of commentators have picked holes in Zuckerberg's grand gesture.
The biggest criticism centred on the form of his giving. He is setting up the Chan Zuckerberg Institute not as a foundation or charity, but as a limited liability company. This company will be owned by the couple, and its structure will allow them to engage in political lobbying and invest in profit-making activities.
In the US, most significant philanthropists set up charitable foundations that are tax-exempt and they are strictly forbidden from campaigning or contributing to political causes. They are also not allowed to invest in profit-making ventures.
Critics have seized on this and suggested that Zuckerberg has deliberately chosen a limited liability company structure as a tax dodge, making them even richer than they were before.
In fact this criticism shows a misunderstanding of US tax law. As one tax expert has said, the setting up of a limited liability company has few implications, positive or negative. It essentially means Zuckerberg is transferring his assets from one pocket to the other.
Right now, he and his wife own Facebook shares. If those shares appreciate in value over time, there will be no tax payable until they are sold — whether they are owned by the couple personally or through the Institute. Similarly, when these shares are donated in the future, the couple will get a tax break on any capital gain, and a tax break for any other income they pay tax on. This is the same whether they owned the shares themselves, or through their new company.
The second criticism is that it is not really a donation because the couple gets to decide where the money goes, and that it can go into profit-making activities rather than just non-profit entities. Arguably this is the ideal structure if you really want to use your money for charitable ends.
Zuckerberg has said that he wants to consider all and any initiatives that advance human potential and promote equality, and he lists numerous possibilities including eliminating poverty and hunger, curing diseases and improving education. Arguably, it makes sense for him to establish a structure that allows him to invest in industries such as solar energy, medical research, protein substitutes and the like, and also to support future entrepreneurs who may start companies that change the world for the better.
Traditionally, most philanthropic commitments of $US10 million or more have targeted hospitals, universities and museums, where projects can be monitored and their success can be measured on completion. Giving away money to causes that support social change — like education or poverty — is harder than paying for a new hospital wing. Zuckerberg's new institute will allow for this sort of bigger picture philanthropy.
The third criticism is that if the couple really wanted to help Americans, they should give the funds to the US government to distribute to the needy. The problem with this is that the US government has not proven itself in supporting the causes that Zuckerberg is interested in. Unlike the Gates Foundation for example, who allocate a large portion of their wealth to people in extreme poverty, the US government spends less than 1% of its annual budget on people in such dire circumstances.
A related criticism is that it is not democratic to let these individuals shape the future, just because they are particularly rich. There is a fear that they will use their donations to sway politicians and pursue their own interests, over those of the population at large. However, if Zuckerberg and Chan are true to their word, and they do plan to use their money to alleviate disease, improve education and fight poverty, well it's hard to argue that any politician would be swayed or influenced in the wrong direction. These goals are unequivocally good ones.
One criticism relates to Zuckerberg personally and his ability to distribute his wealth appropriately. He may be a brilliant entrepreneur and successful business person, but what does he know about choosing the right causes to give money to?
Unfortunately he had a bit of a fail five years ago when he donated $US100 million to a struggling public school in New Jersey. Five years on, few improvements have been seen at the school, and more than $US20 million of his donation was sucked up by consultants fees, so the children haven't reaped the benefits of his generosity.
Some say that rather than appointing himself to the rather interesting job of dolling out money to good causes, he should follow Bill Gates' lead and use an expert organisation that researches and selects the most needy and worthy of causes.
And of course the last criticism was simply jealousy — they are so very rich that they don't deserve praise. To that one, and in fact the other criticisms, I would say:
Yes, Mark Zuckerberg and his wife are amongst the wealthiest people on the planet. Yes, they could possibly do things better and they might not get every decision right. But in giving away the majority of their wealth, in their lifetime, in order to make the world a better place for their daughter and future generations, they are doing something that the rest of us would probably not do, even if we were in their position. So, good on them. They are setting a fantastic benchmark.