Mark Zuckerberg, the founder of Facebook and the 16th richest man in the world, announced this week that he would be giving away a massive amount of his wealth. In an open letter, Zuckerberg and his wife Dr. Priscilla Chan told their newborn daughter, Maxima, that they would donate 99 percent of their stake in Facebook (currently valued at $45 billion) because, “We love you, but also because we have a moral responsibility to all children in the next generation.” Zuckerberg and Dr. Chan plan to use philanthropy for two main principles: advancing human potential and promoting equality. Essentially, by advancing human potential, they want to create boundless opportunity, and by promoting equality they want to make those opportunities accessible to all people. They truly mean it when they wrote, “regardless of the nation, families or circumstances they are born into.”
It is an incredibly charitable and noble gesture from the family, and he deserves all the credit in the world for trying to make the world a better place. That being said, his gesture merits further investigation. Zuckerberg and Dr. Chan aren’t simply donating $45 billion to other charities. They’ve done two things completely differently.
First, they’re not giving away hard cash right now, they’re moving Facebook shares. This allows the money to potentially increase over time. What is projected to be a $45 billion donation could grow into a $50 billion donation if Facebook continues to grow. There is also a large tax incentive for the family to use shares instead of dealing with an enormous tax on $45 billion as hard income. By moving shares into their own organization instead of money to an established charity, the family is really able to give more money going forward.
This is where their second major difference comes in. They’re forming the Chan Zuckerberg Initiative, LLC instead of a non-profit. An LLC, or limited liability company, is not bound to several restrictive rules that regular charities have. First, it can spend money on investments in companies. Second, it can spend money on political activism. Third, LLC's don’t have to have major disclosures of public tax documents. Fourth, if the LLC is sued, Zuckerberg's and Dr. Chan's personal assets would be exempt from liability.
Because of these benefits, LLC's functions less like a traditional charity and more like an investment program. Essentially, Zuckerberg and Dr. Chan can find causes or ideas they care about and invest accordingly. For example, if there was an education start-up that was doing amazing things in the community and needed to grow, they could infuse it with the cash necessary to make that next step. This form of charity embraces the principles that this country was formed on, and essentially allows the family to use capitalist ideas to do good across the globe.
How was Zuckerberg able to make his fortune? He came up with a product that over a billion people wanted, and he was financially rewarded for his idea. That’s capitalism right there. By building such a great program, Zuckerberg put himself in a position where at the age of 31, he can afford to give away BILLIONS of dollars to support issues he cares about. And what better way to give back than by using the same market that made him rich in the first place? Zuckerberg’s entire story is an explicit endorsement that our capitalist system works and that it can benefit people.
