Why Not to Hate Zuckerberg: A Quick and Dirty Guide to Billionaire's Giving Cash

At about noon today, I sensed a disturbance in the fundraising force. I received three emails from clients asking how to apply for Mark Zuckerberg’s foundation. I’m usually on top of such things, but I was driving when the announcement was made public. As a consulting firm that manages grant writing (among other things), I’m used to these emails. Someone’s giving away a few billion dollars, and a pool that size seems big enough for everyone to swim in.

But it wasn’t more than a few hours later that the criticism started to pour in. The Zuckerbergs have set up an LLC to manage their charitable contributions, whereas traditionally, billionaires establish private foundations - a type of 501(c)(3). The bloggers were Tweeting, the newscasters were chiding, and many people doing outstanding work in the world were hopeful once again. All the while, the big points were being misunderstood.

Here’s what you need to know about the distinction so you can make the call on your own:

No matter how Mark set up his charitable fund, he would have tax benefits. We work with private foundations on a daily basis. Most of the family foundations we work with are set up to do good while benefiting from the tax incentives. An LLC may be unconventional where charitable work is concerned, but the tax argument is silly. Because the amount is so large, the implications seem enormous, but you would have the same ability if you had some extra cash.

LLCs definitely lack the accountability that private foundations have. Private foundations are mandated to file tax documents, called 990s, reporting on their financials and activities each year. Mark will not need to file these same types of reports. Even if he develops his own type of reporting for transparency’s sake, we will not have the opportunity to compare apples to apples.

Social entrepreneurship is not new. Many LLCs are out there doing good work in the world. Social entrepreneurship (or using business wisdom to do social good) has grown in popularity over the last few decades. For example, the model is responsible for tremendous advances in public health and renewable energy. Mark’s idea is not that crazy; it’s just getting more attention because of the enormous dollar amount and the celebrity figure involved.

Private foundations are already doing almost whatever they want. Even though foundations need to file 990s, their activities outside of their financial management are pretty much up to the whim of their founders and board members. For example, I once came across a foundation interested in supporting youth kickboxing, a regional opera house, and beekeeping. So if we’re worried Mark will do something odd, being a private charity would hardly have changed that.

Sometimes, the most good will be accomplished by the nimble giver. Lots of social good is being accomplished in ways that do not fit the traditional model of writing grants. For-profit social entrepreneurship, for example, is a challenging fit for foundation funding. Even nonprofits who easily fit the bill can wait six months to a year to hear back. For greater social impact, the opportunity for quick intervention will be necessary. When Ebola broke out, funneling money into vaccine development and sanitation tools at nonprofits would have been more effective than sending it to a regional Red Cross. Leaner models will be faster-moving models, which sometimes means bypassing the infrastructure.

So, Mark and Priscilla, we’re excited to see what you’re capable of and how much you accomplish. Don’t let us down!