This Will Be Mark Zuckerberg’s Biggest Challenge As A Philanthropist

8 Dec 2015 | Author: | No comments yet »

A toast to philanthrocapitalism: Zuckerberg’s charity and profit.

FACEBOOK founder Mark Zuckerberg and his wife Priscilla Chan want to live up to the mission of Facebook by making the world more open and more connected. Whoever said that you do not look a gift horse in the mouth was evidently not an American, going by the way the US intelligentsia is tooth-combing the announcement last week by Facebook’s CEO and co-founder Mark Zuckerberg to give away 99% of his stock in the social networking company, estimated to be worth $45 billion (worth nearly Rs 300,000 crore) to charity. While celebrating the birth of their first child, Max, they pledged giving away 99 percent of their Facebook shares to philanthropic causes over their lifetime. Adulation because of the couple’s stated intent to use nearly all of their estimated $45 billion for good; scorn that the initiative would not be a charity but a limited liability company, and would remain owned by the couple, and free to engage in lobbying and for-profit activities. There is no denying the infectious generosity that is now the hallmark of a new culture nurtured by legendary investor Warren Buffett and Microsoft co-founder Bill Gates.

I, too, believe it will help better the lives of millions, and if they invest in some type of scientific research, it could save or significantly better the lives of even more. “Giving” your fortune to a corporation controlled by you and, ultimately, your heirs is not the same as giving it to charity. In other words, Zuckerberg has engaged in some very effective tax planning, something that the titans of new technology have proved themselves pretty adept at. At the market value of today, that is about $45 billion, larger than Gates Foundation endowment and the $30 billion Warren Buffett gifted to the same foundation in 2006, according to the Guardian. But at the risk of sounding like the Grinch one has to pose the obvious question: would the businessman not be better off making a large payment to his country’s tax authorities?

By doing so, he could ensure that more resources are devoted to the repair of America’s ageing infrastructure, or to the filling of gaps in an educational system from which he has drawn huge benefit. While it’s tempting to cast this move as a naked instance of tax evasion, I’m more inclined to view this as Zuckerberg feeling that he will be able to accomplish more good with the funds in his direct control. Mark in a letter to his newborn wrote: “We must participate in policy and advocacy to shape debates.” According to reports, $45 billion was to be dolled out to the new LLC. Personally, I have more faith in someone like Zuckerberg to use $45 billion effectively than if it were just dumped in the lap of various charities across the world.

It is a reminder that such innovative and unconventional companies can add value to any economy; a lively economy is no longer dependent on manufacturing alone. Secondly, Facebook has explicitly stated that the Harvard-educated entrepreneur intends to retain his majority voting strength in the company for the foreseeable future. Fans of these liberal and progressive icons — especially Bill Gates and Zuckerberg — act as if these billionaires have already divested themselves of their wealth. There are already a number of wealthy people who took a similar step in the past, what sets Zuckerberg apart is that he is the youngest of them all, he is only 31. As for the CZI’s immediate future, it will be funded by three annual donations for next three years, from the sale of Zuckerberg’s stock, at a maximum of US $1 billion each year.

But this probably won’t shield all their wealth from tax forever, because as Facebook becomes a mature company it is likely to start paying dividends, on which tax cannot be deferred. Beer and sweets may rot the teeth or gut, but their providers did at least recognise their social responsibilities at a time when the State lacked the will and the capacity to meet the needs of the poorest. If, in the future, the initiative gives stock away to charity, its owners will get a double bonus — they will pay no tax on the gain on the stock, and they will be allowed deduct the full value of the donated stock against other income they might owe taxes on. One suspects that Zuckerberg does not make a big distinction between venture capital type investment which creates employment and spreads wealth, and donations to good causes.

Seeking to burnish their image, ease their consciences, head off their detractors or simply do some good, people of great wealth are opening the cheque book as never before. According to Bloomberg Business, Wales of Aspen Institute said, “By setting up a company rather than a foundation, they can spend at the pace which makes most sense for the problem they’re trying to solve or the strategy they are pursuing.” There are few tax implications to this. But as a society, we don’t generally call these types of activities “charity.”” explained Jesse Eisinger in the New York Times. “What’s more, a charitable foundation is subject to rules and oversight. According to NYT, tax specialists explained that if the LLC sold stock, Zuckerberg would pay a hefty capital gains tax, particularly if Facebook stock kept climbing.

The new Zuckerberg LLC won’t be subject to those rules and won’t have any transparency requirements.” Zuckerberg did not take long to respond to these allegations. That might yet be the best way to prove right the fictional Hollywood character Gordon Gecko, who famously remarked in the 1987 film, “Wall Street,” that “Greed is good” Many other donors have adopted the acceleration approach favoured by Gates, but in October, Bill Gates himself acknowledged that ten years ago, he was “pretty naive about how long the process would take”. This enables us to pursue our mission by funding non-profit organizations, making private investments and participating in policy debates, in each case with the goal of generating a positive impact in areas of great need,” Zuckerberg wrote on his public Facebook.

In his view, “the Foundation underestimated the effort required to implement new technologies in countries without basic services, including clean water and reasonable medical care”. While the Foundation has spent $1bn on global health research teams developing drugs to treat Aids and TB, Gates has acknowledged that it could be another decade before even the most promising initiatives bear fruit. As for now, the transaction is neither an irrevocable gift to charity nor a tax dodge; it’s more as if you moved your money to Chase from Bank of America.

In fact, real progress is taking place in Africa due to the adaptation at city district and village level of technologies, particularly mobile devices, developed elsewhere. In his latest annual letter, Bill Gates hinted at a different approach, with a particular emphasis on areas such as crop yield enhancement and the development of mobile-based banking. A for-profit company can develop products that help people live better lives; a lobbying initiative can seek public policies that make people happier and more equal. As Gates noted, maize yields in Africa are less than one fifth of those in the US — there is scope to double these, thereby reducing reliance on imports, boosting peoples’ health and productivity and generating funds for new enterprises. Most political donors believe their favored candidates benefit not just themselves but the public, and essentially all start-up founders in Silicon Valley believe their companies will serve to advance human potential.

The Microsoft co-founder clearly has been on a steep learning curve and it might be well worth the while for the 31-year-old Zuckerberg to start picking the brains of his elder and erstwhile rival. Whether we like it or not, globalisation has resulted in a huge concentration of resources in the hands of global corporations and the people who control them. So unfortunately, those of us hoping to make judgments and draw broad lessons from the Chan Zuckerberg Initiative will have to wait and see what it does, and how it works, to decide how much praise it deserves. It would, of course, be nice if Facebook could be persuaded to cough up more than the measly £4,327 it paid the British taxman last year, but in the absence of dramatic immediate progress on the tax front , the next best thing would be a surge in corporate giving from that source of the type at least hinted at by Mark Zuckerberg this week. That’s a limit that’s unlikely to interfere too much with the tax-planning strategies of ordinary rich, very-rich or very-very-rich people, but that would probably prevent Mr.

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