NY Times DealBook published an article from Jesse Eisinger today http://nyti.ms/1Irn97Z that was critical of the Zuckerberg Chan Initiative. A letter written by Theodore Casparian (Founder, Sustainable Investing 4 All) is printed below to provide a more accurate analysis.
Re: your article today http://nyti.ms/1Irn97Z, I am sure that you will get many communiques, including from Mr. Zuckerberg himself, so you will not likely get around to reading this one. Nevertheless, as a daily reader of the Times and thus a regular reader of DealBook, I am making an effort to take note whenever I read something really silly and unfounded in DealBook, whether written by you, Mr. Sorkin, or Mr. Solomon.
There are many misunderstandings about foundations, investments thereof, mission, and taxation contained in your article. You even contradict yourself on a major point. To start, you accurately note that “if the LLC sold stock, Mr. Zuckerberg would pay a hefty capital gains tax” , and then later say “he…is likely never to pay any taxes on it.” So, sure, if the Facebook stock sits in a corner (another pocket) forever and he never sells a single share, he will earn a PR coup with no present cost. But that is no different from making a public pledge to give away all of your money to charity “when I die”, when you are very much alive. What is likely, and why he chose the LLC structure over that of a private foundation, is that he can and likely will sell the stock (and pay the capital gains) and then reinvest that money in new ventures, ones which he deems beneficial to society.
You are correct, what he would deem beneficial may differ from what you would. But any investor may choose that option after paying taxes on the money first, which Mr. Zuckerberg would have to do to make a single new investment. And as the Times noted, with great power comes great responsibility. The Zuckerberg Chan Initiative and all of its investments will be under scrutiny by the press, (especially on slow news days), tempering that initial positive PR every day.
Contrast this with private foundations. Upon their formation, throughout their tenure and with every donation or grant, every foundation gets that positive PR. But there is no scrutiny of their investments. Indeed, there are no restrictions on (non-PRI) investments, and no taxes paid, as long as 5% of the total asset value is given away each year. In terms of funding general societal needs, 5% is a token payment when the corpus can be financing the destruction of society. For example, too few people raise an eyebrow when the $50,000 donated to, say, the Girl Scouts, came from a portion of the profit earned on a $1 million investment that benefited from the trafficking of young girls. Or when a $25,000 grant to the Fresh Air Fund came from a $500,000 investment in a serial polluter. This, unfortunately, is the pattern for the majority of foundations and endowments in the United States today. A quick look at the United Nations Principles of Responsible Investment list of signatories (and the names missing from the list) will confirm this.
In terms of transparency, it is likely that Zuckerberg will trumpet each investment he makes, to draw attention to the issue he is supporting and to encourage further focus. Few people read the 990s of foundations and the lists of holding companies, funds of funds, and supply chain obfuscation that are on them is often quite murky. In terms of fair taxation, transparency, and positive net societal impact, the Zuckerberg Chan Initiative is very forward-looking and superior to the current model under which most foundations operate.