The Chan Zuckerberg Initiative Critics have Jumped the Gun

The Chan Zuckerberg Initiative is not something that critics should be talking down, but something that should encourage constructive contributions and engagement from all those with a genuine interest in more effective philanthropy, writes Philanthropy Australia’s Krystian Seibert.

Mark Zuckerberg and Priscilla Chan’s recent pledge that they will donate 99 percent of their Facebook shares (which are currently worth the equivalent of $A62 billion) to the ‘Chan Zuckerberg Initiative’, has received a positive reception in most quarters. However, it’s also been the subject of a barrage of criticism.

This criticism has ranged from ill-informed statements that it’s just a tax dodge (which it’s not), to allegations that the pledge won’t actually help the poor and is purely about making more money. These and other criticisms are set out, and debunked, in this article.

To be honest, I was quite shocked by all the criticism. Of course, philanthropy is not above scrutiny or criticism – but the Chan Zuckerberg Initiative hasn’t even started its work nor spent a dollar yet!

Much of the criticism has focused on how Zuckerberg and Chan decided to establish the ‘Chan Zuckerberg’ initiative as a ‘Limited Liability Company’ (LLC), rather than as a traditional foundation. The argument being that because an LLC is being used as the vehicle for their philanthropy, there is no guarantee that it will actually pursue charitable purposes.

There are some good reasons why Zuckerberg and Chan made this decision – the most significant of which is that by using an LLC, Zuckerberg and Chan have much more flexibility to do good by investing in for-profit companies (or even donating to them with no expectation of a return) as well as by donating to Not for Profits.

It’s true that by using an LLC, the Chan Zuckerberg Initiative won’t be subject to the same regulatory requirements as a traditional foundation, such as submitting an annual return to the Internal Revenue Service (IRS). In theory this could mean that it could ‘stray from the path’ and fund things which don’t necessarily further charitable purposes. I have doubts about the likelihood of this happening – but I’ll get to that shortly.

Criticism has also focused on how such a massive pledge, combined with the use of a ‘less accountable’ LLC, could lead to a further concentration of power in the hands of wealthy people such as Zuckerberg and Chan.

The Editor-in-Chief of the Nonprofit Quarterly even went so far as to say that this could be a ‘threat to democracy’. This makes me wonder whether some would prefer that Zuckerberg and Chan focused on buying islands and other luxurious extravagances, rather than ‘threatening democracy’ through their philanthropy.

I have two points to make in response to these criticisms.

Firstly, I think that the Chan Zuckerberg Initiative could actually be subject to even more accountability than traditional foundations – just that it won’t be achieved through conventional mechanisms.

Secondly, that this accountability will limit the ability of the Zuckerberg and Chan pledge to ‘threaten democracy’.

On the first point it’s useful to consider other accountability mechanisms, apart from the mandatory requirements which apply to traditional foundations.

In particular, in the case of private companies there is an increasingly common view that they can’t just do what they want and ignore the needs of communities. Rather, they need what’s called a ‘Social Licence to Operate’ – which is the level of acceptance or approval continually granted to an organisation’s operations or projects by the community and other stakeholders.

A Social Licence to Operate revolves around a question of legitimacy – whether the company’s actions are viewed as right – not just by their shareholders, but by stakeholders more broadly. It originated within the mining industry, where there was recognition and expectation that mining companies have an obligation to invest in and support the communities where they have a presence.

Of course, Social Licence is a soft form of regulation, and not all companies abide by it – it’s certainly not a substitute for environmental regulations and labour protections. But it’s hard to argue it has no impact.

Transferring this concept over to philanthropy, and in particular the Chan Zuckerberg Initiative, it too will need to acquire and maintain a Social Licence to Operate. Indeed, I would expect the pressure on it to do so will be much higher than in the case of your ‘standard’ private company as the Initiative has been specifically established to achieve charitable purposes rather than made a profit for its shareholders. Therefore, expectations will be very different.

Unlike a traditional foundation, it won’t be able to say that its legitimacy stems from meeting the regulatory requirements imposed on it such as paying out a certain amount per year to charities and submitting an annual return to the IRS. Some may be of the view that meeting such requirements isn’t in itself sufficient to maintain legitimacy – but the requirements do at least provide some sort of basic structured accountability framework.

An organisation’s legitimacy depends on its actions – and because the Chan Zuckerberg Initiative is ‘different’ both in terms of its structure and eventual size, the expectations placed upon it will be higher than those placed on traditional foundations and much higher than those placed on private companies.

The Chan Zuckerberg Initiative won’t be able to claim legitimacy purely from the fact that its intentions are charitable. It will need to proactively demonstrate its worth, its commitment to its mission, and the impact of its work – because if the community doesn’t think it is acting in a manner consistent with its mission and has no reason to think so, the Initiative will lose its legitimacy and forfeit any claim to being charitable.

This will defeat the reason it was set up – as it would then just be another private company, with no legitimate claim that it’s contributing to the common good.

And there will be plenty of eyes watching on. This will include organisations within the philanthropic sector such as the National Committee for Responsive Philanthropy,Not for Profits, the media as well as the broader community. Indeed the National Committee for Responsive Philanthropy is already on the case, offering some very useful and constructive advice to Mark Zuckerberg and Priscilla Chan.

In essence, the need for such a Social Licence will subject the Chan Zuckerberg Initiative to a new and quite stringent form of accountability.

This leads me to my second point.

The accountability associated with establishing and maintaining a Social Licence will limit the ability of the Zuckerberg and Chan pledge to ‘threaten democracy’. I think the use of such terms is over the top – but I repeat the term here to acknowledge the fact that ‘mega philanthropy’ like that of the Chan Zuckerberg Initiative does vest a large amount of power in philanthropists to direct what outcomes are funded and this power isn’t moderated by the democratic institutions that oversee the similar decisions made by government (although these institutions themselves are far from perfect).

But once again, the actions of the Chan Zuckerberg Initiative will be scrutinised – and if it is seen to be using its power in a manner inconsistent with its charitable purposes and against the wishes of the communities in which it operates, it will risk losing its Social Licence and any claim to being charitable.

So how can the Chan Zuckerberg Initiative go about its work in a manner which builds up and reinforces its Social Licence? The advice from the National Committee for Responsive Philanthropy referred to above is a good place to start – and I want to zero in two particularly important aspects of that advice.

Transparency will be critical to maintaining the Chan Zuckerberg Initiative’s Social Licence. It will need to be open about how it is governed, what it funds, how it funds and what the outcomes are. The community won’t be able to rely on the fact that the Initiative has some mandatory reporting requirements to the IRS, because it won’t have any.

But if the community doesn’t know what you’re doing, how can they make an assessment of that work and its merits in terms of furthering the common good? If the community is unable to do that, then it’s impossible to establish and maintain legitimacy.

Without transparency, it will be totally understandable for stakeholders to be sceptical of the Chan Zuckerberg Initiative and its work – a culture of secrecy tends to breed scepticism. On the other hand, by being and transparent and open, the Initiative will be able to actively demonstrate its commitment to the common good, and establish a relationship with the community based on mutual trust and respect.

In this regard, it will be important that the Chan Zuckerberg Initiative goes beyond what’s required of traditional foundations in terms of what they submit in their annual return to the IRS, and commit to meeting the full range of transparency measures which are set out as part of the Foundation Center’s Glasspockets initiative.

It should also have a strong focus on evaluating what they do, and whether it works or not, and sharing this information. This will help build up the body of knowledge within philanthropy but also, given the likely scale of the Chan Zuckerberg Initiative activities, it will be very useful information for policy makers within government.

Sharing power will also be vital, because directly engaging with the communities in which the Chan Zuckerberg Initiative will be active will be necessary to maintain its Social Licence in those communities. Engaging doesn’t mean just listening, but actually involving communities in decision making as partners – which is a source of legitimacy. I would expect that the Chan Zuckerberg Initiative will be trying to address some really complex and multi-faceted problems – to do this effectively, it will need to share power with subject matter experts, community leaders, not-for-profits and other philanthropic organisations.

Sharing power is an opportunity to leverage expertise and also share responsibility for outcomes. The Sherman & Marjorie Zeigler Foundation is a small US foundation which provided a good example of how to share power – it pursues its mission by supporting a community organisation composed of local citizens and experts who propose and select projects to be funded. Imagine how empowering it would be if the Chan Zuckerberg Initiative were to adopt that approach in the communities where it will be active.

Also, there is scope for using some truly innovative decision making mechanisms such as Citizens Juries. Some governments are using Citizens Juries to examine issues of public significance and develop solutions – the Chan Zuckerberg Initiative could use them in the same way, not only to help it make better decisions, but also engage a broader group of people in the decision making process.

Now I realise that I’ve offered quite a bit of unsolicited advice in the above paragraphs, and I’m sure that both Mark Zuckerberg and Priscilla Chan have already done some thinking about these matters – indeed the Chan Zuckerberg Initiative’s Chief of Staff has shared some of this initial thinking about their approach. It’s incumbent on us all, including the critics, to continue this discussion.

We have before us an excellent opportunity to further engage in a constructive debate about the future of philanthropy in its different forms, and in particular what broader obligations and expectations exist within the community regarding the role of philanthropy and the responsibilities this role entails.

The critics shouldn’t be jumping the gun by talking down the Chan Zuckerberg Initiative. Cynicism won’t assist with the task of improving the effectiveness of philanthropy, be it that of the Chan Zuckerberg Initiative or any other philanthropies.

Everybody benefits from more effective philanthropy – so let’s use the establishment of the Chan Zuckerberg Initiative as a reminder of the importance of focusing our minds on achieving that objective.

About the author: Krystian Seibert is the Policy & Research Manager with Philanthropy Australia and tweets at @KSeibertAu.

This article was first published on Philanthropy Australia’s ‘Our Voices’ blog.