On December 1, Mark Zuckerberg wrote a letter to his newborn daughter, Max, and shared it with the world (on Facebook, of course). The letter announced the commitment of Zuckerberg and his wife, Priscilla Chan, to improve the world in which their daughter will grow up, which included the creation of the Chan Zuckerberg Initiative, a limited liability company whose mission is to “advance human potential and promote equality in areas such as health, education, scientific research, and energy.” Mr. Zuckerberg further stated in the letter his intent to give away for such purposes during his lifetime 99 percent of his shares in Facebook, currently valued at $45 billion.

Much has been written about what Mr. Zuckerberg did, and didn’t do, for charity, his daughter, and the world. Let’s start with what he didn’t do.

  • He hasn’t yet made a gift to charity or anyone else. Mr. Zuckerberg hasn’t actually given anything away . . . yet. Mr. Zuckerberg has retained absolute control over the LLC and its assets, including investment, expenditures, etc. No gifts or transfers to further the intended mission will be made until the LLC, under Mr. Zuckerberg’s direction, distributes Facebook shares or income or proceeds from sale of such shares. A filing by Facebook with the Securities and Exchange Commission dated the same date as Mr. Zuckerberg’s letter states that he will “control the voting and disposition” of any Facebook shares held by the LLC. It further states that he plans to “sell or gift no more than $1 billion of Facebook stock each year for the next three years and that he intends to retain his majority voting position . . . for the foreseeable future.” Unlike a charitable pledge, Mr. Zuckerberg’s “promise” is not enforceable during his lifetime or at his death; the only current philanthropic act he has made so far is a very public statement of aspirational intent.
  • He didn’t create a charitable/tax-exempt vehicle. The LLC can operate for any purpose permitted for an LLC under state law. Thus, unlike a private foundation or a donor-advised fund, the LLC is not obligated to operate exclusively for charitable purposes and, unless otherwise required by its governance or corporate action, need not give anything away for charitable purposes, everIt can use its assets for any purpose, including for-profit activities, lobbying, political contributions, and may also make loans and pursue investments and other transactions (domestic and international) that might be either administratively burdensome (from a due diligence and recordkeeping/reporting standpoint), or even impermissible, for a charitable entity. The LLC can operate free of restrictions that could require minimum annual distributions, prevent private benefit or self-dealing, and/or restrict the percentage of Facebook stock that the entity can hold.
  • There is no immediate tax benefit/consequence from the transfer of assets to the LLC. Unlike a charity, the LLC is not required to file returns with the IRS or the state attorney general that must be made available for public inspection. All income and deductions of the LLC will be “passed through” to Mr. Zuckerberg and will be reported on his personal income tax return. Financial and transactional information about the LLC, including income, expenditures, and compensation, will also be private (except as required to be reported to the IRS or the SEC). In essence, the LLC can be authorized do anything with its Facebook shares that Mr. Zuckerberg could do if he retained them, and he is not obligated to “share” that information with his Facebook friends and the public.

So, what did Mr. Zuckerberg do?

  • He has made a moral and ethical commitment to his family and the worldHow one views this commitment depends on how hopeful or skeptical one might be. I view his actions as analogous to my financial commitment to my children for their college education. Over the years, their father and I have added funds to an account that remains in our joint names, but which we consider “earmarked” for paying their college education expenses. We have shared with our children both our intent and the balance of the account from time to time, and while we fully intend to honor our promise, we are not legally obligated to do so. Clearly, a choice to use the funds for a different purpose could have very negative consequences for our relationship with our children, but at the same time, they would have no legal standing to require that we use the account for their education. We also have funded Section 529 plans for each of them, the assets of which can only be used without penalty for educational purposes. The LLC Mr. Zuckerberg created is much like our earmarked educational account. He essentially moved assets from one pocket to another that he could legally move back again; however, he hasn’t yet created for charity anything like the Section 529 plans we funded for our children. If Mr. Zuckerberg doesn’t follow through, he will face public criticism and disdain (he already has, to some extent, from folks who view his announcement as self-serving), and when little Max grows up, he will have to look her in the eye and admit he lied in his first letter to her. Call me a hopeful fool, but I vote that he will honor his promise (like we intend to with our children), although how and when remains to be seen.
  • He has established a “structure” to facilitate his and Ms. Chan’s aspirational goals. True, he hasn’t yet made a legal commitment to do anything, but he created the LLC for expressed purposes, and he’s hired Caitlyn Fox, a Wharton graduate and former Rockefeller Foundation executive, as the LLC’s chief of staff. That’s a commitment in itself. In her new role, Ms. Fox will presumably help develop and implement short and long-term strategies to carry out the stated mission of the LLC, and the LLC will provide significantly more flexibility for doing so than would a charitable entity. Mr. Zuckerberg has chosen a vehicle consistent with his entrepreneurial experience and spirit, through which he can further his philanthropic goals. The LLC will also provide liability protection for Mr. Zuckerberg in the event it carries out any activities or programs directly. Ms. Fox has said publicly that the LLC will strive to be transparent but that not all investments, activities, or “grants” will be public. That might be frustrating for thirsty watchdogs, but it also might allow this new venture to grow and succeed much the same as Facebook has.

In the end, I “like” Mr. Zuckerberg’s promise, and my “comment” is that I remain hopefully optimistic that he will honor that promise. Certainly the world needs individuals with his resources to “share” them, and his significant resources could do a lot of good.