The Perils of Philanthrocapitalism

Abstract

The recent announcement by Mark Zuckerberg and Dr. Priscilla Chan to pledge Facebook stock worth $45 billion to various philanthropic efforts was met with more skepticism than praise. Most of the criticism concerned the couple’s decision to organize the CZI as a for-profit limited liability company (LLC), rather than the more traditional tax-exempt private foundation. Despite the tax benefits of private foundations, Zuckerberg and Chan were attracted to the fact that LLCs may freely engage in political activity, fund any type of entity, and participate in policy debates.This begs the question: why should we care how Zuckerberg and Chan engage in charitable activity? The Facebook stock is, after all, their property, and the general public does not generally have any say in how the wealthy dispose of their property. This Article argues that the criticisms are warranted. The reason the public does (and should) care, is that the decision presents troubling questions about the role of philanthropy in our society and the consequences of philanthropists using for-profit vehicles to engage in charitable work.For more than a century, sociologists have criticized philanthropy as antidemocratic, paternalistic, and amateuristic. However, the regulatory mechanisms governing private foundations ensure that the entities actually engage in publicly-blessed charitable activity, require numerous disclosures to increase accountability, and restrict certain political and lobbying activities. Although these mechanisms do not eliminate the negatives of philanthropy, they do limit their negative effect. As such, there is a convincing argument that philanthropy is worth these costs. The hope is that the mechanisms regulating private foundations result in a palatable balance between philanthropy’s negative and positive aspects.However, the recent trend of conducting charity through for-profit vehicles throws that balance off. The regulatory bulwarks designed to encourage the positive aspects of philanthropy do not exist in the for-profit realm. As such, philanthropy conducted through for-profit vehicles encourages entities to engage in matters of public concern free from meaningful regulation and limitations.This Article discusses each of the traditional critiques of philanthropy and explores how they are exacerbated when philanthropic efforts are conducted through a for-profit vehicles, such as LLCs.