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Mark Zuckerberg's 'Initiative' Adds New Wrinkle to Tech Philanthropy

Mark Zuckerberg is known for being an innovator in technology — and now he's innovating in philanthropy.

As WIRED reports:

On Tuesday, Mark Zuckerberg and his wife Priscilla Chan honored the birth of their daughter Max by committing to spend 99 percent of their Facebook shares—some $45 billion at current prices—on philanthropic projects over the course of their lifetimes.

New dad Mark Zuckerberg plans to give away 99 percent of his Facebook shares 3:17

But now, some are raising questions about the unusual structure they have created to transfer their money.

To put it simply: Zuckerberg is not giving 99 percent of his wealth to charity. He is pledging $45 billion in Facebook shares to a new private limited liability company (LLC) called the Chan Zuckerberg Initiative. Most billionaires like Bill Gates and Warren Buffet, when they give to charity, give shares or money to a nonprofit, a foundation or a charitable trust. So why would Zuckerberg choose to disburse his money through an LLC rather than a foundation? Industry watchers say there are three possible answers: lobbying, investing and disclosure.

Lobbying

Non-profits are limited in the amount of money they can spend on lobbying, and they cannot give to political campaigns. Zuckerberg's new LLC can do both of those things and will likely seek to fund political change. According to the letter to their daughter Zuckerberg and Chan released on Facebook Tuesday, the initiative will participate in policy and shape debates.

Investing

Nonprofits are also restricted in how they can invest their money to make sure it's in keeping with their charitable mission. This LLC is free to invest in anything and it expects, in fact, to earn profits on at least some of those investments.

Disclosure

And finally, foundations are required to give away a certain amount of money every year and disclose the gifts and activities in public filings. Zuckerberg's LLC doesn't have to share any information with the public.

Some argue most philanthropists don't go the LLC route because there is no immediate income tax deduction. But Zuckerberg is actually Facebook's lowest-paid employee. He's worth $46.4 billion, but in 2013, he requested an annual salary of just $1. So he's not really giving up much of an income tax benefit, and gains more control and fewer disclosure requirements around how he manages his money.

Some critics say that while the move seems generous, it also blurs the lines between businesses and non-profits.

Read More: Two Years After Zuckerberg's $100M Gift, Newark Schools Have 'a Long Way to Go'

Linsey McGoey, author of the book "No Such Thing as a Free Gift: The Gates Foundation and the Price of Philanthropy," says that while she sees Zuckerberg's announcement as well-intentioned, she does feel he should've been more specific about how he intends to give.

"There was no mention in the announcement that this is not a typical charitable bequest, but the transference of money to a limited liability corporation. And I don't think Mr. Zuckerberg was trying to hide that at all, but it did surprise me that there was no mention of that in the letter," McGoey said.

McGoey questioned whether the transfer of wealth to the Chan Zuckerberg Initiative can be called a grant.

"I certainly think it will offer money to nonprofits, that's been made clear, but it's also giving itself much more freedom to offer investments in for-profit recipients in a way that a traditional foundation of the type like say, the Gates Foundation, would be more restrained from doing."

Stacey Palmer, editor of the Chronicle of Philanthropy, agrees that Zuckerberg setting up an LLC gives him greater flexibility as far as investment and lobbying are concerned.

Is Zuckerberg money put to good use in NJ?

"He's gone so public, he's really going to have to follow up with committing this money to social good efforts. But there's no requirement in the law that he does that," she said. "The public policy question is, do we want more philanthropists doing this or not?"

Zuckerberg and his wife are among a growing list of "tech titans" popping up all over the Chronicle of Philanthrophy's list of the country's biggest givers. In 2014, 12 of the 50 people on the list hailed from the tech industry.

Coming in at number one on the list, of course, were Bill and Melinda Gates, who donated a whopping $1.5 billion to the Bill and Melinda Gates Foundation last year. Following closely behind at numbers 4 and 5 on the list are Jan Koum, co-founder of the mobile messaging app WhatsApp, who donated $556 million to the Silicon Valley Community Foundation last year and Sean Parker, president of Facebook and founder of Napster, who donated $550 million. At number 6 were GoPro founder Nick Woodman and his wife Jill who also donated to the SVCF, a frequent recipient of tech largesse.

Top Tech Titan Givers (according to The Chronicle of Philanthropy)

  1. Bill & Melinda Gates (1)
  2. Jan Koum (4)
  3. Sean Parker (5)
  4. Nicholas & Jill Woodman (6)
  5. Sergey Brin (9)
  6. Paul Allen (10)
  7. Pierre & Pam Omidyar (12)
  8. Larry Page (13)
  9. Marc R. & Lynne Benioff (14)
  10. Steve & Connie Ballmer

There's no doubt there is generosity in the Silicon Valley. The question critics are asking is: How much of this giving is reputation management and corporate social responsibility? And should the public immediately assume that all gift giving is created equally and something to celebrate?

Read More: Mark Zuckerberg Says He Plans to Give Away 99 Percent of His Facebook Shares

"A lot of people say no," McGoey said. "I think what's happening with the new philanthropy is that we're seeing a growing trend toward investment that's called a charitable investment that's being made toward private recipients that in many cases doesn't count as a charitable gift, but is being labeled as such." McGoey said.

"I honestly think they're well-intentioned," McGoey said. "I think there's a natural desire to improve one's reputation, but I don't see a nefarious or an insidious objective underpinning this giving. I think it's driven by a well-meaning and obvious desire to do more good socially. But I think the methods used to achieve those gains are not as innocuous or even as auspicious or efficacious as is purported. So there's a right and a duty of scholars, academics and the public to be able to engage in open discussions about gift-giving."

Editor's Note: This report has been updated to correctly attribute reporting to WIRED.