Zuckerberg Sold His Facebook Shares For Charity—But He’s No Hero Yet

Click to Open Overlay GalleryFacebook founder and CEO Mark Zuckerberg arrives with his wife Priscilla Chan for the awards ceremony of the newly established Axel Springer Award in Berlin, Germany, on February 25, 2016.Kay Nietfeld/REUTERS

Facebook founder and CEO Mark Zuckerberg just sold a chunk of his personal shares in the social networking company. It’s worth about $95 million before taxes, and it’s all designated for charity.

This is the first round of funding for the Chan Zuckerberg Initiative, the philanthropic venture Zuckerberg and his wife, Priscilla Chan, announced in December. At the time of the initiative’s launch, Zuckerberg and Chan pledged 99 percent of their Facebook fortune to philanthropic causes, which means donating around $45 billion over the span of their lifetimes.

But before you applaud too heartily, you should realize that Zuckerberg and Chan haven’t actually distributed these funds yet—or even said how they will do so. “Covering a public announcement of do-gooding, with no follow-up on how he actually allocates the millions of dollars, just burnishes his reputation,” says Rob Reich, co-director of the Stanford Center on Philanthropy and Civil Society. “Don’t call this do-gooding yet. Call for more transparency.”

A Long Road to Pledge Fulfillment

The sale comes at a time when Facebook is killing it. Its stock has been rallying, and investors are more bullish on the social network as a revenue-generating machine than ever before. But Zuckerberg and company are also changing the structure of this stock, so that he can give some away while retaining control of his vast online empire.

In June, during the company’s annual shareholder meeting, Facebook shareholders voted to approve a restructuring of the company’s stock offering that ensures Mark Zuckerberg keeps his majority ownership even if the company issues more stock—and as he gives away some of his own.

Here’s how that will work: Facebook recently created a new class of non-voting shares, called “Class C.” Such shares would allow the company to issue more stock without taking away Zuckerberg’s voting power. Zuckerberg owns many of the so-called “Class B” shares, which each get 10 votes, and there are also “Class A” shares, which get one vote each. “I’ll be able to keep founder control of Facebook so we can continue to build for the long term, and Priscilla and I will be able to give our money to fund important work sooner,” Zuckerberg said of the board’s proposal at the time.

That’s exactly what’s happening now. More specifically, Zuckerberg converted a chunk of his “Class B” stock to “Class A,” but sold only a portion of those newly converted Class A stocks—around 760,000 shares, with each stock’s price amounting to between $122.85 to $124.31.

And as Zuckerberg made clear in a past SEC filing, he will limit himself to giving away no more than $1 billion in Facebook stock each year through 2018—which means it may very well be a long road before he and his wife fulfill their donation pledge.

Where Will It Go?

The pair have now begun to sell off this stock, starting with this first $95 million—an amount that, to be sure, is not insignificant to the average person. But it’s a mere fraction of the Zuckerbergs’ fortune. Plus, we still don’t know where all that money will end up. Publicly, the pair has stated they intend to focus on “personalized learning, curing disease, connecting people and building strong communities.” And the venture recently announced its first investment in Andela, a startup that trains engineers in Africa to get tech jobs. Beyond that, however, we know very little.

Meanwhile, Zuckerberg reaps many positive benefits from having the Chan Zuckerberg Initiative exist at all. “Foundations are one way to generate tax benefits from wealth, as well as social and political influence,” says Santa Clara University School of Law corporate finance professor Stephen Diamond. Reich adds that it’s “legally incorrect” to say the proceeds from the sale of this Facebook stock is going into philanthropy. That’s because the Chan Zuckerberg Initiative is a limited liability corporation, or LLC, not a non-profit.

Zuckerberg has defended the move, saying that setting the organization up as an LLC gives them more flexibility when it comes to funding specific causes. Those may well be philanthropic causes, including giving out grants to deserving non-profits. But under the legal definition of an LLC, he points out, Zuckerberg can do “anything he wants with the money, including political advocacy work, electioneering, and investment.” While it seems only positive that Zuckerberg has set aside billions for the public good, it’s worth examining how the move redirects money into charitable investments Zuckerberg himself has chosen. Zuckerberg hasn’t been elected to public office, and as such, he’s under no obligation under the law to be held accountable by the public. But the public should still hold him accountable.

 

Brian Barrett Gear

• Date of Publication: 08.29.16. 08.29.16
• Time of Publication: 12:57 pm. 12:57 pm