Zuckerberg’s LLC and the Future of Social Business

“By using an LLC instead of a traditional foundation… we gain flexibility to execute our mission more effectively.” – Mark Zuckerberg

The foundation of the Chan Zuckerberg Initiative, Mark Zuckerberg and Priscilla Chan’s new philanthropic venture, has drawn attention for the generosity of its founding investment – 99 percent of Zuckerberg’s Facebook shares, valued at $45 billion. But in some ways, the form the initiative will take is as important as the amount of money being invested. The Initiative will be an LLC rather than a registered charity, an unusual model for a philanthropic endeavor, and one for which Zuckerberg has been criticized.

Zuckerberg’s approach highlights how much using business models can benefit social enterprises.

Flexibility

The LLC is among the most popular forms of corporate governance, and with good reason. It provides a level of flexibility not available in most other structures. In particular, it has more flexibility than a charity.

Charities are bound by legal restrictions, and with good reason. For a conventional charity to work, it has to be trusted. Donors need certainty that their money will be spent on the cause to which they donated, and that it will spent wisely. They need to know that the people running the charity aren’t just out to make a profit for themselves, and regulations provide reassurance.

But a foundation such as the Chan Zuckerberg Initiative doesn’t need to earn public trust. Its funds come from the private wealth of its founders. It can function without the restrictions legal charity status brings, providing greater flexibility.

Investment

One of the biggest restrictions on charities is their inability to invest money in profit making ventures. It’s a restriction which makes perfect sense. Charities are intended to give, and profit is often used to take. But as social enterprises, credit unions and ethical businesses have repeatedly shown, profit making endeavors can also do a lot of good.

There are circumstances where investment in profit making can do the most good. Such investment can support ethical businesses, help people out of poverty, even provide organizational structures more appropriate for a particular piece of work. If an organization whose purpose is social good has surplus cash, then it can be better to wisely invest it, making money to spend on a first rate scheme later, than to spend it on a second rate plan now.

Allowing investment for profit across the charitable sector could cause huge problems. But for a well-funded and well run organization, it can bring great benefits.

Attracting Skills

For many employees, the lure of the private sector isn’t the money – it’s the ability to work more freely, act more quickly and behave more creatively. It’s a sad truth that strong regulations and fear of public criticism often lead to conservative management and slow processes in the public and charitable sectors. The motivational techniques used to counter these problems in the private sector, such as target related rewards, are often seen as inappropriate. This can make it hard for charities to attract the most skilled, experienced and energetic staff.

A private enterprise with charitable aims can avoid developing this sort of sluggish, risk-averse culture. With more freedom to run as they see fit, the management can apply the best tools for the job.

A Mixed Model for the Future

There is clearly still a huge place for registered charities and government intervention in improving our world. But there is also a place for organizations like the Chan Zuckerberg Initiative, doing what charities can’t. Business can and should be about society, not just money. And on the flip side, social endeavors should feel free to get down to business.

Originally appeared on Switch and Shift: http://switchandshift.com/zuckerbergs-llc-future-social-business

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Mark Lukens, MBA

Founding Partner at Capatus

Mark Lukens is a founding partner at Capatus and located in the New York office. He leads the Capatus’ Global Talent and Advisory practice. He is also an expert in the firm’s research and nonprofit practice. Lukens has more than 20 years of c-level executive and consulting experience delivering strategies and transformational programs to firms ranging from start-up to Fortune 50. He has worked with clients in Europe, North America, South America, and Asia. Lukens worked extensively in various product and service categories including health care, life sciences, government, nonprofit, technology, and professional services. He also advises clients in other industries including commercial and industrial, retail, logistics and transportation, media and more. Lukens serves on several Nonprofit Boards and is a professor at the State University of New York where he teaches in the School of Business and Economics with a focus on marketing, international management, entrepreneurship, HR, and organizational behavior to name a few. Lukens has a technical background as a MCSE and earned an MBA from Eastern University.

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