Facebook: Where’s The Gratitude?

Imagine finding yourself in this frustrating situation. You wish to give to a worthy cause, but you’re unable to find any one who is happy to accept your contribution!

Facebook founder Mark Zuckerberg must be feeling that frustration today. The Indian government recently ruled that the firm’s Free Basics service, which provides complimentary internet access to Facebook and a few other web based services, is illegal in that nation.

Why? Apparently, the Indians classify Facebook as an internet service provider because it provides web access as well as a web-based service. Thus, the firm is required by Indian law to allow users to access any online site and service, and not just a chosen few.

That principle is known as net neutrality in the United States. Although it has been debated throughout the government from time to time, it is generally the law of the land in America as well.

This isn’t the first time that Zuckerberg or his firm has been rebuffed for giving away funds or services. Several months ago, he and his wife were criticized for the legal structure of a charitable organization that received 99% of his Facebook stock.

And a few years ago, the citizens of Newark, New Jersey severely criticized him for failing to establish appropriate goals for a $100 million gift to the public education system of their city. Instead of generating gratitude, the gift precipitated immense rancor in the local community.

Of course, Mr. Zuckerberg isn’t yet ready to resign from his firm and manage his charitable investments on a full-time basis, as Bill and Melinda Gates did when they left Microsoft to found their global charitable foundation. He’s still fully immersed in the business of managing the world’s most successful social network.

Nevertheless, if he does intend to give away more money or resources, he might wish to pay more attention to managing those charitable activities. Otherwise, he’s likely to continue wondering why he isn’t receiving the slightest amount of gratitude from the beneficiaries of his largesse.

Facebook’s $45 Billion Donation

Wow … talk about a demanding audience! One moment, Facebook’s co-founder and chief executive Mark Zuckerberg announces that he is giving $45 billion of corporate stock to charity. And the next moment, members of the media criticize him for self-serving behavior!

That’s a harsh response to a $45 billion donation, isn’t it? But do the media critics have a point? Why are they so concerned?

Apparently, instead of creating a traditional nonprofit foundation in the style of the Bill & Melinda Gates Foundation, Zuckerberg and his wife Priscilla Chan decided to transfer the stock to a Limited Liability Corporation (LLC). That’s what drew the ire of their critics.

So what’s the difference? Well, a nonprofit foundation must adhere to certain rules of conduct in order to earn its income tax exemption. For instance, it must disclose many activities to the federal government and the general public. And it must refrain from making many investments in profit-making ventures.

LLCs, on the other hand, are simple corporate entities that are not required to disclose their activities to any one. They are free to invest their funds in any legal operation. And although they do not receive income tax exemptions per se, they usually do not pay income taxes at all because they pass any taxable earnings or losses through to their owners.

So what makes an LLC a charitable endeavor? Nothing, really, other than the intention of its owners to utilize it for the public good.

And that’s why some people are criticizing Priscilla Chan and Mark Zuckerberg. Had they placed the $45 billion in stock in a nonprofit foundation, they would have accepted the need to comply with legal rules of conduct that ensure the expenditure of the funds for charitable purposes.

But by placing the stock in an LLC instead, they avoid any legal requirement to expend the funds for the public good. In fact, the only constraint that compels them to do so is their own conscience.

So perhaps it would be fair to neither praise nor criticize their announcement at the present time. Instead, perhaps it would make sense to wait and see how they actually expend the LLC’s funds before drawing any conclusions about their intentions.

Naming Rights: Commodity For Rent?

In 1973, while New York City was staggering through a financial crisis that would eventually lead to a highly publicized federal government bailout rejection, the world renowned New York Philharmonic received a great philanthropic gift. Avery Fisher, the founder of the Fisher Electronics stereo equipment firm, donated $10.5 million to the Philharmonic at a time when every Big Apple cultural institution was desperate for funding.

In gratitude, the Philharmonic renamed its Lincoln Center home the Avery Fisher Hall. And for the past forty years, while the Fisher Electronics brand has faded into history, Avery Fisher Hall has grown to become a global brand that symbolizes the essence of superb classical music.

Since the 1970s, though, the growth of philanthropy has come to dwarf the economic value of a “one time only” $10.5 million donation. In an era when MetLife pays $17 million to $20 million annually for the naming rights to the stadium of the NFL’s Giants and Jets teams, the Philharmonic can receive far more money by reselling the naming rights of its music hall.

More than ten years ago, though, the descendants of Avery Fisher threatened to sue the Philharmonic when it presented a plan to resell those naming rights. And the law appeared to support their position; Fisher’s original pledge agreement clearly stipulated that his name “will appear on tickets, brochures, program announcements and advertisements and the like, and I consent in perpetuity to such use.”

Nevertheless, the word “perpetuity” no longer means “forever” in today’s hyper-charged economy. Two weeks ago, the New York Philharmonic announced its repurchase of the naming rights from Fisher’s descendants for $15 million. The institution will then be free to turn around and resell those rights to a new donor for far more money.

In the short term, the Philharmonic will certainly benefit from the resulting infusion of new capital. Considering the physical condition of its aging music hall, those funds will undoubtedly be put to good use.

But in the long term, there is a risk that the naming rights will come to be perceived as a commodity that is available for rent, as opposed to an honor that is bestowed upon the worthy. That may not pose a problem in the near future; after all, as long as the New York City economy continues to thrive, the Philharmonic’s “rental revenue” may soar.

But during the next economic downturn, if the value of the music hall’s commoditized name declines precipitously, the Philharmonic may be left without a willing lessee. That’s when it may learn that by commoditizing an honor, an organization may inadvertently cheapen its brand “in perpetuity.”