OPINION: Greatest Jewish philanthropist deserves our thanks, not abuse

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OPINION: Greatest Jewish philanthropist deserves our thanks, not abuse

Mark Zuckerberg
Mark Zuckerberg

By Alex Brummer, City Editor, Daily Mail 

Alex Brummer
Alex Brummer

As someone who regularly engages in fund- raising for worthy Jewish and Israeli charities, one can only marvel at Mark Zuckerberg. The founder-chairman of Facebook has marked the birth of his first child Maxima by earmarking 99 percent of his shares in the digital group, worth an estimated $45bn, for good causes.

Zuckerberg, 31, technically becomes the greatest Jewish philanthropist of all time. His benefaction dwarfs that of an earlier gilded aged where the creators of America’s industrial might the Mellons, Rockefellers, Vanderbilts, Fords and Carnegies endowed large charities. Only those modern philanthropists, Bill Gates of Microsoft and the philo-Jewish ‘Sage of Omaha’ Warren Buffett (a major investor in Israel), come anywhere close.

It places in some perspective the contortions that fundraisers have to go through to extract a few thousand pounds from wealthy British entrepreneurs who count their wealth in the hundreds of millions if not billions. In Britain, many of even the most generous donors see charitable giving as a passport to honours and political influence as much as altruism. At the very top of the social tree, wealthy Brits regard putting as much of their assets in trust for the next generation and preserving and increasing land holdings as the key objective of their lives.

Mark Zuckerberg
Mark Zuckerberg

The causes Zuckerberg plans to embrace remain a little vague. But his charitable giving so far offers some clues. He is interested in education, tackling disease (common cause with Gates) and reducing inequality. Yet despite the enormous generosity of Zuckerberg and his wife Priscilla Chan, the sniping from the sidelines began almost immediately.

The criticisms take three forms. There is the suggestion that all the Silicon Valley entrepreneurs owe their success to intellectual property developed in the public sector and if they are going to give something back that is where they should begin. Secondly, that they are serial tax avoiders and therefore are not making a contribution to broader society. Finally, Zuckerberg and others are fixing the share structure of their enterprises so as to maintain control in perpetuity.

There is truth in all these charges. An American friend of mine developed a medical breakthrough involving radioactive testing for cancer while working on satellite technology in the US Navy research labs. With the permission, he took away the patent and built it into a company. Unfortunately, it failed, gobbling up his capital and that of the small circle of family and friends that backed him.

So although ideas do come out of the military (as many of the start-ups in Israel) and research universities, there is no guarantee of commercial success. It requires a combination of brainpower and entrepreneurial skill and a willingness to fail. There is plenty of time to give back, as Zuckerberg is already doing through public education.

The more serious criticism is one of tax avoidance. Zuckerberg has chosen to put his donation into a limited liability company (LLC), rather than a charitable trust. This is because he wants it to have the freedom to invest in promising enterprises as well as to give money away. This also frees him from the obligation, under US charity law, to spend a sum equal to five percent of the capital each year. The transfer into the LLC is also tax free.

There is a serious point here. The internet giants are infamous for their tax avoidance activities. Microsoft has parked countless billions in offshore tax havens to lessen its tax bills. But they are not alone. Almost every US entity from Starbucks to MacDonald’s and Amazon is at it. The point, however, is a good one. There may be no better way to redistribute income in society and to reduce inequality than through the tax system.

The final criticism is that Zuckerberg has fixed the structure of the transaction so even though he is giving away 99 percent of his shares, he and his family will remain the controlling shareholders in the company. This is done by creating two classes of share, some of which will have super-voting rights.

This is not unusual. It is the model used in many media companies, such as Rupert Murdoch’s 21st Century Fox and News Corporation where it is used to preserve ‘editorial independence’ as well as control. The New York Times and my own employer, DMGT (owners of Daily Mail), have similar arrangements. It can create a problem if things go wrong and the minority investors feel they are getting raw deal. Generally speaking, however, it allows public corporations to take a long term view of investment and innovation rather than focus on quarterly earnings and dividends.

None of this is ideal. But better that Zuckerberg offers his munificence to others rather than personal indulgence.

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