William Barstow was an enterprising partner and friend of Thomas Edison as well as an inventor and highly successful entrepreneur in his own right. One night in 1931, Barstow and his wife, Francoise, sat around their table discussing new ideas. They had been wrestling with how to structure a substantial gift that would allow them to make donations without setting up a trust or a private foundation – both of which were primarily reserved for only the wealthiest families in the country at the time.
The Barstows worked out an arrangement with the young New York Community Trust to create a vehicle that would give them most of the benefits of a private foundation and very few restrictions. As well, it had the added advantage of immediate tax relief but with an allowance for time to make decisions about when and where to place the gifts. The Barstows called it a Donor Advised Fund, and it was the first in the country.
The idea was so new and unusual – and probably not considered genuine philanthropy at the time – that it was another four years until a second donor advised fund was established at the same community trust.
Today, less than a century later, there are almost 1.3 million donor advised funds that last year received about $52 billion in contributions and paid out $32 billion. That single innovation has over time been one of the most significant changes in philanthropy in America. While it was not understood – even disdained by other philanthropists at the time – it changed the game. It opened up giving to a much wider universe of donors.
Some traditional philanthropists and pundits are feeling the same about the decision by Mark Zuckerberg and his wife, Dr. Priscilla Chan to create a Limited Liability Company (LLC). Many contend they should have set up a private foundation or joined others in the Giving Pledge. Their decision to structure their initiative (and that word is important) as an LLC has been met with disappointment, mistrust and even a sense of betrayal on the part of nonprofits who see an enormous windfall slipping away, as well as those who are afraid the couple have managed to evade legitimate taxes. I think neither of them care much about the charitable deduction and I seriously doubt they did this for tax advantages. There is something deeper here and it is tied to the word “initiative.” Chan and Zuckerberg want to accomplish something and they have used the example of Pierre and Pam Omidyar to set up the LLC as a way to get maximum control, flexibility, privacy and policy influence to do that.
A New Path
However, in spite of the backlash, I think Mark and Priscilla, Pierre and Pam Omidyar and others have opened a new way for those with great wealth to fund a mission that is more than redistributing wealth to another private foundation - even if surprising and to some disappointing. It is an initiative and not simply a tax strategy. It is more about accomplishment than preservation.
Walter Wriston, the former chairman and CEO of Citicorp, said, “Capital will always go where it’s welcome and stay where it is well treated. Capital is not just money. It’s also talent and ideas. They, too, will go where they’re welcome and stay where they are well treated.” That is true not only of investment capital but philanthropic capital as well. Instead of dissecting the flaws and missteps of this initiative, we could be thinking seriously about how to create places and vehicles that will welcome money, talent and ideas. We can step out with creativity and designing to accomplish – not just looking for ways to increase the pool of traditional philanthropic dollars.
Will they make mistakes? Of course, and some may be like those made by the Annenberg Challenge that essentially wasted $1 billion on the failed Annenberg Challenge to reform public schools. The $100 million Gates Foundation-funded student data project failed and was closed down as was Mark Zuckerberg’s $100 million failure to reform education in New Jersey.
There is no shortage of illustrations of major failures. However, I think Russ Hall of Legacy Venture is right when he says, “It’s a pathway to philanthropy rather than philanthropy. It’s a wonderful tool for what they can do later with their philanthropy.” It is a pathway but also a pathmaker for those who follow. Let’s see where it goes. Let’s not be too old to roll.
Image of Andrew Carnegie on a skateboard generated by AI