December 04, 2015

You say Zuckerberg, I say Hucksterman, part two (updated)

I blogged on Wednesday about the magical PR pixie dust that has led some people to think Mark Zuckerberg's new for-profit LLC is really a charity and will do all sorts of magic stuff.

Marky Mark, Priscilla Chan and daughter Max.
Who could resist such cuteness? I could.
Well, other than pixie dust inhalers calling me a cynic, and naive PR readers thinking Zuck's done so much good, others have claimed that a California benefits corporation, which is the type of LLC this is in California, will keep him in line.

And, an alleged skeptic should know better. After being given a lawyer's explainer of what such a corporation is, as he attempted to refute a Pro Publica pice from my original blog post, and referenced again below. I Googled to find the actual law instead.

It's true that 30 states have some sort of benefits corporation, per Wiki. It's also true that every one of them was created this decade, when the man and the hour of neoliberalism met nationally in Barack Obama. That alone should be ground for pause. Nobody has any real empirical evidence on how these babies operate.

Specific to Zuckerberg and where Facebook is?

Per California's enabling statute, I don't see it that way; I don't see California's law having any real teeth to making Zuckerberg do anything that he doesn't want to do, period and end of story.

The only way to "enforce" whether such a body is living up to its charter, etc., is through a "benefits proceeding."

However, such proceeding is all "inside baseball":
(a) No person may bring an action or assert a claim against a benefit corporation or its directors or officers under this chapter except in a benefit enforcement proceeding.
(b) A benefit enforcement proceeding may be commenced or maintained only as follows:
(1) Directly by the benefit corporation.
(2) Derivatively by any of the following:
(A) A shareholder.
(B) A director.
(C) A person or group of persons that owns beneficially or of record 5 percent or more of the equity interests in an entity of which the benefit corporation is a subsidiary.
(D) Other persons as have been specified in the articles or bylaws of the benefit corporation.
(c) A benefit corporation shall not be liable for monetary damages under this part for any failure of the benefit corporation to create a general or specific public benefit.
So, that would mean the Chan Zuckerberg Initiative corporately, or any shareholders or directors named Priscilla Chan, Mark Zuckerberg or cronies thereof, of such persons unlikely to hold more than 5 percent of the Initiative's stock, are the only people who can do anything about its performance. Let's remember that, although Cal law, and in most states, technically allows an incorporated, publicly traded company to also reincorporate as a benefits corporation, there's been no rush to do so. Why would they, at least when any shareholder can raise eyeballs, at least "derivatively," which is never really explained.

As for whether such incorporation is better than a traditional 501(c)3 nonprofit? I think not.

True that they don't have tremendous amounts of oversight, either. However, theoretically, the IRS can come down on nonprofits more than these LLCs. The fact that IRS enforcement is bupkis in reality doesn't refute the theoretical angle. And, I'll take even minimal IRS enforcement over this.

And, places like Charity Navigator do annual reviews of charity performance, but, I assume, not of for profit LLCs, even if they're allegedly for a vague "public benefit."

As for the idea this boosts stakeholder value rather than shareholder value? Well, theoretically, but only if your LLC's board isn't a fount of nepotism. Which is why publicly traded corporations aren't rushing to do this.

Speaking, what is a public benefit? In Californias enabling law, it says it is:
(D)efined as a material positive impact on society and the environment, taken as a whole, as assessed against a 3rd-party standard, as defined, that satisfies certain requirements. 
But, that “third party standard” is undercut by lack of third-party enforcement.

Wikipedia’s article itself notes this, too:
Benefit corporations need not be certified or audited by the third-party standard. Instead, they use third-party standards solely as a rubric a company uses to measure its own performance.
A “rubric.” Is that like a “goldbrick”?

And, yep, California's statute specifically says an outside audit is not required.

So, what we have is a for-profit company that says, "This is what we think is a 'public benefit.'"

Let's see how this spells out in detail. 

It can then say: "Our cronies agree that we're doing a pretty good job of meeting that benefit."

It can then say: "Now move along, nothing else to see here."

But, I didn’t yet answer what that “specific public benefit” is. Hold on, we’re there:
(e) “Specific public benefit” includes all of the following:
(1) Providing low-income or underserved individuals or communities with beneficial products or services.
(2) Promoting economic opportunity for individuals or communities beyond the creation of jobs in the ordinary course of business.
(3) Preserving the environment.
(4) Improving human health.
(5) Promoting the arts, sciences, or advancement of knowledge.
(6) Increasing the flow of capital to entities with a public benefit purpose.
(7) The accomplishment of any other particular benefit for society or the environment.
OK, more analysis time.

No. 1? Zuckerberg's fake free Internet in India could fall under that.
No. 2? Former San Francisco Mayor, now Cal Lite Guv Gavin Newsom's pothole Donkey Kong ideas would fit.
No. 3? Sounds straightforward, but wait until Facebook promotes "Virtual reality National Parks" or something.
No. 4? Straightfoward.
No. 5? Facebook in K-12 classrooms certainly falls here. The tech-neolib wet dream combined with tax deductions for doing so, as Pro Publica explained. (Yes, yes, he gets tax deductions. Don't let anybody tell you otherwise. If they try to claim otherwise, tell them to read the piece precisely, then go argue with Pro Publica. If they try to claim you're saying tax deductions "now" or similar, tell them the same thing.)
No. 6? "Money laundering" is what this is called. For example, Sergey Brin starts something. Let's call it the Elgoog Foundation. The two foundations start swapping money like bacterial DNA-transfer sex. (Or like David Brock playing shell games with Hillary Clinton money.) And, trust me, this one WILL happen in the future.
7. WTF? That's not just a Mack truck sized loophole. I can take Patton's Second Armored Division through that.
Remember, on that point 7, there is no third-party auditing, and a third party definition is just a "rubric."

Back to that tax issue:

And, again, per Pro Publica, Huckterberg gets to save on his tax bill while doing all of this.
So what are the tax implications? They are quite generous to Zuckerberg. I asked Victor Fleischer, a law professor and tax specialist at the University of San Diego School of Law, as well as a contributor to DealBook. He explained that if the LLC sold stock, Zuckerberg would pay a hefty capital gains tax, particularly if Facebook stock kept climbing. 
If the LLC donated to a charity, he would get a deduction just like anyone else. That’s a nice little bonus. But the LLC probably won’t do that because it can do better. The savvier move, Professor Fleischer explained, would be to have the LLC donate the appreciated shares to charity, which would generate a deduction at fair market value of the stock without triggering any tax.
Let’s remember that by him paying less tax, you and I have to pay more for the same government services.

(And, if tech-neolibs want to argue with any of the above, they can contact Pro Publica or Victor Fleischer. I'm not playing the game of Overton Window any more.

Because, per that same lawyer, and contra one neolib pseudoskeptic, Zuckerberg's money can be used for lobbying purposes, too.

Pro Publica addresses all of this further.
Zuckerberg didn’t create these tax laws and cannot be criticized for minimizing his tax bills. If he had created a foundation, he would have accrued similar tax benefits. But what this means is that he amassed one of the greatest fortunes in the world — and is likely never to pay any taxes on it. Any time a superwealthy plutocrat makes a charitable donation, the public ought to be reminded that this is how our tax system works. The superwealthy buy great public relations and adulation for donations that minimize their taxes. 
Instead of lavishing praise on Zuckerberg for having issued a news release with a promise, this should be an occasion to mull what kind of society we want to live in. 

I don’t want to live in an America with tech-neoliberals thinking:
A. Technology is the answer for everything, and thus
B. They know better than others.

I also don’t want to live in an America where a lot of Americans are suckers for those two points above.

But, since a lot of Americans ARE suckers for that?

Thus, yes, giant statues of Mark Zuckerberg on every county courthouse square in the United States could be called a "specific public benefit."

After all, The.Man.Who.Founded.And.Created.Facebook.™ deserves no less, right? Hence, this blog post, like my original, gets the pseudoskepticism hashtag. On there, I list, myself and by link, plenty of reasons not to trust Zuckerberg.

Or, much more likely to happen, and more scary, Zuckerberg could do a Facebook-based version of Über or Lyft, undercutting both.

Or he could become an urban slumlord.

As for tech-neolibs thinking their philanthropic dollars do better than government, think again. Will our even-more-stretched tax dollars, unable to repair roads and bridges, see Zuckerberg help with that?

In the face of this, only a neolib who thinks the private sector can do everything better, even if the private sector has ego-inflated individuals who their ideas are always right, would claim the current non-profit system is broken.

Part of the problem is that many Americans, including said neoliberal pseudoskeptic, don't understand what philanthropy actually is. Per this piece, remember:

If you are giving money to somebody with the expectation that they will carry out your instructions, further your agenda, owe you compliance and assistance, or complete a project you've assigned them — you're not a philanthropist. If your giving is designed to give you power or control over an aspect of public life in our country — you're not a philanthropist.
Period and end of story.

Actually, maybe what was broken is how a certain non-profit was being run?

And thus, my lightbulb about the "motivated reasoning" angle for a certain interlocutor of mine just went on.

Because, among the transparency missing from LLC public corporations is that the Chan Zuckerberg Foundation won't have to disclose salaries. On 990 form for the IRS, an actual charity has to disclose the salaries of a president, chairman of the board, etc.


Update, April 12, 2016: Facebook's new Siri-on-Oxy-slow bot-apps are surely a public benefit, right?

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