Zuckerberg starts giving away his billions

By Felix Salmon
September 23, 2010
Henry Blodget on this one: whatever the timing-related motivations behind it, Mark Zuckerberg's decision to donate $100 million to Newark's public schools is wholly admirable.

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I’m with Henry Blodget on this one: whatever the timing-related motivations behind it, Mark Zuckerberg’s decision to donate $100 million to Newark’s public schools is wholly admirable — the best possible way to celebrate the news that you’re now richer than Steve Jobs. Silicon Valley is full of billionaires like Jobs or Larry Ellison who have been dynastically wealthy for a very long time and who have evinced little if any interest in philanthropy. So it’s fantastic news that Zuckerberg is starting out so young.

It’s also easy to see the influence of Zuckerberg’s girlfriend, Priscilla Chan. Remember the New Yorker’s profile of Zuckerberg?

Terry Semel, the former C.E.O. of Yahoo!, who sought to buy Facebook for a billion dollars in 2006, told me, “I’d never met anyone—forget his age, twenty-two then or twenty-six now—I’d never met anyone who would walk away from a billion dollars. But he said, ‘It’s not about the price. This is my baby, and I want to keep running it, I want to keep growing it.’ I couldn’t believe it.”

Looking back, Chan said she thought that the time of the Yahoo! proposal was the most stressful of Zuckerberg’s life. “I remember we had a huge conversation over the Yahoo! deal,” she said. “We try to stick pretty close to what our goals are and what we believe and what we enjoy doing in life—just simple things,” she said.

I’m sure that Zuckerberg has already sold enough Facebook stock to be able to live comfortably on for the rest of his life. So everything else is just gravy, and certainly Newark’s kids need it more than he does.

The move is also significant in terms of the continuing development of the secondary market for Facebook stock:

Mr. Zuckerberg is setting up a foundation with $100 million of Facebook’s closely held stock to be used to improve education in America, with the primary goal of helping Newark…

The timing of the announcement was driven by Mr. Christie and Mr. Booker, over the objections of Facebook executives…

Mr. Zuckerberg will fund for the foundation with his private stock in Facebook, and will arrange for a transaction on the secondary market for the foundation to turn the shares into cash as needed, said the person familiar with the discussions.

Back in June, Alexei Oreskovic was already saying that “a vibrant market for shares of privately held Facebook has developed in the past year”; this move is going to make the market significantly more liquid — and give Facebook executives less control over exactly who holds how much stock in the company. Once the foundation is set up, the question of going public just becomes a matter of when rather than whether: it’s a tactical decision, now, rather than a strategic one.

It’s also important, I think, not to overstate the effect that this gift is likely to have on Newark. The WSJ falls down here:

The donation has the potential to be matched by another $100 million that Mr. Booker has been working on raising from private foundations and others. The $200 million that could be raised would amount to more than 20% of Newark’s budget of $940 million.

This confuses stock and flow. Zuckerberg’s gift isn’t going to be spent in one year; it’ll be dribbled out over time. Even if the total amount donated does reach $200 million, the annual amount spent is very unlikely to exceed 2% of the city’s budget. The donations are important. But private philanthropy is always going to be marginal when it comes to primary and secondary education, even when it’s confined to a single school district.

6 comments

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“The timing of the announcement was driven by Mr. Christie and Mr. Booker, over the objections of Facebook executives.”

Really?

Posted by adam_pasick | Report as abusive

At some threshold of private shareholders, they start having to do public-style financial statements, right? I though that was 500 shareholders, but they must have exceeded that by now.

Posted by AndrewNYC | Report as abusive

I’m looking forward to Facebook going public, as I’d like to hear just what their profits are. Oh yeah, and be able to short them.

Posted by OnTheTimes | Report as abusive

Felix,

I would disagree with you about private philanthropy being a marginal factor in primary and secondary education.

Will it always be a small percentage of total funds spent… yes…

…but can the impacts of the small percentage be spent so wisely and leveraged so heavily that they play a large factor in improving educational outcomes… absolutely.

I hope Zuckerberg has a plan for how Newark will spend his gift.

Money is seldom the limiting factor in the US educational system. Find me the worst performing schools and districts and you will generally see poorly funded school districts overrepresented on that list… but it is also true that their spending per pupil is greater than per capita income in some countries that outperform them on internationally recoginized tests.

I’m consider myself a passionate advocate for public education (selfishly since I have two children.) But money is a distant 4th in order of importance behind:

#1 energized / engaged students
#2 energized / engaged parrents
#3 energized / engaged teachers

I didn’t vote for Obama but I consider his educational innitives perhaps his biggest accomplishment ahead of healthcare reform, financial reform, and getting us out of Iraq.

Posted by y2kurtus | Report as abusive

@ y2kurtus Excellent comment

I would also like to add that unless he specifically earmarks the money it will be earmarked for him. And if he doesn’t, it might be considered a boon to the schools in the district and thus may also mean less funding for the school and that money given and spread to other schools now considered less fortunate.

Here’s hoping he makes sure it is a gifted in such a fashion to avoid being assimilated… IE musical instruments, science supplies, lab additions, and other tangibles that aren’t now part of the present school budget.

The influence of females to open pocketbooks is not always in a gold digger fashion… as y2kurtus says. One well known instance was Alfred Nobel.

Posted by hsvkitty | Report as abusive

“#1 energized / engaged students
#2 energized / engaged parents
#3 energized / engaged teachers”

y2kurtus, there is some truth to that. As a teacher, I know that no amount of money will substitute for any of the above.

That said, we don’t always HAVE energized/engaged students, parents, and teachers. Rather, we have that ideal mix in certain wealthy suburbs. We have that mix in an occasional charter school. But we often lack that mix in the lower-income suburbs and in the inner city.

Moreover, all three of those elements feed off each other. If you put energized/engaged teachers into a poisonous environment, they will rapidly get worn down and quit the profession or move to a more supportive district. The same is true of promising students in a bad school.

So what can be done to break the vicious cycle? My present school is private, but serves a low-income inner-city population. The tuition is less than half the operating budget, despite the salaries being half that of the public schools in the area. Why? Because to properly serve the needs of THESE students we need small classes (generally 12-15 students). We could in theory balance the budget by doubling the class size, but then we wouldn’t achieve the 100% success rate (EVERY student for years has been accepted to college) that we aim for.

“Warehouse club” education only works if all the other pieces are already in place. Correcting deficiencies elsewhere in the system takes intensive attention, and that gets expensive.

In conclusion, we get the job done at a price that our families can barely afford (with liberal financial aid above and beyond the fact that the full tuition is less than half the operating cost). That is our mission. But to bridge the budget gap we need at least $700,000 annually in charitable support to serve our ~115 students.

Wish we could catch Zuckerberg’s attention!

Posted by TFF | Report as abusive