When Billionaires Dominate Philanthropy, What Happens When Their Stocks Tank?

It was a move that left grantees feeling “heartbroken and stunned.” In May of 2020, just as the full reality of the pandemic began to set in, a key philanthropic funder of women’s and girls’ issues abruptly retreated from the field, ending its multi-year funding plans, dropping staff and beginning an uncertain and opaque “transition.”

In a letter to grantees, the NoVo Foundation’s founders, Peter and Jennifer Buffett, said the decision to reconsider NoVo’s path stemmed from a “process of deep reflection” dating to well before the pandemic. But they also blamed the stock market.

“NoVo’s annual budget is tied directly to the stock market rather than a percentage of an endowment,” they wrote, “which means that economic uncertainty does not allow us to grant in our usual manner and we are operating—as everyone is—with a lot of unknowns.”

The Buffetts’ course change caused plenty of outrage at the time. But looking back a year and a half later, the stock market concerns they cited seem even more ill-considered. As we know too well, COVID has done little to stall the momentum of Wall Street, which largely shrugged off the pandemic after an initial downturn, going on to post massive gains that have fattened foundation endowments and inflated the fortunes of the very rich.

This ongoing investors’ bonanza has allayed early concerns that a COVID-era bear market would precipitate a decline in nonprofit funding. And even though many nonprofit organizations have struggled mightily to stay afloat—smaller ones in particular—long-term upward trends in overall charitable giving have held.

When you think about it, the COVID blip in 2020 was the only really significant downturn the market has seen since the 2008 recession. For well over a decade now (and for the entire time Inside Philanthropy’s been around), skyrocketing elite wealth has been the norm. So have prognostications, here and elsewhere, that we’ve entered a “new Gilded Age” in which the holders of vast fortunes will wield unprecedented power through their platforms, their political spending, their celebrity status, and yes, through their philanthropy.

Seeing as efforts to tax the ultra-rich keep getting taken out of play, I don’t think anything short of a complete market meltdown, something like a global depression, could do much to derail that long-term trend. That’s disheartening for those of us who want to see a more equitable distribution of wealth and power, but it could also be a ticking time bomb—we’ve become so accustomed to skyrocketing elite wealth over the past 12 years, and in many cases, the philanthropy it yields, that we’re unprepared for what happens when that pattern falters.

This is especially the case as philanthropy becomes increasingly top-heavy, dominant donor vehicles become more contingent on a particular company’s stock, and emerging billionaire donors are further removed from the grantees they generously fund.

NoVo’s retreat from the perennially underfunded women’s and girls’ space was bad enough as an isolated example. What happens when some kind of stock market correction or individual donor’s corporate meltdown causes the same thing to happen again?

Assets in the LLC era

Several macro-trends are operating in the backdrop here, and two seem particularly relevant. The first is an increasing concentration of charitable giving among those funders with the greatest power to give, very wealthy living donors in particular. Despite the sector’s tendency to overthink, rising wealth inequality is the obvious main culprit there.

The second trend is funders’ increasing use of alternative vehicles to conduct their giving—beyond the private foundation, that is—including LLCs, donor-advised funds, various forms of political spending, social entrepreneurship and impact investing initiatives, and so on. In many ways, super-rich donors have led the charge in this domain as well.

We’ve charted the shifting fortunes of the first big wave of living donor LLCs, some of the most prominent being the Chan Zuckerberg Initiative, Arnold Ventures, the Emerson Collective and the Omidyar Network. More versatile and less transparent than the traditional foundation, entities like these have enabled their super-citizen founders to pursue many civic projects that we know about, and, most likely, plenty we can’t see.

Compared to private foundations, it’s also far less obvious where all this LLC money is parked. In most cases, the initial corpus comes from a portion of stock in the companies or interests that made the founders rich, and in any case, that money is invested in the market and subject to the same pressures and shocks as any big endowment.

For instance, Mark Zuckerberg has transferred enough Facebook shares to two of CZI’s constituent entities, Chan Zuckerberg Initiative Foundation and Chan Zuckerberg Initiative Advocacy—to swell assets to around $5.6 billion as of fiscal year 2019: around $5.5 billion in the foundation and another $100 million in the 501(c)(4). Facebook and the other FAANG stocks have been on a roll for a long time, but Zuckerberg’s empire is also a vulnerable one. What happens with CZI if the pressure reaches a breaking point and Facebook’s value takes a nosedive?

Unfortunately, the opacity of places like CZI and Laurene Powell Jobs’ Emerson Collective make it difficult to tell exactly where their assets are invested. But it’s reasonable to assume that whenever a rich donor sets up an LLC along these lines, a portion of that money will remain in the form of corporate stock in the founder’s enterprise. The same is often true of living-donor funding vehicles organized as foundations—a big chunk of the NoVo Foundation’s assets in 2019 consisted of Berkshire Hathaway stock.

Start big, get smaller

One of the clearest examples of the link between LLC giving and corporate stock fluctuations is Jack Dorsey’s giving vehicle Start Small. Founded in 2020 with a COVID relief mission, Start Small is an LLC whose assets are almost entirely composed of stock in Dorsey’s payments processing company Square. And because that stock has done so well since the initial commitment was made, Start Small’s resources have ballooned from $1 billion to nearly $3.5 billion. That’s not counting nearly $430 million in grants that have gone out the door.

In a video chat last year, Dorsey extolled the virtues of this approach, saying, “One of the awesome things about this [Start Small] model is, as Square grows in value in terms of its stock price, the fund has more to access.”

That’s all well and good as long as Square’s value does continue to grow. But the problem is that for pretty much all of 2021, it hasn’t. Unlike the swift and steady growth it enjoyed in 2020, the stock has endured some steep fluctuations throughout this year, and it’s currently hovering at around the same value it had in January.

What does this mean for Start Small’s giving? Well, helpfully, the LLC tracks its commitments on a publicly accessible Google doc, and according to what’s there, Start Small’s giving in 2021 amounts to about $100 million so far. That’s an impressive sum, but it’s only a fraction of what the LLC moved out the door in 2020—about $330 million. It’s possible the halt in Square’s upward march had a dampening effect on Dorsey’s giving through the LLC. It also makes one wonder whether Start Small would have given so much in 2020 if the value of its assets hadn’t quadrupled.

All of this market-based uncertainty is a big problem for grantees of these newfangled giving operations. In addition to COVID relief, Dorsey’s LLC has become a significant social justice funder, disbursing some pretty progressive funding for racial justice, universal basic income advocacy, and girls’ health and education. While Dorsey’s entry into these spaces has been a boon for advocates, there’s some uncomfortable symmetry here between Start Small and the NoVo Foundation, which also wedded its performance as a grantmaker to the performance of its assets on the market.

Just as NoVo’s backtrack endangered the flow of funding at a crucial time for women’s health and reproductive rights, it’s easy to imagine the butterfly effect of consequences from a drawdown by a funder like Start Small. Take the fact that Dorsey’s LLC has become a keystone supporter of efforts to make the argument for guaranteed income, a once-radical policy that has gained traction as structural resistance to big federal spending eases.

This is all hypothetical, but what if strong, sustained spending on that advocacy right now, or next year, proved to be the crucial factor in a chain of events leading to the passage of sweeping guaranteed income legislation? How tragic for advocates of the policy—and its millions of potential beneficiaries—if a key backer pulled support at a crucial moment for fear of a fluctuating stock price, despite having more than enough assets on hand to see the matter through.

Lean and mean

One of the major differences between lean operations like Start Small and the older cohort of billionaire LLCs (not to mention big foundations) is their lack of a heavily staffed operation. Though they’re non-transparent in many ways, outfits like CZI and the Emerson Collective still cultivate relationships in the field via their employees, and the same goes for places like NoVo—hence the “heartbroken and stunned.”

On the other hand, apex donors like Dorsey and MacKenzie Scott may be more transparent about where their money’s going, but they’re also less accountable in terms of relationships. We know that Scott, for example, is leaning heavily on philanthropic consultants. Instead of establishing any real personal connection or promise of continuity, they descend from on high and shower nonprofits with cash, only to retreat back into the stratosphere, leaving grantees with no doubt about who holds the purse strings and no real idea if any further support is forthcoming. From the billionaire’s perspective it makes sense: there’s no shame in ending a funding relationship that never existed in the first place.

If current trends hold, the giving power of many of the coming era’s top philanthropists may be tied to the value of their companies in a way that’s less true with the traditional private foundation. That means the era of apex donor philanthropy will be less stable and predictable, predicated not only on the whim of the billionaires involved, but on the fates of their individual companies, as well as that of the stock market overall.

If that all sounds a bit dystopian, it is. The only consolation is that the amount of money sloshing around will be so significant that at least some nonprofits will emerge in a very strong position—that is, until some future recession spooks their big donors and the taps are shut off.

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