There are some advantages to doing this – a LLC has much more flexibility to contribute to the common good by investing in for-profit companies as well as by donating to not-for-profits.
But because a LLC isn’t subject to the same regulatory requirements as a traditional foundation, in theory it could fund things which don’t necessarily further charitable purposes.
“Legitimacy is critical to philanthropy.”
Criticism has also focused on how such a massive pledge, combined with the use of a “less accountable” LLC, could lead to a further concentration of power in the hands of wealthy people such as Zuckerberg and Chan.
This debate has opened up an opportunity to have an important discussion about how philanthropy, particularly “big philanthropy,” relates to the broader community – and what kinds of actions can enhance this relationship in order to maximize both philanthropy’s social impact and the community’s support for its work.
In this context, the concept of a “Social License to Operate” is very relevant. This concept has received more attention within the private sector, particularly within the mining industry, but has received little attention within the not-for-profit sector.
It reflects an increasingly common view that private companies can’t just do what they want and ignore the needs of communities.
Rather, they need to acquire and maintain a Social License to Operate – which is the level of acceptance or approval continually granted to an organization’s operations or projects by the community and other stakeholders.
Defining the Social License to Operate
It’s not a license in a formal sense – you don’t apply for it and if you tick the right boxes you get it. It’s something a company earns through its actions – it’s an intangible asset which a company builds up and must work to maintain, in a similar way to a company’s reputation (although it’s different to a company’s reputation).
Therefore, Social License is a type of “informal” or “soft” regulation, as opposed to “formal” or “hard” regulation which is determined and enforced by governments and regulators.
It essentially revolves around a question of legitimacy – whether a company’s actions are viewed as “right” – not just by their shareholders, but by stakeholders more broadly. It has various levels, as shown in the diagram below. 
It’s therefore equally relevant to philanthropy. That’s because legitimacy is critical to philanthropy – if philanthropy is not seen to be contributing to the common good, or acts in a manner which is inconsistent with community expectations and norms, then it will lose its legitimacy. Ultimately that means that philanthropy will stop being philanthropy.
Philanthropy’s Social License to Operate
That’s why it’s important for there to be conscious attention to what philanthropic organizations need to do in order to acquire and maintain a Social License.
Arguably, Social License is easier to acquire and maintain for smaller foundations – for them it could simply come down to adopting a conscientious approach to grantmaking which involves supportive engagement with grant recipients, and being responsive to the needs of the community as they change over time.
It’s particularly important in the case of “big” or “mega” philanthropy such as the CZI – and for these philanthropic organizations the bar will be set higher.
That’s because “big philanthropy” does vest a large amount of power in philanthropists to direct what outcomes are funded. Despite widespread apathy about government, government does still derive legitimacy from the ballot box – but “big philanthropy” isn’t subject to elections or term limits.
Because of its size, the actions of “big philanthropy” will be scrutinized by other organizations within the philanthropic sector, not-for-profits, the media, as well as the communities in which it operates. Therefore, if “big philanthropy” lacks a conscious focus on its Social License, its actions could result in a loss of legitimacy.
So what does acquiring and maintaining a Social License actually require of “big philanthropy”? There are no hard and fast rules, and each philanthropic organization which recognizes the importance of its Social License should examine for itself what it needs to do in its own particular situation.
However, operating in a manner which is transparent and shares power would be particularly important in the case of the CZI and other large philanthropic organizations.
“The Chan Zuckerberg Initiative will need to both be open about its work and also share power.”
Transparency means being open about how a philanthropic organization such as the CZI is governed, what it funds, how it funds and what the outcomes are.
If the community doesn’t know what the CZI is doing, how will they be able to make an assessment of that work and its merits in terms of furthering the common good? If the community is unable to do that, then it’s impossible to establish and maintain legitimacy.
A culture of secrecy tends to breed skepticism. On the other hand, by being and transparent and open, a philanthropic organization such as the CZI can actively demonstrate its commitment to the common good, and establish a relationship with the community based on mutual trust and respect.
A good first step would be for the CZI to commit to meeting the full range of transparency measures which are set out as part of the Foundation Center’s Glasspockets initiative.
The next step would be to think about ways to share power, which means directly engaging with the communities in which a philanthropic organization such as the CZI will be active. Engaging doesn’t mean just listening – it means working in genuine partnership with stakeholders.
Again, there are no hard and fast rules – but at one end of the spectrum, such engagement would involve consulting stakeholders and using their feedback to inform a foundation’s strategy and key decisions. At the other end of the spectrum it could involve more directly including stakeholders in the decision making process, which is what one small foundation in Indiana has done.
I would expect that the CZI will be trying to address some really complex and multi-faceted problems – to do this effectively, it will need to both be open about its work and also share power with subject matter experts, community leaders, not-for-profits and other philanthropic organizations.
Sharing power is an opportunity to leverage expertise, secure stakeholder buy-in and also share responsibility for outcomes.
Ultimately these are just two examples of how philanthropy can go about establishing and/or maintaining its Social License – however every philanthropic organization’s legitimacy will depend on a variety of factors. It’s something “big philanthropy” certainly needs to focus on, but also something which all philanthropic organizations should turn their minds to.
What do you think philanthropic organizations need to do to establish and maintain their Social License?
 Adapted from: Ian Thomson, Robert G. Boutilier, Modelling and Measuring The Social License To Operate: Fruits Of A Dialogue Between Theory And Practice, 2011. This paper, along with other resources on the topic of Social License, is available at this website.
First published on the Foundation Center’s Transparency Talk blog.