For-Profit Philanthropy Under Microscope in New Book by Professors, Co-Authors Dana Brakman Reiser and Steven Dean

On February 7, Brooklyn Law School’s Centennial Professor of Law Dana Brakman Reiser, and Professor Steven A. Dean presented a wide-ranging talk on their new book, For-Profit Philanthropy: Elite Power & the Threat of Limited Liability Companies, Donor-Advised Funds, and Strategic Corporate Giving, which explores the current state of philanthropy and the risks of newer philanthropic giving modes that diverge from the traditional foundation model. 

Anne-Marie Slaughter, CEO of think and action tank New America and the Bert G. Kerstetter ’66 University Professor Emerita of Politics and International Affairs at Princeton University, moderated the discussion for in-person attendees at the Subotnick Center, and virtual guests.  

“This is a book about power, about money, and, fundamentally, about a deep sociocultural contract that we make in the United States, that we make differently than in other countries and that we have made differently at different times,” Slaughter said, summing up the important questions the book examines.  “The invitation then is, in 2023, what should this contract be?”  

In his welcoming remarks, Dean Michael T. Cahill lauded the combined expertise of Brakman Reiser (in nonprofit law) and Dean (in tax law), whose ongoing collaboration began with a coauthored article a decade ago and hit its stride with their first book, Social Enterprise Law: Trust, Public Benefit and Capital Markets (Oxford University Press, 2017). “Their work reflects the kind of collaborative spirit that infuses Brooklyn Law School and the work across disparate areas in which we take so much pride,” Cahill said. 

Slaughter kicked off the conversation with a question on why the limited liability company (LLC), donor-advised funds (DAF), and strategic corporate giving are vehicles worth examining, what the three have in common, and why they might be considered both innovation and threat to the state of philanthropy.   
“There’s been a fair amount of discussion among people who discuss philanthropy and philanthropy regulation about these innovations,” said Brakman Reiser, “but not tying them together, how they pose the same kinds of risks and emanate from the same kinds of desires on the part of donors, and that they all use techniques, involve players, and incorporate norms that are native to the for-profit world and transplant them into philanthropy, a space which is not regulated with the expectation that that will occur. What we tried to do in the book is to take these three and connect them.” 

Dean and Brakman Reiser explained that in contrast to the foundation model of giving, pioneered by the likes of Gilded Age industrialists such as the Rockefellers and Carnegies and then subjected to further regulation by the Tax Reform Act of 1969 (which they dub “the Grand Bargain”), these three newer modes of philanthropy are not subject to longstanding regulatory requirements. Foundations must distribute at least five percent of their assets annually for charitable purposes, there are strict limits on foundation political activity and restrictions on their investment entanglements with donor businesses, and foundations must file annual informational returns detailing their activities and donors, creating a greater transparency for the public. Funds committed to a foundation are also irretrievable by contributors. 

“With a philanthropy LLC, none of these things are true; they’re optional,” said Brakman Reiser. “They might have benefits for their business, and they can participate in political activity. They can wave the flag of being a philanthropy, but they’re not subject to this regulatory system.”   

Citing examples of LLCs such as the Chan Zuckerberg Initiative, Dean said that these philanthropies are not subject to disclosure regulations and contributors can pull the money from the LLC at any time. For someone like Bill Gates, said Dean, “Making the promises that a foundation creates allowed him to rehab his reputation through his foundation’s work. With Chan Zuckerberg and an LLC, there’s no commitment.”  

As with philanthropy LLCs, Dean explained, donor-advised funds can be held by their sponsors in perpetuity, through generations, without the obligation of annual distributions. “DAFs are regulated as a public charity but not as a foundation,” Dean said. “They’re accounts held by the big players, like investment firms Goldman Sachs and Fidelity. Donors can’t claw contributions back, and although DAFs do have to make disclosures, it’s on an aggregate basis. So, we’re not able to see which organizations were supported by whom. And donors to a DAF get an immediate tax deduction.”  
Turning to the corporate arena, Brakman Reiser pointed to firms making charitable gifts directly from the for-profit entity, rather than utilizing a corporate foundation. The import there, she noted, is that while gifts to a corporate foundation are subject to foundation regulations, direct gifts are not transparent and can be “wrapped up with political advocacy” or enfolded within a corporation’s social responsibility agenda. She explained, “Marketing departments are developing campaigns that are philanthropic in nature,” which can also coincide with business development of products or technology. She cited the example of a telecom company that worked with the nonprofit organizations serving the blind to develop a technology for greater visual accessibility, and later marketed related technology to seniors. “It’s become a tool for shareholder maximization and is enmeshed in the firm’s business model as opposed to being an outside altruistic activity.”  

That doesn’t mean, said Dean and Brakman Reiser, that these vehicles are not having positive impact and that more regulations should always be imposed. “Sometimes peeling back regulations on foundations enables co-creation,” Dean said.  

“There are a lot of ways to improve existing regulations without forcing people back into that earlier mold,” said Brakman Reiser, citing the speed and ease of these new models, and the flexibility, privacy, and control they offer donors. “But it’s important to look at other side of the ledger. What’s important for society today, and important for the public to know in order to build trust? Timing: Should the DAF sit there indefinitely? We think no. And transparency should be top of mind. Many DAFs and LLCs are self-regulating in these areas.” Dean emphasized that the 1969 regulations do not reflect society’s contemporary values on issues such as diversity, equity, and inclusion.  

Questions from the attendees were then addressed, concerning community foundations as aggregators, the lack of resources for state regulation of these philanthropic vehicles, and the profound effects that minor tweaks to regulations can have.  

“Our greatest hope for this book is that by bringing together these examples we would spark some real reflection on the values around philanthropy,” said Brakman Reiser. “I am gratified to see so much interest in making progress on building a future of philanthropy with regulation that makes sense for our time.”