As I noted in one of my posts last week, I recently attended the 2024 Law and Society Association Annual Meeting in Denver, Colorado. CRN46–the corporate and securities law collaborative research network that organizes sessions at the conference–supported a great series of programs at the conference this year. I was privileged to be able to be a commenting reader for an Author Meets Reader session on Dana Brakman Reiser and Steven Dean's book For-Profit Philanthropy. The session was co-sponsored with the tax law collaborative research network (CRN31).
For-Profit Philanthropy asserts that three for-profit vehicles (LLCs, donor-advised funds affiliated with investment banking entities, and strategic corporate philanthropy activities) operate to decrease donative trust. They support their conclusion with observations from business entity and tax law. Their focus is on accountability and transparency. The story is compelling. Ultimately, the book offers targeted reform proposals.
Although the panelists' remarks were not recorded, I scripted out my comments to ensure that I stayed on track. What I wrote is set forth below. It represents a rough approximation of what I said (although I always change and add things as I go).
For-Profit Philanthropy represents an important and classic piece of legal scholarship. It approaches a novel issue and provides useful synthesis, careful analysis, sage commentary, and appropriately targeted responsive proposals. The problem-solving approach in the book unmistakably reveals laudatory aspects of design thinking. The book is incredibly well written—the structure is methodical, and the prose is beautiful, but accessible. Moreover, the research underlying For-Profit Philanthropy is extensive. Nevertheless, it is clear to me, after flipping through the end notes that Dana and Steven cite in those end notes to only a fraction of what they read and absorbed in order to write the book. Kudos to them book for a job well done.
I come to this forum as a bit of a contrarian, but also as a huge fan of Dana and Steven’s work. Our scholarship intersects over social enterprise, but we each come at the field with different priors and research agendas. My 15-year practice background before becoming an academic was in for-profit transactional business finance and governance. My scholarly work and teaching continue in that vein but also wander into nonprofit finance and governance and technologies that facilitate business finance and governance, including crowdfunding and blockchain applications. I maintain a law license, work with the local and national bar and my law school’s business law clinic on business law issues, and periodically serve as an expert witness. Of course, in much of this, I work with tax law experts like many of you in the room!
What all of that means for purposes of my remarks this morning is that I am a significant (but not unbridled) proponent of entity choice and private ordering and overall an innovation realist. I have a general affinity for innovative private solutions to client issues that use the attributes of business entities—which is what underlies the problems with the philanthrocapitalism identified in Dana and Steven’s book. [Offering OpenAI’s sequential structuring and restructuring as a classic example.] Also, I should note that I come to the issues identified and addressed in For-Profit Philanthropy without a bias for or against charitable foundations. These attributes frame my interest in the book. Overall, the book made me stand up and take notice of a number of things about charitable giving at the highest levels of wealth and socio-economic status—things I had either not perceived or not fully credited. In addition, given the nature of some of my recent work, For-Profit Philanthropy has made me curious (and potentially concerned) about the potential engagement of blockchains in charitable donation processes (something that I looked into a bit in writing a recent book chapter that covered the use of NFTs in ground-level charitable fundraising and that I am pursuing in a different context this summer).
Dana and Steven's book raises a number of concerns about the ways in which three donation models—philanthropy LLCs, the sponsors of commercially affiliated donor-advised funds, and strategic corporate philanthropy—have emerged as players in a larger picture of U.S. philanthropic giving.
Ultimately, Dana and Steven suggest that self-regulation (in addition to legal and regulatory changes) may help create a new grand bargain that offers benefits for both benefactors and those they intend to benefit in a way that is trustworthy and trusted. For-Profit Philanthropy raises many questions for me. Here are a few that I have been asking myself based on the book. They assume that Dana and Steven’s observations about the loss of trust in philanthropic giving and its pernicious effects are truths and that the problems they identify should be addressed. My questions also reflect the lawyer’s role in reforming the system through private ordering—a perspective worthy of independent consideration, imv, and I concentrate on it here.
As a business entity law expert, I will focus in closely on philanthropy LLCs. My foundational question is this: how, if at all, should I change my choice-of-entity advice to clients who may want to engage in philanthropy based on what Dana and Steven share in For-Profit Philanthropy?
Maybe, as chapter 7 in their book suggests, I should merely re-evaluate the governance norms in the entities I create to better demonstrate commitment—introduce new ideas about private ordering in the LLC context (e.g., a non-distribution constraint, transparency obligations) to achieve that goal. [Noting the CTA and state transparency laws.] The transparency/privacy debate is an undercurrent to so much of this area and affects entity choice in and outside the philanthropic giving space.
But is recommending these trust-enhancing norms consistent with my client’s risk profile and goals? I am concerned about ensuring that I act in accordance with my professional responsibilities.
How, if at all, does this affect my teaching of choice-of-entity?
I base my business associations course primarily on choice of entity—comparative agency attributes and entity elements. This substantive focus offers the opportunity to talk about private ordering in this context. But can students who do not have a background in charitable giving—no less tax law—grasp enough of the trust problem created by philanthrocapitalism to have them address these issues in a basic or even advanced business associations course? How would I suggest they approach issues of commitment and transparency with their clients?
What changes, if any, would I make to LLC law to help create a new grand bargain—enhancing philanthropic targeting, timing, and transparency?
I want to spend more time thinking about that. The contractual freedom of the LLC form is vast. Opportunities abound
And what will happen if charitable donations move to blockchains?
On the one hand, commitment could be assured and a level of transparency would exist w/r/t those on that blockchain. On the other hand, the automated nature of the transactions and the relatively private nature of the technology (and resulting capacity for fraud or obscured transactions) may make things worse. [Noting the Vera Bradley example of strategic corporate philanthropy—raising money for breast cancer research through a related foundation using NFTs that include images of Vera Bradley products and cloth patterns.]
In short, the book encourages many thought experiments for law professors, policy makers, philanthropists, and (yes) lawyers in the field. Given that large changes in the law may be unlikely (as Dana and Steven admit in places in the book, that genie may not be able to be put back in the bottle, so to speak), the roles of business entity law and the attorney-client relationship in resolving the issues identified in For-Profit Philanthropy may loom large. I hope that Dana and Steven may have more to say on those issues in their future collaborations.
For-Profit Philanthropy is an interesting and informative read. Having said that, as I noted in my remarks, it does leave me pondering unresolved questions as I consider translating its essence into law practice and legal education. I look forward to continuing to think through those questions on my own and in consultation with Dana and Steven.