Delaware has long been a haven for firms to incorporate and call their home, even if it is barely a workspace. Corporate leaders might say it’s for a Chancery Court system that favors enterprise. Others might say filing there is for preferential tax rules.
While those might be true, privacy also is a key reason. Delaware law allows registered agents to provide a physical address and for that agent to be the only name on official paperwork. There aren’t residency requirements for corporate officials.
It’s also the perfect home for a philanthropic enterprise to set up if the principals want to keep operations under wraps. Lost Horse is one such enterprise. It is the operational shell for the philanthropic work of MacKenzie Scott, who during the past two years has donated more than $12 billion to at least 1,257 charities and educational institutions.
Scott does not respond to media requests for comment. She and the anonymous team announce the donations via posts on the social media platform Medium. Her largest gift to date is to Habitat for Humanity, with the national office and 84 affiliates receiving a total $436 million. Boys & Girls Clubs of America announced $281 million in gifts, with $20 million to the national office in Atlanta and the rest distributed to affiliates.
Delaware is also, technically, the corporate home of Amazon, which she helped to start and build with her ex-husband, Jeff Bezos, out of their garage in Seattle. The firm was incorporated in Washington State in 1994 but reincorporated in Delaware in 1996.
That’s important because Amazon announced a 20-1 stock split for June and a $10 billion stock buyback. A stock split and buyback allows more investors access to the stock at a lower price, thus, perhaps starting a run upwards.
That probably will have an impact on Scott’s philanthropy. Forbes has estimated her wealth at $50 billion. According to Bloomberg and other business news reports, she received a 4% stake in Amazon through the divorce, which was worth $36 billion at the time. A quick calculation of those numbers implies a $900 billion market capitalization, which would be $1,800 per share with approximately 500 million shares outstanding. The $36 billion stake divided by $1,800 per share price at the time would come out to roughly 20 million shares.
At this writing the stock price is $2,140 per share after the NASDAQ exchange has taken a beating for the past two weeks. How many shares she might have sold to finance the previous philanthropy is not known right now. A 20-1 split would price the new shares at roughly $107 each.
A stock split doesn’t have a direct impact on the shareholders in terms overall wealth because you’re splitting the same amount, getting additional shares at the lower cost basis, according to Fabian Willskytt, associate director at Align Impact in Santa Monica, Calif., which works with social enterprise organizations but does not have a connection to Scott. Position size in an individual security might handcuff how much a shareholder can sell without having an impact on the overall price, saturating the market and pushing down the share price, he explained.
Making the stock more accessible to smaller investors will probably have a small immediate impact on the value of Scott’s stake. It also makes the stock more enticing to be a Dow Jones component equity, according to Brian Mittendorf, the Fisher Designated Professor of Accounting at the Fisher College of Business at The Ohio State University in Columbus, Ohio. It would join firms such as Apple, Salesforce, Microsoft and Walt Disney.
“There is some prestige being included in a high profile stock exchange, especially for Dow Jones. It’s very subjective. It’s often highlighted in the media and has the eyes of retail investors,” said Mittendorf. “It’s considered blue chip,” when an equity is added to how the Dow Jones Industrial Average is calculated.
The Dow Jones Industrial Average includes 30 large companies and is a price-weighted index. It is often criticized as an inadequate representation of the overall market. The complaints are similar to those made by economists regarding developing calculations for inflation rates.
The other element is that corporations lately have been extolling their Environmental, Social, and Governance (ESG) measures but that can quickly enhance or hurt a stock. For example, Facebook (now Meta) had a positive public ESG image that evaporated in 2016 when the firm was involved in a data scandal. Exxon Mobil has been trying to turn around its image since the Exxon Valdez oil spill in 1989 and more recently for allegedly misleading stakeholders about climate research. The State of New York sued the energy giant in October 2018 alleging it defrauded shareholders by downplaying the company’s impact on potential climate change.
When it comes to transformational gifts, Mittendorf compared the shock of Scott’s philanthropy to individual charities and schools to the impact of the Ice Bucket Challenge that raised $115 million for the ALS Association during 2014. The nonprofit announced the cash helped ALS researchers make scientific advances, expanded care for people living with ALS and financed disease research.
“I’m curious to see how organizations respond to the windfalls and the pressure to scale up the organizations,” said Mittendorf. “They could sit on the funds and make them last a long time. There is the worry of ‘what happens if we scale up too much.’ It’s a good problem to have.”