I think businesses that donate a portion of profits should be commended. It’s important to account for the effectiveness of the charities they support as well as the portion of profits donated.
The structure of donation as a portion of profits rather than a set quantity is also sensible because it enables businesses to meet their costs and for worthy causes to share in surpluses along with normal shareholders. However, in businesses with substantial normal shareholders (non-PFGs), shareholders may demand higher prices in light of the profit-sharing. Additionally, significant donations could impair a business’s ability to compete by reinvesting profits.
The Profit for Good (PFG) business structure addresses these challenges effectively. By having charities as the primary shareholders, PFG businesses align their profit motives directly with philanthropic goals. This means that instead of traditional shareholders expecting returns, the profits are directed towards charitable causes, integrating giving into the core business model.
This alignment allows PFG businesses to maintain competitive pricing. Since charities are the shareholders, there is no pressure to maximize dividends for traditional investors. This enables the business to reinvest profits for growth, just like any other company, ensuring sustainability and a competitive edge in the market. Reinvestment increases the equity value of the business, which can enable charities to borrow against this value to access funds for urgent opportunities. The reinvestment benefits both the business and the charitable causes, as increased business value translates into greater potential for charitable funding.
Moreover, PFG businesses can leverage consumer preference for ethical consumption without compromising on competitiveness. Consumers are likely to favor products from businesses that transparently support charitable causes, potentially driving higher sales and further increasing the funds available for donation.
In essence, while any business contributing to charitable causes is a step in the right direction, the PFG model maximizes the impact by structurally aligning business success with philanthropic goals.
What do you think about orgs that donate a portion of their profits, like Ivory Ella or Endangered Species Chocolate?
Hi Dave,
I think businesses that donate a portion of profits should be commended. It’s important to account for the effectiveness of the charities they support as well as the portion of profits donated.
The structure of donation as a portion of profits rather than a set quantity is also sensible because it enables businesses to meet their costs and for worthy causes to share in surpluses along with normal shareholders. However, in businesses with substantial normal shareholders (non-PFGs), shareholders may demand higher prices in light of the profit-sharing. Additionally, significant donations could impair a business’s ability to compete by reinvesting profits.
The Profit for Good (PFG) business structure addresses these challenges effectively. By having charities as the primary shareholders, PFG businesses align their profit motives directly with philanthropic goals. This means that instead of traditional shareholders expecting returns, the profits are directed towards charitable causes, integrating giving into the core business model.
This alignment allows PFG businesses to maintain competitive pricing. Since charities are the shareholders, there is no pressure to maximize dividends for traditional investors. This enables the business to reinvest profits for growth, just like any other company, ensuring sustainability and a competitive edge in the market. Reinvestment increases the equity value of the business, which can enable charities to borrow against this value to access funds for urgent opportunities. The reinvestment benefits both the business and the charitable causes, as increased business value translates into greater potential for charitable funding.
Moreover, PFG businesses can leverage consumer preference for ethical consumption without compromising on competitiveness. Consumers are likely to favor products from businesses that transparently support charitable causes, potentially driving higher sales and further increasing the funds available for donation.
In essence, while any business contributing to charitable causes is a step in the right direction, the PFG model maximizes the impact by structurally aligning business success with philanthropic goals.