âWonât there be moral objections to activities that normal businesses use to compete, such as extreme executive compensation, environmental effect, low worker pay?ââThis would be my main concern about the idea. While I agree that bad behavior is not the most effective business strategy, there are a lot of behaviors that I would consider sensible (e.g. paying a CEO 6-figures, making redundancies, putting prices up when thereâs lot of inflation) but that many people would consider wrong (particularly in Europe). People can be very funny about capitalism. For example, many people prefer to buy from small, local companies rather than national companies, even when those national companies are cheaper and operated very morally. I suspect most consumers would choose a friendly privately-owned company over a ruthless charity-owned company. Bill Gates was an incredible philanthropist but people didnât flock to use Microsoft for that reason. Letâs not even talk about Soros and his public image.
I think at the end of the day you are overestimating how much difference it would make to consumers (most of whom would probably be unaware of the distinction without an expensive advertising campaign) and underestimating how easy it is to suddenly own a major corporation without paying a premium (either for a buyout or new entrant) to get there.
My background is in marketing and this is one of my major concerns as well. People donât behave and buy rationally, and donât accept perfectly rational actions from companies who are âgoodâ. Weâre not sure how people will react to a billion dollar guided company who has a CEO who earns 10 million or that pays workers an unfair wage. But I do believe that if that company is open about why they operate the way they do, and they market the impact from their giving, this will still be an advantage. The company might pay its CEO 10 million, but it donated 1 billion this year to effective charities and that saved 100.000 lives. If you focus on the incredible impact that company has I think the overall value of marketing your charitable giving is positive, even if it is small. We know from Newmanâs Own that 6 figure pay and increasing prices with inflation are accepted by the general public, so I donât actually think those are issues. FYI I am from Europe.
The good thing is that even if this makes a small difference to consumers (we agree on that) thereâs no reason this wonât work with effective marketing and infrastructure to fund these companies, although thatâs far from easy. If a guided company has even a 0.1% advantage to their competition this advantage will compound and the company is âwinningâ slightly more and the extra profit would be worth the investment from philanthropists. Brad explains this really clearly:
âSo, if we define the value of a firm with a normal shareholder set as F(k), I would posit that the relationship between the value of F(c), a firm owned 100% by a popular charity, is that F(c) > F(k). It seems to me that F(c) = F(k) + P, where P is the monetary value of the advantages attaching to the popularity of charities with economic participants vis a vis the popularity of normal investors with market participants.â
Even if P is low, and we argue it might, this company would still outperform the competition. As was discussed before, P is not only from marketing, but also from tax benefits, discounts, free advice/âconsultancy and improved employee recruitment and retention. My guided company has seen free marketing, advice, consultancy as well as tax benefits and discounts, and our job openings have far more engagement than any I have ever posted for other companies. We have also run a marketing campaign using the ad of our competition and a new ad that focused on us giving away all of our profits and that was clicked on 50% more. We also have traction with brands currently because we donate our profits to charities instead of shareholders, so weâre signing more brands and weâre taking higher commission because weâre an ethical company. We literally have brands tell us âyour commission is too high, but weâll pay it anyway because itâs going to charity and we love what youâre doingâ. These results on the most important sides of our business; consumers and brands, is encouraging that the value of P is definitely more than zero and perhaps a lot higher. We do have to gain much more information from our marketing efforts to understand how this translates to purchase intent.
Lastly, I want to say that our researcher just finished his master thesis on the economic feasibility of this business model, and we spoke to all stakeholders (investors, consumers, guided companies, traditional companies and brands). Itâs still in draft but I will release it here once itâs ready to be shared (hopefully within a week). This thesis will have a lot more data and references than this paper so it might address some of the empirical concerns that people have voiced.
Imagine a campaign that focused on how much profits the average person generates from their average consumer behavior- maybe $12,000. And we show how if someone was able to get $4,000 of that to some charities, they could save a childâs life. âDonât you want to buy in a way that lets you save peopleâs lives rather than make rich people richer?â
One thing is that consumers may not be aware of the intentions of an EA profit-beneficiary or they may not be able to trust them to act consistently to it.
Another thing is that consumers may feel more of a direct impact from a purchase where the profits go directly to a charity they value instead of by buying from a company and hoping that the profit-recipients will act beneficently. You as a consumer get to take credit for the moral act in a way that you donât⌠It is more like the profit-recipient philanthropist gets all the moral credit.
âAt the end of the day you are overestimating how much difference it would make to consumers who are not aware of the distinction without an expensive advertising campaignâ
This is why, as mentioned above, one of the functions of the Consumer Power Initiative will be broad-based marketing, such that a mass social movement regarding charities as our economiesâ beneficiaries will take off.
This sounds ambitious and it is, but a few crucial factors make such marketing feasible and likely to succeed:
Very simple ask of consumers: buy what you were going to anyway, but through GC.
Scaling of marketing efforts: advertising for broad-based GC affects a much broader set of markets . For instance when Anheuser Busch buys a Superbowl commercial for over $6.5 million, this is in service of a company with annual net profits of $4.67 billion. On the other hand, the same budget for a Superbowl commercial could cover a huge set of companies that have collective annual net profits orders of magnitude higher than one global alcohol company. Furthermore, the commercial would have a simple and clear value proposition for consumers: buy through GCs and benefit worthy charities rather than rich shareholders.
Earned media. Most of the world including the public, celebrities, thought leaders, etc. want a world that is more just and sympathize with a lot of the same charities goals that EA does. A lot of the work will be done by people wanting to ride the wave and see how they can help.
Philanthropic Investors looking to create Guiding Companies will have to pay a significant premium
In the proper contexts, once GC is established, the opposite might hold in circumstances where there are multiple incumbents in a low-differentiation market space. The philanthropic investors could threaten to significantly diminish the value of competitors by purchasing one, thus starting a reverse bidding war. For a (admittedly rosy) picture of how this might play out see this response under the heading âSo, for a simple example to illustrate what I would be thinking of doing- â
âWonât there be moral objections to activities that normal businesses use to compete, such as extreme executive compensation, environmental effect, low worker pay?ââThis would be my main concern about the idea. While I agree that bad behavior is not the most effective business strategy, there are a lot of behaviors that I would consider sensible (e.g. paying a CEO 6-figures, making redundancies, putting prices up when thereâs lot of inflation) but that many people would consider wrong (particularly in Europe). People can be very funny about capitalism. For example, many people prefer to buy from small, local companies rather than national companies, even when those national companies are cheaper and operated very morally. I suspect most consumers would choose a friendly privately-owned company over a ruthless charity-owned company. Bill Gates was an incredible philanthropist but people didnât flock to use Microsoft for that reason. Letâs not even talk about Soros and his public image. I think at the end of the day you are overestimating how much difference it would make to consumers (most of whom would probably be unaware of the distinction without an expensive advertising campaign) and underestimating how easy it is to suddenly own a major corporation without paying a premium (either for a buyout or new entrant) to get there.
My background is in marketing and this is one of my major concerns as well. People donât behave and buy rationally, and donât accept perfectly rational actions from companies who are âgoodâ. Weâre not sure how people will react to a billion dollar guided company who has a CEO who earns 10 million or that pays workers an unfair wage. But I do believe that if that company is open about why they operate the way they do, and they market the impact from their giving, this will still be an advantage. The company might pay its CEO 10 million, but it donated 1 billion this year to effective charities and that saved 100.000 lives. If you focus on the incredible impact that company has I think the overall value of marketing your charitable giving is positive, even if it is small. We know from Newmanâs Own that 6 figure pay and increasing prices with inflation are accepted by the general public, so I donât actually think those are issues. FYI I am from Europe.
The good thing is that even if this makes a small difference to consumers (we agree on that) thereâs no reason this wonât work with effective marketing and infrastructure to fund these companies, although thatâs far from easy. If a guided company has even a 0.1% advantage to their competition this advantage will compound and the company is âwinningâ slightly more and the extra profit would be worth the investment from philanthropists. Brad explains this really clearly:
âSo, if we define the value of a firm with a normal shareholder set as F(k), I would posit that the relationship between the value of F(c), a firm owned 100% by a popular charity, is that F(c) > F(k). It seems to me that F(c) = F(k) + P, where P is the monetary value of the advantages attaching to the popularity of charities with economic participants vis a vis the popularity of normal investors with market participants.â
Even if P is low, and we argue it might, this company would still outperform the competition. As was discussed before, P is not only from marketing, but also from tax benefits, discounts, free advice/âconsultancy and improved employee recruitment and retention. My guided company has seen free marketing, advice, consultancy as well as tax benefits and discounts, and our job openings have far more engagement than any I have ever posted for other companies. We have also run a marketing campaign using the ad of our competition and a new ad that focused on us giving away all of our profits and that was clicked on 50% more. We also have traction with brands currently because we donate our profits to charities instead of shareholders, so weâre signing more brands and weâre taking higher commission because weâre an ethical company. We literally have brands tell us âyour commission is too high, but weâll pay it anyway because itâs going to charity and we love what youâre doingâ. These results on the most important sides of our business; consumers and brands, is encouraging that the value of P is definitely more than zero and perhaps a lot higher. We do have to gain much more information from our marketing efforts to understand how this translates to purchase intent.
Lastly, I want to say that our researcher just finished his master thesis on the economic feasibility of this business model, and we spoke to all stakeholders (investors, consumers, guided companies, traditional companies and brands). Itâs still in draft but I will release it here once itâs ready to be shared (hopefully within a week). This thesis will have a lot more data and references than this paper so it might address some of the empirical concerns that people have voiced.
Bad behavior (or behavior irrationally perceived to be bad) from Guiding Companies:
This is why one of the functions of the Consumer Power Initiative will be to do broad-based marketing for Guided Consumption, so that consumers can be aware of their power to do good.
Imagine a campaign that focused on how much profits the average person generates from their average consumer behavior- maybe $12,000. And we show how if someone was able to get $4,000 of that to some charities, they could save a childâs life. âDonât you want to buy in a way that lets you save peopleâs lives rather than make rich people richer?â
As for consumer response to different activities by companies, the beauty is that charitable investors and other actors will be able to direct their activity in the ways that make sense in response to research and thought This is why one of the functions of the Consume Power Initiative is research.
The (lack of) Bill Gates or George Soros factor:
One thing is that consumers may not be aware of the intentions of an EA profit-beneficiary or they may not be able to trust them to act consistently to it.
Another thing is that consumers may feel more of a direct impact from a purchase where the profits go directly to a charity they value instead of by buying from a company and hoping that the profit-recipients will act beneficently. You as a consumer get to take credit for the moral act in a way that you donât⌠It is more like the profit-recipient philanthropist gets all the moral credit.
âAt the end of the day you are overestimating how much difference it would make to consumers who are not aware of the distinction without an expensive advertising campaignâ
This is why, as mentioned above, one of the functions of the Consumer Power Initiative will be broad-based marketing, such that a mass social movement regarding charities as our economiesâ beneficiaries will take off.
This sounds ambitious and it is, but a few crucial factors make such marketing feasible and likely to succeed:
Very simple ask of consumers: buy what you were going to anyway, but through GC.
Scaling of marketing efforts: advertising for broad-based GC affects a much broader set of markets . For instance when Anheuser Busch buys a Superbowl commercial for over $6.5 million, this is in service of a company with annual net profits of $4.67 billion. On the other hand, the same budget for a Superbowl commercial could cover a huge set of companies that have collective annual net profits orders of magnitude higher than one global alcohol company. Furthermore, the commercial would have a simple and clear value proposition for consumers: buy through GCs and benefit worthy charities rather than rich shareholders.
Earned media. Most of the world including the public, celebrities, thought leaders, etc. want a world that is more just and sympathize with a lot of the same charities goals that EA does. A lot of the work will be done by people wanting to ride the wave and see how they can help.
Philanthropic Investors looking to create Guiding Companies will have to pay a significant premium
In the proper contexts, once GC is established, the opposite might hold in circumstances where there are multiple incumbents in a low-differentiation market space. The philanthropic investors could threaten to significantly diminish the value of competitors by purchasing one, thus starting a reverse bidding war. For a (admittedly rosy) picture of how this might play out see this response under the heading âSo, for a simple example to illustrate what I would be thinking of doing- â