Comments on: Philanthropy can’t be outsourced to the profit motive A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: y2kurtus Mon, 20 Jun 2011 05:18:06 +0000 @ Felix- I think a great example of the “outsourcing” of charity to the private sector successfully is the food company Newmans Own. They have very successfully created a well received brand around the idea that profits beyond those needed to grow the enterprise would be donated to various charities and foundations. People don’t buy their products because they are dependably delicious (which they are) they buy them because they know a few pennies of every dollar they spend are going to do some good. That makes the lemonade taste better.

@ Publis- “I think we’re all being too short-term here. Companies are legal fictions. They’re not “real.”… … The projects and companies I worked for didn’t survive. But I did.” Think even longer term that that. Like Zerohedge says, in the longrun the survibility of everyone drops to zero. Paul Newman is dead but the movies he made and the charitable company he created “live” on.

Most large charities have endowments which provide them income each year. This is most imporntant in lean economic years when contributions tend to dry up. Why could a non-profit with a billion dollar endowment not buy a steady 1 billion dollar company outright rather than minority stakes in 100 different companies.

We’re a well known well run charity to buy up a large going concern company my prediction would be that company would have their pick of the litter of employees and customers lining up to try their product.

By: Justsomeguy5 Fri, 17 Jun 2011 19:10:49 +0000 “I begin by taking. I shall find scholars later to demonstrate my perfect right.” –Frederick the Great

It seems there are always scholars such a Mr. Bishop who are ready, willing, and able to rationalize the selfishness of the powerful.

By: Anonymous Fri, 17 Jun 2011 18:10:15 +0000 Maximizing stock value doesn’t even maximize the financial value delivered to stockholders.

Consider: To the extent that stockholders have diversified investments, “value of stock” and “value to stockholders” will tend diverge. For thoroughly diversified investors, if an action by Company A increases its value by X while decreasing the value of Company B by Y, this action will decrease value to A’s (diversified) stockholders when X is less than Y.

MaxKenneely quotes the Delaware Court of Chancery as ruling that directors are bound by “…fiduciary duties and standards….[that] include acting to promote the value of the corporation for the benefit of its stockholders.”

The traditional interpretation of this fiduciary duty is simply wrong: Promoting the value of a corporation does not, in general, equate to promoting the benefit of its stockholders, even in the narrowest financial sense.

By: MaxKennerly Fri, 17 Jun 2011 13:09:26 +0000 Although corporations can of course have positive social impacts, anything more than modest philanthropy is likely to get the corporation sued for breach of fiduciary duty. That’s exactly what happened in the eBay vs craigslist case (which I summarized here ) in which the Delaware Court of Chancery — indisputably the most important corporate court in the world — sustained a claim for breach of fiduciary duty arising from craigslist’s philanthropic endeavors, holding:

“The corporate form in which craigslist operates, however, is not an appropriate vehicle for purely philanthropic ends, at least not when there are other stockholders interested in realizing a return on their investment. Jim and Craig opted to form craigslist, Inc. as a for-profit Delaware corporation and voluntarily accepted millions of dollars from eBay as part of a transaction whereby eBay became a stockholder. Having chosen a for-profit corporate form, the craigslist directors are bound by the fiduciary duties and standards that accompany that form. Those standards include acting to promote the value of the corporation for the benefit of its stockholders. The “Inc.” after the company name has to mean at least that. Thus, I cannot accept as valid for the purposes of implementing the Rights Plan a corporate policy that specifically, clearly, and admittedly seeks not to maximize the economic value of a for-profit Delaware corporation for the benefit of its stockholders—no matter whether those stockholders are individuals of modest means or a corporate titan of online commerce.”

By: from_a_distance Fri, 17 Jun 2011 12:34:10 +0000 The fundamental difference between a foundation created for philanthrophy vis-a-vis an organization where its investment into what is now fashionably CSR, is the primacy of the intent.

In one case it is only a sideshow, a product mix to manage the market in terms of image, and yes, is purely a derivative of its profits.

Companies need to make profits to be charitable – is a truism.

A charitable act needs to be sustainable – as in perpetually addressing the cause by regenerating profits – is the new fangled notion that is the absurdity that Felix Salmon so neatly destroys.


By: BrigidS Fri, 17 Jun 2011 11:15:06 +0000 Thanks for this, and the previous article. Yours is the only critical evaluation of the paper that I’ve seen so far, and there’s several assumptions in the original paper that need to be questioned (example: they put great emphasis on positive externalities of profit-driven companies, but ignore that if externalities are so important, the negative must be taken into account as well).

I confess myself mystified by attempts to defend profits. Is it just a matter of assuaging guilt?

By: Luis_Enrique Fri, 17 Jun 2011 08:14:27 +0000 but those kind of arguments are unfalsifiable and therefore meaningless.

doesn’t that mean your assertion IBM is not profit maximizing is also unfalsiable and therefore meaningless?

A good deal of what’s written – here and elsewhere – about economics and the behaviour of firms is unfalsiable. It just goes with the territory. I’d keep that powder dry if I were you.

By: Publius Thu, 16 Jun 2011 20:56:36 +0000 I think we’re all being too short-term here. Companies are legal fictions. They’re not “real.” They’re organizations of individuals designed to serve some social need. One of the things they do very well (as a by-product) is inculcate those individuals with socially useful skills. I know it well, having worked for a couple of failed companies as well as for a failed project of the Federal Government.

The projects and companies I worked for didn’t survive. But I did (duh). And I learned valuable lessons that I could then use to serve another populace.

BTW, just because a company makes a profit doesn’t make the social need it serves unimportant. The mechanic who works on my car is performing a *very* valuable service. And by keeping my old car running, I don’t have to extract as much iron ore and coking coal to consumer another one.

By: TRKAdvisors Thu, 16 Jun 2011 19:51:07 +0000 Is there not a ‘survivors bias’ in picking IBM after it has already been a successful company and comparing its value (or not) against something like Carnegie? Is it not a more intellectual honest approach to pick the sum ‘social’ value of a bunch of companies pursuing profit motives starting at the same time as IBM? Picking IBM stand-alone seems biased once we know they ‘won,’ much like surviving mutual funds can average better-than-benchmark returns because the underperformers keep folding.

By: martineh Thu, 16 Jun 2011 19:11:26 +0000 You have it exactly: ideologues confusing themselves with idealists. Too few people can see the obvious.