Take the Bait

I’m pretty sure that it’s a spam account, but one of my Twitter followers seems to exist to spew out random questions about fundraising and the nonprofit sector, and solicit people to contribute answers. At the risk of further spam, I’ll take the bait and answer a question that showed up in my feed and piqued my interest:

“What if every company were non-profit including Wal-mart?”

My favorite kind of question, one that invites consideration of an alternate reality, in a way that questions the premises of our current reality. Lot of good sci-fi out of that conceit. (RIP Fringe, so good until the last season.)

There are different ways to answer this, but I’ll choose this approach: what if every company, instead of returning value to shareholders, were obligated to reinvest surplus in the mission?

To start with, would all companies be private? Would there be any reason to take a company public? There would if you thought that other people might like to share the risk of ownership with you because they believe in the mission. They might risk losing their money if the business goes belly-up. But wait – how is that any different from receiving donations from individuals? They don’t expect to get a financial return – in essence, they’re sacrificing that money, in return for the hope of social impact. (See last week’s post on the three returns and “third heat” of impact investing.)

Are we just talking about membership organizations, where people pay a certain amount to belong to an institution, like a film society or a museum? No, they’re not assuming any risk for anything other than their own money. Someone has to be accountable for the assets of the organization.

So a public non-profit company would be…just a regular non-profit. What would a private non-profit company be? A foundation? No, those have particular obligations to pay out 5% of their assets. And they’re insulated from market pressures other than on their endowments. A private non-profit company would have owners who would directly assume the risk of failure if expenses exceed revenues to the point where all assets are depleted.  It would have beneficiaries, and purchasers of its services, but only a relatively small number of owners assuming the risk. And they would do so without expecting value returned to them from a surplus.

So this seems to come down to ownership and risk. What’s different about a world where all companies are non-profits is that, at first blush, it’s not clear why anyone would start a company, or try to grow it. But I suspect if we look beyond the profit motive, there would be other reasons to do so. For another post….

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