From the New York Times article Make Money, Save the World, on efforts to decompartmentalize modern philanthropy by encouraging ‘for-benefit corporations’ or ‘for-profit charities’:
“There’s a big movement out there that is not yet recognized as a movement,” said R. Todd Johnson, a lawyer in San Francisco who is working to create an online wiki to engage in the give and take of information for what he calls “for-benefit corporations,” another name for fourth-sector activities. […] Still, whatever participants call it, the fourth sector faces challenges. Current legal and tax structures draw strict lines between for-profits and nonprofits, and fiduciary obligations prevent asset managers from making investments with any aim other than maximizing profit.
[…] “What we are constantly coming up against is our tax laws and our culture,” Ms. Berry said. “The whole fabric of society wants us to make money on one side and do good with it on the other. What we’re saying is: What if we did both things at once?”
She and others argue that current laws, tax structures and definitions of fiduciary responsibility encourage companies to shift costs onto society.
In my limited experience with Corporate and Tax law, it seems as though the article is pointing out a necessary evil in a relatively free market society that wants to encourage philanthropy. What I mean is that many charities only exist because they are able to gain beneficial tax status by being a 501(c)3. At the same time, federal securities and state corporate laws impose fiduciary duties on boards to manage with the best interests of the corporation in mind. In addition, tax laws are easy to look at individually and criticize. However, any one tax law only makes sense in the context of all the other tax and corporation laws surrounding it.
Many argue that the best way to benefit society as a whole is to encourage the competitive nature of business. Individuals will become wealthier and many will contribute to charity. In addition, “a rising tide raises all ships”, meaning that the more affluent society that results from the competition will make even the most destitute better off.
This article tries to oversimplify tax, corporate, and trust laws, and I think that the topic requires much more in-depth analysis before it tries to incite the masses at large to riot against our current legal structure.
You bring up a number of points which are quite good. I take the essence of your argument to be, “it’s easy to criticize” and “for all its warts, capitalism tends to create a higher standard of living and more wealth for philanthropy than other systems”.
I’d definitely go with those points. But I think a lot can be said for business/charity hybrids as well–
1. Being able to act as a business yet not being *required* to be cutthroat opens up many possibilities for social good over and above the ‘make money, donate money’ model.
2. I’d also guess that every dollar spent to make a business a better corporate citizen and shift fewer costs onto society likely goes further on average than that same dollar just donated to charity.
I definitely don’t have any solutions, but it’s interesting to think about.
You oversimplified part of my critique, which is that the interaction of these very complicated areas of law will obviously produce some unattractive unintended consequences, but trying to make one change could easily have an effect like shaking one strand of a spider’s web. Without very strict rules of corporate officers including the duty of loyalty and good faith, we would have more corruption among the rich than Russia.
Right- I would certainly agree! We’re at a “local maxima” as far as the basic structure of our corporate and tax law goes, and to get to another practically workable system we might have to make some awfully sweeping changes. Small changes can have big implications.
I think when it gets down to it, the devil’s in the details on any proposed corporate law change. Hopefully we have the right people in the driver’s seat making those calls.
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jake
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