Dear Spear’s reader,
There is an urgent need to create a more positive view of business.
Many people now buy in to the argument that corporations are inherently bad, interested only in squeezing out profits at the expense of the many for the benefit of the few.
This isn’t completely unfair: The FTSE 100 has increased profits by 49 per cent over the past decade, but its charitable donations have dropped by 13 per cent. Less than one per cent of net profits go to charity.
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All of us involved in business need to reclaim the narrative that it can be an engine of progress and a force for good in society as a whole.
There comes a moment in many business leaders’ lives when the pursuit of profit alone no longer feels enough.
That’s why we believe there is a need to embed philanthropy in the very structures of companies. Not as some box-ticking CSR or ESG exercise. Not as a one-off donation to charity. But as the cornerstone of the ownership and identity of a company.
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We call this approach ‘karma capitalism’, and it is embodied by the PhilCo model – a new breed of philanthropy companies that exist to serve society and the planet as well as to make a profit. This is not another way of doing business, it is a different way of being a business.
A PhilCo (or ‘philanthropic company’) is defined as a business that is at least ten per cent owned by a charity or foundation. That foundation can then direct dividends and resources, arising from the success of the company, toward the causes the company cares about, on an ongoing, institutional basis.
Reed is an example of such a company operating in the UK: 18 per cent of its equity is owned by the Reed Foundation, which every year donates millions of pounds to good causes. Through its engagement with the Big Give, which is now the biggest public fundraising campaign in the UK (raising more even than Comic Relief and Children in Need), it has helped to raise over £350 million for charities taking part in its campaigns.
It’s a simple concept: Big Give uses money donated by philanthropists, companies and foundations to double public donations made to participating charities via its platform.
This model has hard benefits: Reed employees, known as co-members, feel proud of their work, the company culture is stronger and the business is more resilient. Reed believes this is a model for the future of capitalism – and we’re not alone.
Some of the most respected companies in the world operate as PhilCos. Think of Ikea, Lego, Rolex, Maersk and Bosch – all are partly or wholly foundation-owned.
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In Denmark, where PhilCos are widespread and supported through tax incentives, the 40-year survival rate for foundation-owned firms is three times higher than non-foundation businesses. It is quite clear: PhilCo status makes businesses more robust.
Employees stay longer and are more engaged. And these companies outperform their peers in longevity, morale, and reputation.
For those who still believe passionately that the number one purpose of business is profit, there is ample evidence that firms that integrate philanthropy into their corporate DNA have higher productivity; increased revenue, profit and shareholder returns; less absenteeism and better retention of staff; and greater confidence in leadership.
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There is a clear need for more support for the charity sector, especially in areas like social care. Central governments don’t have the means to do more and appear to be struggling to meet the commitments they already have. But if they get behind the PhilCo movement and help business, business will help them. It is to governments’ advantage if companies are more stable, innovative and stick around for longer. This will boost the economy, benefit society and delight the taxman.
So, what are we waiting for?
We believe our current model of shareholder capitalism is broken. It has created enormous wealth, yes, but it has also left millions behind.
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You, the readers of Spear’s, are some of the most powerful agents of change in the country. You are entrepreneurs, founders, family office leaders and stewards of multigenerational wealth. You understand long-term value. You care about legacy.
So here is our challenge to you, if you are involved in running a business: become a PhilCo. Start by giving ten per cent of your shares to a charitable foundation. Create a mechanism that ties your company’s success to lasting social good.
Let’s create a new battalion of firms who are dedicated to this new form of ownership. We will do this one PhilCo at a time. By changing the DNA of individual businesses, we can change the DNA of capitalism itself. This can be the great shared endeavour of our time.
What we call karma capitalism will be a force for good. Karma capitalism is the way forward. Now is the time to become a PhilCo.
Yours sincerely,
James Reed CBE, Chairman and CEO of Reed and author of Karma Capitalism, published by Penguin on November 6.
Sir Alec Reed CBE, Founder at large of Reed
Sir Guy Weston, Chairman of Wittington Investments Limited
Chris Oglesby OBE, CEO of Bruntwood
Jane Oglesby, Chair of Trustees of The Oglesby Charitable Trust
Neil Davy, Chief Executive Officer of Family Business UK
Adrian Hensen, Co-founder & Managing Director of Purpose Foundation
Christian Kroll, CEO of Ecosia
Nico Moleman, Co-founder of Buurtzorgt
Adam Walsh, CEO of John Good Group
