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Capitalism is built on the profit motive. So charities are not obviously appropriate owners for businesses. But foundations, which typically have dual social and commercial goals, can be successful stewards.
Denmark’s weight loss drugmaker Novo Nordisk is the best known example. Support from a foundation holding 77 per cent of its voting rights allowed it to invest in the then-unfashionable area of obesity research in the 1990s. It is now Europe’s most valuable company, having made its owner the world’s biggest charitable foundation.
Foundation-owned firms’ financial results are comparable to those of their other corporate peers, according to research by Steen Thomsen of the Center for Corporate Governance at Copenhagen Business School. They are particularly prevalent in Denmark — think Maersk and Carlsberg. Elsewhere, examples include Sweden’s Wallenberg empire, India’s Tata conglomerate, the UK’s Associated British Foods, Switzerland’s Rolex and California’s Patagonia. The latter — created in 2022 — is a rare US example, as unfavourable 1969 tax rules were only lifted in 2018.
As well as philanthropy, the appeal of setting up foundations include protection against takeovers and a defence against family squabbles. Tax planning is a powerful incentive. That might explain the recent decline in the role of foundations in Sweden which abolished inheritance tax two decades ago.
There are disadvantages too. Charters can be inflexible. US confectioner Hershey’s strict mandate makes it hard to spend its huge fortune. Conversely, the need for steady dividends to fund social projects can pile pressure on to foundation-owned businesses. That contributed to the weakness of Italian banks — then part-owned by foundations — when the financial crisis hit. Foundations can also suffer from an overly concentrated portfolio. Some of the most prominent, like the UK’s Wellcome Trust, have divested and diversified.
Ownership by a non-profit can constrain expansion. Rewriting charters can be contentious — spectacularly so in the case of OpenAI. It stands accused by Elon Musk of a breach that endangers humanity by prioritising profit over safety.
More often, charters are revised so that the foundation keeps control while the company raises extra capital through non-voting shares. Carlsberg, for example, doubled its share capital in 2007 in this way to fund its international expansion.
The foundations’ disproportionate voting power can be a source of friction. A campaign by proxy adviser Institutional Shareholder Services against unequal voting rights infuriated Sweden’s Jacob Wallenberg.
Corporate governance mavens have other reasons to gripe. Foundation boards are powerful and largely insulated from criticism. There are few checks and balances. Despite this, foundation-owned businesses generally put in a respectable — and sometimes exceptional — performance. That demonstrates the advantages of patient, committed ownership.
