Entries in foundation (2)


Bureaucracy (and worse) vs entrepreneurship in fighting poverty

The trailer for the documentary Poverty Inc. challenges the traditional charity/aid approach to fighting poverty, and starkly suggests that--while intentions may be good--the donor-driven approach will never bring about real change. 

At what point do aid efforts become so entrenched that they effectively compete against real business development? And how can real, sustainable economic growth be cultivated?  These are important questions to ask. As one interviewee in the film states,

I know about countries that developed on trade and innovation and business. I don't know of any that got so much aid they suddenly became a first world country."

We are focused on developing mutual solutions based on real business models, and are interested in your point of take on the issues raised here.


POVERTY, INC. | Official Trailer from POVERTY, INC. | The Movie on Vimeo.


-- Clara Shen


Foundations as majority owners -- impact on performance 

When businesses are owned by charitable foundations, how does this affect corporate performance?

Starting with the statement that conventional economic theories predict such companies should be highly inefficient, Steen Thomsen from the Copenhagen Business School and Henry Hansmann from Yale Law School assess the relative performance of foundation-owned businesses vs. investor owned ones in this paper.

The model has some degree of viability, as charitable foundations are majority owners of a number of leading global companies, including the Tata Group, Robert Bosch, and Bertelsmann. Since their framework provides the boards of such companies an immunity to outside discipline, while removing compensation incentives, one might expect such companies to underperform their investor-owned peers. Yet earlier studies have found that foundation-owned businesses seem to perform as well as more conventional investor-owned companies.

Thomsen and Hansmann's research findings provide an additional level of insight to these findings:

We find that, overall, foundation-owned companies have similar accounting profitability, take less risk, and grow more slowly than listed investor-owned companies."

Overall then, the their analysis suggests that foundation-owned companies do not underperform -- and may even overperform -- their investor-owned peers in some areas (though more work is needed to bolster the later). The authors note two possible interpretations for the results:

  1. All ownership structures have inherent disadvantages; and
  2. The long-term outlook of foundation ownership provides compensating advantages.

These investigations are interesting, and can inform our own efforts to understand different business models and innovations.

-- Bruno Roche