The same business can be worth more under charitable ownership

1. What we want to prove

Our thesis is that when you take a business with certain characteristics, bring it into charitable ownership, keep the operations as consistent as possible with how they were before (‘business as usual’), profits increase because of stakeholder preference. We expect that consumers, suppliers, employees, and other stakeholders prefer to do business when the profits flow to good causes rather than private investors, as per conventional ownership.

Imagine: nothing else changes, only the ownership. The quality, price, logistics, and all other factors that might influence stakeholder selection remain the same as before.

Project COA exists to investigate whether the thesis holds when applied to real businesses, and to publish the results, whatever they show.

There is an important buffer against the potential downside of testing this thesis. Under Australian tax law, charitably-owned businesses can, in some cases, be exempt from paying company tax (corporation tax as it’s known in the UK, or corporate income tax in the US). Therefore, they can retain 33-43% more of their profits for charitable purposes than a comparable company paying the standard 25-30% tax rate.

That tax advantage is not the thesis we are testing. But the additional retained earnings can strengthen the business’s capacity to service acquisition debt and repay lenders, reducing the financial risk of testing the model. Once that debt is repaid, the same advantage can allow substantially more of the business’s profits to flow to charitable purposes.

2. How we think the advantage will work

When customers, employees, suppliers, media and other stakeholders know that a business’s profits flow to charity rather than private shareholders, that may change how they interact with the business. Customers may be more likely to buy from it, employees more likely to join and stay, suppliers more willing to offer favourable terms, and media more inclined to cover it.

None of these effects need be dramatic. Many businesses operate on thin margins, so modest improvements across several parts of the business can compound into a larger effect on profitability. Slightly stronger customer acquisition, lower employee turnover, better supplier terms and greater earned media could, together, create a meaningful commercial advantage.

Modern businesses routinely separate economic ownership from day-to-day management. Most listed shares are held through institutions and pooled investment vehicles whose beneficiaries do not run the underlying companies. Senior executives at large public companies typically own only a small proportion of the business, while in private equity, limited partners hold most of the economic rights without exercising operational control.

A converted business would retain professional management, market-based pay and incentives, and normal commercial discipline. What changes is the ultimate beneficiary of the residual value. Ownership still matters for governance and capital allocation, so those arrangements must be designed carefully. But effective managers do not need to hold most of the profit rights.

3. What’s missing

Existing research and several large-scale precedents – including Bosch, Patagonia, Humanitix and Newman’s Own – suggest that charitable ownership may create commercial advantages. But there hasn’t yet been a deliberate program of before-and-after conversions of ordinary businesses, designed from the outset to isolate and measure the effect of ownership change against pre-registered predictions. Project COA is building that program. We are actively looking for lenders to finance our first acquisition via our Australian entity.

4. What it means if we’re right

If charitable ownership can improve profit margins by even a few percentage points, it could make philanthropic capital more competitive in business acquisition, demonstrate a model that conventional ownership cannot fully replicate, and create a pathway for more business profit to support effective charities.

As set out above, Australia’s tax treatment buffers the downside: even if the stakeholder-preference effect proves weak or absent, the additional retained earnings still strengthen debt-service capacity and increase what flows to charity.

The combination of potentially significant upside, a measurable real-world test, and a structural buffer against risk is why we think the thesis is worth testing.

5. Evidence for stakeholder preference

Across field experiments, labour markets and institutional procurement, there is evidence that stakeholders respond positively to charitable ownership.

Consumers appear more likely to choose products linked to charitable or ethical outcomes when price and quality are comparable. In one widely cited eBay field experiment, charity-linked listings had an increase of 10 percentage points in the probability of sale, compared with identical non-charity listings from the same sellers (Elfenbein et al., 2012). Similar effects have been observed across adjacent ethical dimensions: Fair Trade labelling produced roughly 10% sales lifts at price parity in controlled field experiments (Hainmueller, Hiscox & Sequeira, 2015).

There is also evidence of comparable effects in labour markets. Employees have been found to accept measurable wage differentials for mission alignment (Burbano, 2016; Macpherson et al., 2024), while prosocial job framing can attract more productive applicants (Hedblom, Hickman & List, 2019). In procurement, corporate and government buyers have also been found to respond to suppliers’ social and sustainability credentials, with weak performance sometimes penalised more heavily than strong performance is rewarded (Zhan et al., 2021).

Similar patterns appear in corporate lending. Across 411 listed companies between 2003 and 2021, foundation-controlled firms had materially lower estimated default probabilities than matched firms (1.08% on average, compared with 1.69%) as well as higher credit ratings and less restrictive loan terms, including fewer covenants, less collateral and longer maturities (Buchanan & Kaya, 2024).

Taken together, this evidence suggests that stakeholders can change their behaviour when they believe a business creates meaningful social value. What it does not establish is whether charitable ownership produces the same effect in isolation, or how large that effect might be in an ordinary business.

6. Evidence from existing charitably owned businesses

A number of businesses indicate that charitable or foundation ownership is commercially viable.

Bosch is 94% foundation-owned and generates more than €90 billion in annual revenue. Newman’s Own has competed on mainstream grocery shelves for more than 40 years while donating more than $600 million. These businesses provide evidence that alternative ownership structures can be durable and commercially viable, although they do not isolate the effect of charitable ownership itself.

Humanitix is more directly relevant to the mechanism we want to test. It competes with incumbent ticketing platforms while directing 100% of its profits to charity, and its charitable model forms part of its appeal to event organisers.

Patagonia also provides suggestive evidence. Following its 2022 ownership transfer, purchase interest and job-seeker interest rose without any corresponding change to the company’s products or prices. However, Patagonia was already a highly distinctive activist brand with decades of existing goodwill, making it difficult to isolate the effect of the ownership change itself.

These examples suggest that charitable ownership can operate at scale and may influence stakeholder behaviour. But none constitutes a controlled, pre-registered before-and-after conversion of an ordinary business.

7. Uncertainties in the evidence

The existing evidence is promising, but it does not yet tell us how large the stakeholder-preference effect would be in an ordinary business, or how durable it would be over time.

The existing examples come with important confounding factors. Patagonia had decades of brand equity and environmental positioning before its ownership transfer. Bosch and Newman’s Own demonstrate durability and scale, but do not isolate the effect of ownership itself. Humanitix is highly relevant, but operates in a category where the charitable proposition is particularly visible to customers.

These limitations are why a deliberate program of ordinary-business conversions is needed: to test whether the effect generalises beyond exceptional brands and distinctive business models.