Thesis FAQ

The extra profit comes from stakeholder economics. When customers, employees, suppliers, and other stakeholders know that profits fund charity rather than private shareholders, they may prefer to support the business. The products, prices, management, and operating model remain the same. What changes are the inputs to the profit and loss statement: customer acquisition may become cheaper, hiring may become easier at competitive wages, staff turnover may fall, earned media may replace some paid marketing, and suppliers may offer better terms. The business operates in the same way, but under more favourable conditions.

In a low-margin business, modest changes can have a large effect on profit. Take a business with $10 million in net revenue and a 5% net margin, producing $500,000 in profit. If charitable ownership leads to a 5% increase in net revenue and a 3% reduction in operating costs, net revenue rises to $10.5 million, operating costs fall from $9.5 million to about $9.215 million, and profit rises to about $1.29 million. That is a 158% increase in profit from relatively modest changes in revenue and costs.

These figures are not forecasts. They simply show how operating leverage works in a low-margin business. Project COA is being built to measure the actual changes under controlled, well-documented conditions.

The first test market also offers a separate, jurisdiction-specific source of distributable cash through the Australian tax treatment described in the section below, ‘Why Australia?’ This makes the initial test less exposed to downside, but it is separate from the COA thesis. The thesis concerns stakeholder preference. The tax treatment provides some protection should there prove to be little or no stakeholder benefit.

The test is therefore focused on the stakeholder mechanism. If it works at anything close to the scale suggested by existing evidence on stakeholder preferences, it could change how philanthropic capital is deployed.

Not necessarily. Modern businesses routinely separate ownership from day-to-day management.

Public companies are the clearest example. They may be owned by millions of shareholders who take no part in operations. Professional managers run the business, while shareholders retain the right to profits. Ownership and operations are separate.

Equity compensation helps align management with business performance. A chief executive can hold a relatively small stake and still have a strong financial incentive to increase the company’s value. For example, 1% of a $10 billion company is worth $100 million. The remaining 99% can stay with shareholders who have no operational role.

Charitable ownership does not remove these incentives. A Profit for Good business can still offer management equity, performance bonuses, or employee profit-sharing. It can also divide profits between charity and employees. A structure that allocates 50% of profits to charity and 50% to employees is compatible with the model.

The same separation exists in private equity, family office acquisitions, employee ownership plans, search funds, and holding companies. Capital providers own most of the economic interest, while managers run the business and receive compensation linked to performance. Replacing a private investor with a charitable trust does not, by itself, change how the business operates.

There is one distinctive restriction. Any share of the business permanently committed to charity cannot also be granted to employees or sold to outside investors. This limits how much equity remains available for employee ownership or future fundraising. Within that limit, the business can still use standard management incentives, bonuses, and profit-sharing arrangements. Project COA’s financing structures are designed around this constraint.

It’s a different mechanism. The COA concerns ownership, whereas other methods of distributing profits to charity involve operational choices.

Bringing a business under charitable ownership changes who receives the residual profits, not how the business operates. The products, prices, supply chain, management, and commercial strategy can remain the same. The business competes on the same fundamentals as any other company, while potentially gaining an additional advantage from stakeholder preference.

B Corps, social enterprises, and ethical businesses usually create impact through operational choices. They may use more sustainable materials, pay higher wages, offer better benefits, donate part of their revenue, or invest in local communities. These choices can create substantial social value, but they may also involve higher costs, lower margins, slower growth, or higher prices.

Charitable ownership is separate from these operational choices. A B Corp or social enterprise could also be a charitably owned business. The models can be combined.

The Charitable Ownership Advantage thesis concerns a distinct and largely untested mechanism: whether changing who receives the profits can improve business performance without requiring operational changes.

Several factors may explain why.

First, skepticism is often directed at the wrong part of the model. Most ethical businesses create impact through operational changes such as sustainable sourcing, higher wages, premium benefits, or charitable donations. These choices can increase costs or reduce margins.

The Charitable Ownership Advantage thesis is different in a way that may not land intuitively. It changes who receives the profits, not how the business operates. Stakeholder preference may still create a commercial advantage, without requiring the business to absorb the same operational tradeoffs.

Second, foundations have focused most of their innovation on grantmaking. Their investment portfolios are usually managed conventionally, with the aim of preserving and growing the endowment. The idea that the investment itself could also serve a philanthropic purpose has received far less attention. Program-related investments are a partial exception, but they remain small relative to total foundation assets and often accept below-market returns.

Third, charity-owned businesses do not fit neatly into existing funding categories. The category has no widely used name, standard structure, certification system, or established financing market. Indeed, should our initial acquisition go well, we would seek to establish the COA as a recognised funding avenue that can produce meaningful upside for charities in the right circumstances.

Existing examples such as Bosch, Newman’s Own, Patagonia, and Humanitix were also created for different reasons. They were not designed as controlled tests of whether charitable ownership improves commercial performance. This test is our explicit aim.

The Charitable Ownership Advantage has not previously been developed as a clear, testable thesis. Relevant evidence exists across consumer behaviour, employee motivation, procurement, and brand trust, but these findings have not been brought together into a single claim about the performance of charity-owned businesses.

A skeptic might argue that investors have already examined the idea and rejected it. We have found little evidence of that. The category lacks the research, financing infrastructure, and repeated institutional experimentation that would normally follow serious investigation. It appears more likely to have been overlooked than tested and disproved.

That does not mean the economics are certain. Acquisition premiums, governance costs, and operating risks could outweigh any benefit from stakeholder preference. Project COA is designed to measure the net effect directly.
The opportunity has existed for decades, but the experiment has not been run systematically. Our purpose is to run it and publish the results.

There is substantial evidence that stakeholder preferences affect real behaviour across several groups. The full evidence base is compiled in our [research synthesis].

For consumers, an eBay field experiment found that charity-linked listings were about seven percentage points more likely to sell than otherwise identical listings from the same sellers (Elfenbein et al., 2012). A separate field experiment found that Fair Trade labels increased sales by around 10% when prices remained the same (Hainmueller, Hiscox and Sequeira, 2015).

The evidence is also strong in labour markets. Workers on an online labour platform submitted lower wage bids for employers associated with a social purpose (Burbano, 2016). Longitudinal data covering more than 42,000 US workers found a sustained wage differential of 4% to 7% associated with mission alignment (Macpherson et al., 2024). In another field experiment, job advertisements that highlighted corporate social responsibility attracted 25% more applicants, and those applicants were more productive once hired (Hedblom, Hickman and List, 2019).

In procurement, controlled experiments involving about 850 professionals found that buyers preferred more sustainable suppliers when commercial terms were otherwise comparable. Poor sustainability performance was penalised more heavily than strong performance was rewarded (Zhan et al., 2021).

There is also relevant evidence from credit markets. A study of 411 listed companies found that foundation-controlled firms had an estimated default probability about 36% lower than comparable firms and received slightly better syndicated loan pricing (Buchanan and Kaya, 2024). This suggests that mission-locked ownership may reduce some of the governance risks that lenders price into credit.

Survey findings point in the same direction across stakeholder groups and countries. Taken together, the evidence shows that these preferences are real, appear across several markets, and can influence observable behaviour.

For each acquisition, Project COA will publish its predicted effects and measurement methods in advance, then compare those predictions with the results.

One unsuccessful acquisition would not settle the question. The outcome could be affected by poor communication, limited public awareness, sector fit, timing, or weak implementation. But repeated failures across several well-executed acquisitions would count as strong evidence against the thesis, particularly if stakeholders understood the ownership model and the expected effects still did not appear.

The thesis would be weakened or falsified if the predicted effects repeatedly failed to appear, were too small to matter financially, faded quickly, or were outweighed by the costs of the model.

Australia offers a potentially valuable tax structure for the first test.

Under Division 50 of the Income Tax Assessment Act 1997, an eligible charity can be exempt from income tax. To qualify, the entity operating the business must be registered as a charity with the Australian Charities and Not-for-profits Commission and endorsed by the Australian Taxation Office as income tax exempt. Charity ownership alone is not sufficient.

An eligible charity can conduct commercial activities where those activities advance its charitable purposes. If the operating business qualifies for the exemption, it can retain profit that would otherwise be subject to the Australian company tax rate.

At a company tax rate of 25%, retaining the tax that would otherwise be paid produces about 33% more after-tax profit. At a 30% rate, it produces about 43% more. This advantage arises from the tax structure, not from stakeholder preference.

That makes Australia an attractive place to test the thesis. Even if charitable ownership does not improve customer, employee, supplier, or lender behaviour, the tax treatment may still increase the amount available for charitable use. Any additional performance associated with stakeholder preference can then be assessed separately from the tax benefit.

The precise structure and eligibility of each acquisition will require specialist Australian tax and charity law advice. Other countries may also offer favourable treatment, but Australia provides a strong starting point.

The downside is limited, and the cost of testing the thesis is small relative to the amount of philanthropic capital that could ultimately use the model.

Trillions of dollars are held in foundation endowments, donor-advised funds, and investing-to-give portfolios. Most of this capital remains in conventional investments until the returns are eventually donated. Testing the Charitable Ownership Advantage would require only a tiny fraction of that pool.

If the thesis is supported, philanthropic investors would gain a new way to deploy capital. Rather than investing conventionally and donating the returns later, they could own businesses that generate profits directly for charity. Once the model had a credible track record, commercial lenders could also help finance acquisitions, allowing philanthropic capital to support a larger portfolio of businesses.

If the thesis is not supported, the foundation would still own an operating business whose profits fund charity. In Australia, an eligible structure may also retain income that would otherwise be paid in company tax. The investment could therefore remain financially valuable even without any additional benefit from stakeholder preference.

Lenders would still face the ordinary risks associated with financing an acquisition. However, tax savings and the underlying cash flow of the business could provide additional debt-service capacity, while senior secured lenders would be paid before profits were distributed to charity.

The result would therefore still be useful. Either the tests establish a new model for deploying philanthropic capital, or they show that the stakeholder effect is too weak to justify wider adoption. The amount required to answer that question is small relative to the capital that could act on the result.

Most philanthropic capital is not donated immediately. It is held in foundation endowments, donor-advised funds, and other investment portfolios, where it earns returns that can be donated over time.

The conventional approach is to invest in assets such as public equities, property, or private equity, then use the financial returns to fund charitable work. This approach offers diversification, liquidity, and access to mature investment markets. Any alternative should be judged against those benefits, not against holding cash or making no investment at all.

COA proposes a different use of the same capital. Instead of owning conventional assets and later donating the returns, philanthropic capital acquires profitable businesses whose distributions flow directly to charity. The commercial value of the business is preserved in the asset, while the profits generated during ownership support charitable work.

The case for COA is not that charitable ownership removes investment risk or guarantees higher returns. It is that charitable ownership may create a source of value that conventional investors cannot capture. If customers, employees, suppliers, or other stakeholders prefer a business because its profits fund charity, that preference can improve its financial performance. A conventional investor cannot reproduce the same advantage while continuing to receive the residual profits.

This means the relevant comparison is between risk-adjusted returns after all costs. COA must outperform, or provide enough additional charitable value to justify, the acquisition premium, concentration risk, lower liquidity, governance requirements, and operating costs involved. It should not replace diversified investing by default. It should be used where the expected stakeholder advantage and the underlying quality of the business make the trade worthwhile.

For lenders, the comparison is with other forms of impact debt. A COA acquisition is backed by the cash flows of an operating business, with debt repaid before profits are distributed to charity. In Australia, a qualifying structure may also benefit from income tax exemption under Division 50, increasing the cash available for debt service and charitable distributions. That tax treatment strengthens the first transactions, but it is not the basis of the wider thesis.

If the stakeholder effect is real and large enough, COA gives philanthropic investors access to returns that are available only under charitable ownership. The same capital can then generate financial value and fund charity throughout the holding period, rather than producing conventional returns that are donated later.

For example, suppose a foundation has $10 million to invest. Under a conventional investing-to-give strategy, it earns a 7% annual return, producing $700,000 before fees and taxes. That return can then be donated.

Under a COA strategy, the same $10 million is used to acquire a profitable business. Suppose the business produces $700,000 a year in distributable profit before any benefit from charitable ownership. At that point, the two strategies generate the same annual amount for charity.

If charitable ownership then improves revenue, recruitment, retention, supplier terms, or other costs enough to increase distributable profit by 20%, the business generates $840,000 a year for charity instead of $700,000. The additional $140,000 comes from an advantage that a conventional investor cannot capture, because it depends on the profits being committed to charity.

This is only an illustrative comparison. A real assessment would also account for acquisition costs, debt, liquidity, diversification, governance, and the risk that the stakeholder effect is smaller than expected.

The strongest candidates are established, profitable businesses with stable cash flows and no need for major operational change. The model is ideal where the business can continue to be run by its existing management team, using the same commercial strategy.

Stakeholder visibility is also an important part of the COA method. Customers, employees, suppliers, or other partners need to understand that the profits fund charity. Businesses with a recognisable brand, direct customer relationships, competitive labour markets, or meaningful supplier choice are therefore more likely to benefit than businesses whose ownership is invisible to the people they deal with.

The underlying economics must be sound before any ownership advantage is considered. A weak business does not become attractive simply because it is owned by a charity. Suitable companies should have durable demand, defensible margins, manageable capital requirements, and enough cash flow to support debt repayments, reinvestment, and charitable distributions.

The business should also be capable of operating under long-term ownership.

Companies that depend on frequent equity raises, rapid exits, or highly concentrated founder control may be harder to fit within the model. Businesses with straightforward governance, limited regulatory complexity, and a clear path for management succession are generally better suited.

Charitable ownership is therefore not intended for every company. It is most promising where a good business already exists, ownership can change without disrupting operations, and the charitable purpose is visible enough to influence stakeholder behaviour.