The 4th Stakeholder Framework

Article 6

Diverting revenue, profits, or resources towards a social cause

1-2 minute read

CAPSULE SUMMARY – Redirecting a percentage of revenue, profits, or a fraction of your human capital to an important cause is simple, effective, easy to understand, and scalable. But you must still consider your broader impact footprint.

6.1   The third and final lever to pull is in some ways the easiest. It’s simply a commitment to redirect revenues, profits, or company resources to some social cause or set of causes. It typically takes the form of X% of our revenue, X% of our profit, or X% of our employees’ time will be set aside to help contribute to cause Y.

6.2  Although all three percentage allocation models have been embraced by different companies, the percent of profit model currently dominates given its simplicity--with a typical profit allocation of between .5% to 3% of profits being redirected to a focused cause. Many of the largest enterprises in the world have joined in on this model, and their contributions can be significant in absolute terms (hundreds of millions of dollars per year for some of the largest corporations like Google, Wells Fargo, Goldman Sachs, and Salesforce).

6.3  On the positive side, the percent of profit model has some solid scaling characteristics. It grows linearly with overall business profit, which can be driven by either more revenue or greater profitability per unit of revenue. And it’s straightforward to measure and allocate.

6.4   Unfortunately, its overall impact generally pales in comparison to tuning your business engine to create some societal benefit. A de-facto purpose-driven business is effectively pushing with 100% of its economic weight against its social cause, and attachment impact models can easily generate high double-digit percentages of impact relative to a company’s revenue. But because profit margins typically range from negative to 30% for most companies, a percent of profit model typically nets down to far less than 1% of a company’s ‘economic engine’ being tuned towards impact.

6.5   When assessing your company’s positive societal impact, you need to therefore consider not just the raw dollars you are spending but the downstream impact of those dollars. Put simply, if a company could donate $1M via a profit allocation model to a non-profit, and that non-profit can demonstrate with a high probability that the $1M will create ~$5M in societal benefit, then that $5M mark becomes the comparison bogey. The company should then continually consider whether that same $1M could be applied to morphing its business model or creating an attachment benefit that could create greater than $5M in positive social impact.

6.6   To summarize, definitely consider revenue, profit, or resource allocations for philanthropy as a great starting point, but just that. Continually push your organizational thinking higher up the slope of impact (especially as your business scale increases) to try to find the greatest amplification levers for your capital.

END OF PART 1