How to more effectively combine a company’s social impact and performance and promote synergies between economic efficiency and the common good? This is the area of expertise of Prophil, a strategy consulting firm that works on the convergence of economic and philanthropic models. In a first European study, it reveals the interest of a model that is widespread in Scandinavian countries, but still little known in France: the shareholder foundation. An interview with Virginie Seghers, CEO of Prophil.

Photo: Arne Hoel / World Bank
Photo: Arne Hoel / World Bank

What is a shareholder foundation?

 It is not a foundation on the periphery of the company, as we are used to in France, but a governance model where the company itself belongs to the foundation. The latter guides its strategy and investments. It supports causes in the general interest thanks to the dividends it receives.

In France, this has been permitted by law for ten years, subject to certain restrictions, but apart from the Pierre Fabre pharmaceutical laboratories, which belong to a foundation, this virtuous model is totally unknown for two main types of reason. Firstly, French culture tends to separate charitable giving and investment. It leads us to believe that a foundation cannot manage a company, which is absurd. Bosch, Carlsberg, Rolex, NovoNordisk and Playmobil are among the companies that belong to foundations. Technical reasons related to inheritance law also restrict the possibility of creating large foundations. If an entrepreneur wants to transfer his company to a foundation, he strips himself of his assets. He can only do so with the agreement of all the right-holders.

Prophil has just published the first European study on shareholder foundations with the law firm Delsol Avocats, ESSEC’s Philanthropy Chair and the firm Mazars. The interest shown in this study leads us to believe that a number of family businesses could be interested in this model, which combines capitalism and altruism.

 

What are the advantages of this model?

Firstly, a company owned by a foundation cannot be taken over, as the foundation does not belong to anyone! This is strong protection, in addition to the guarantee of maintaining the company in the home country. In Denmark, 54% of market capitalization comes from companies that belong to foundations: so it is not simply anecdotal! This small country with 5 million inhabitants has managed to keep several of its flagship industries thanks to the status of shareholder foundation.

Furthermore, a foundation is by nature for the long term. This is a major issue in the context of the transfer of family businesses.

Finally, the shareholder foundation conducts missions in the general interest thanks to the dividends it receives. This makes it possible to complete or compensate for the reduction in public funds allocated to cultural or social causes.

When a company has a foundation alongside its activities, the amounts allocated to it remain marginal. When the company’s dividends go directly to the foundation, which is a shareholder, the resources are, of course, multiplied.

 

Is the creation of these foundations related to tax benefits?

There is a very advantageous taxation for foundations, as they are exempt from most taxes (transfer/inheritance/corporate taxes) and it offers tax benefits (income/wealth/corporate taxes) under the patronage. But we should not forget that founders who transfer their company to a foundation strip themselves of their assets and give up the proceeds from the sale of their company: there is consequently a major philanthropic gesture beforehand, certainly combined with tax benefits, but which cannot be the main motivation.

 

To what extent could shareholder foundations contribute more to financing development projects, particularly in Southern countries?

It all depends on the foundation’s social purpose and also whether or not it is a shareholder of the company. In Denmark, Novonordisk earmarks over EUR 120m every year for scientific and medical research. In France, the company Pierre Fabre helps people in poor countries gain access to drugs. The foundation supports training for doctors and access programs for drugs in Asia and Africa. It also involves many of Pierre Fabre’s employees, who go on missions to sites in 17 countries.

 

Can we devise mechanisms to encourage them?

No, they must first and foremost want to do it. Unless we devise more attractive tax provisions, but the debate immediately becomes very technical.

The Ministry of Foreign Affairs prepated a report led by Annick Girardin, former Secretary of State for Cooperation, entitled “Innovating together, a Support Strategy for New Inclusive Models of the Economy on the international stage”. It involves promoting the development of all social economy initiatives abroad. We have answered technical and legal questions to assist in this.

 

Do you help your clients to find partners in developing countries?

We never do fundraising for project initiators, but we do sometimes identify the partners the most in tune with the expectations of the companies we support, in their areas of operation in France and at international level.

Our clients are companies and entrepreneurs who are seeking a synergy between their economic activity and their social impact, through charity giving and/or investment. From family SMEs to large international listed companies, we assist business leaders in their strategies for overall performance (economic, social, environmental). We also help companies move towards shareholder foundations, which offer a virtuous form of philanthropic governance.

 

Is French philanthropy not a bit “old-fashioned”?

No, we cannot generalize about such a vast subject. Some foundations are very innovative. The Club Méditerranée Foundation was one of the first to set up a fund dedicated to the generosity of its clients. The fund, Les Amis de la Fondation, cofinances projects on the outskirts of holiday villages in the child and education fields. The foundation was already a pioneer in involving its employees and it also gets the clients of Club Méditerranée involved.

In recent years, we have experienced a real boom in philanthropy and new forms of generosity. The Essilor Foundation is committed to providing access to vision care in developing countries and works on very inexpensive lenses. The Schneider Electric Foundation supports training for electricians in developing countries, in line with its sustainable development policy, which aims to provide poor people with access to electricity with solutions devised by Schneider engineers. There are customized financing and distribution methods for products, and at very low costs with, for example, a stand-alone lamp which is recharged with solar power and can recharge your telephone.

By definition, philanthropy remains an area of freedom, where everyone gives depending on their motivations, their personality, and with no value judgments. “Charitable works” and “impact investing” are obviously worlds apart, but there is room for everyone. We consider that for companies, philanthropy is all the more sustainable and effective because it is in tune with their strategy, because it supports it, and can serve as a laboratory for social innovation. A case in point is Essilor, whose foundation is fully integrated into the company’s strategy: it goes on markets where the company cannot go, by finding the means to reach people in rural areas.

 

What are the main barriers to philanthropy in France?

The main barrier is cultural: most business leaders have not been sensitized to either the role of philanthropy or foundations and know nothing about the economy of charity giving. The vision of foundations is somewhat outdated and on the periphery of the activity of companies.

Yet philanthropy is a long-term investment. It cannot be reduced to either a good deed or a simple communication tool. The culture of philanthropy is making headway, but there is still a long way to go.

 

 

The opinions expressed on this blog are those of the authors and do not necessarily reflect the official position of their institutions or of AFD.

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