I’ve never loved the idea of an organization donating their profits. In practice, most organizations are just fine. But in theory, there is an incentive for the organization to overpay employees or rack up expenses. Since only profits go to charity, that means all the costs do not. So if I’m running such an organization I can give myself a fat bonus and just say we didn’t make any money this year. Instead, there are other organizations that simply donate a percentage of their sales. For example, the Clif Bar company donates at least 1% of their sales to environmental causes.

With this setup, there’s no reason to try and keep costs high. The donation is simply a variable cost that goes up and down with however sales are doing. The company instead must figure out a way to be profitable even with this extra expense.

I suppose the difference isn’t huge. And it’s great that any company or private organization would make such commitments. But I’m not the only one thinking about the different ways do-gooders can do good.

Read: Products for Charity (Freakonomics)

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categories: business