Compilation of Profit for Good Redteaming and Responses

By Brad West @ 2023-09-19T13:33 (+41)

TLDR: Document compiling redteaming on Profit for Good available, with public comments invited and appreciated. This thread further includes two argument headings against Profit for Good to be discussed in the comments.

          As one might suspect given that I have started a nonprofit to advance it, I believe Profit for Good, the philanthropic use of businesses with charities in vast majority shareholder position, is an immensely powerful tool. To get a sense of the scale of good that Profit for Good could do, see 14:22 of Cargill’s TED Talk for what 3.5T could do, which would be about 3.5 years of 10% of global net profits. Here is a good place to start regarding why we think it is promising and here is a longer reading list.

            However, throughout time, many people have brought up criticisms and red-teaming. It is important to realize that Profit for Good, especially in initial stages, would likely require the use of philanthropic funds for launching, acquiring, and accelerating businesses that counterfactually could be used to directly fund extremely impactful charities that we know can do good. For this reason, it is critical that all of the potential reasons that Profit for Good might not succeed, not be the best use of funds, and/or have unintended negative consequences be considered. For this reason, I am in the process of aggregating red-teaming from wherever I can find it, organizing such redteaming, according to argument heading, verbatim where possible, and doing the same for the responses to such red-teaming. I am in the process of forming my own syntheses of the criticisms and responses. I am also continuing to compile new arguments and formulations/evidence regarding former arguments.

            If you are interested in supplying new arguments under existing headings, your own syntheses of existing materials, or new argument headings, you may feel free to add a comment on the existing document or email me at brad@consumerpowerinitiative.org and I will integrate it verbatim into the document (please indicate if you would like such argument to be anonymous for any reason, or I will credit you with the contribution.

I will include in this piece the first two argument headings, and invite you to contribute to such arguments for or against in this thread (I will update the main document accordingly). I intend to do future posts evaluating later argument headings. These headings regard the criticism (1) that Profit for Good businesses will increase costs for consumers and (2) that Profit for Good businesses will be held to a higher standard than normal businesses in ways that critically impair their ability to compete. Entire Redteaming document also here.

1. Criticism: Profit for Good businesses will increase costs for consumers

Brad’s Criticism Summary: A frequent version of this “criticism” is in fact a confusion of the Profit for Good model with “bundling.” With “bundling”, a normal firm with normal shareholders would build in a charitable donation into a purchase, increasing the product’s price commensurately so as not to harm its shareholders. “Bundling” would increase consumer costs, however, it is not the Profit for Good model. The donation is not a “cost”, but rather a function of the identity of the shareholder that is entitled to profit. It is not clear why a charity as shareholder would be a higher cost than a normal investor as a shareholder.

There are versions of this criticism that are not products of confusion as to what Profit for Good is. One is that many businesses that are able to provide the lowest prices are multinational firms and those prices are possible due to billions of dollars of capital costs. Essentially, many kinds of products benefit from economies of scale and other advantages. Another version of this criticism would observe that informing consumers and other actors of a business’s status as a Profit for Good would entail advertising costs. 

Cited Arguments Supporting this Point of Criticism:

David_Reinstein Note that If the big companies are differentiated in some way (like 'monopolistic competition' suggests, there could be a substantial cost to consumers (and to efficiency) to choosing the 'charity supporting brand'

Brad’s Response Summary: Although many commercial contexts, especially involving multinational firms, require enormous capital expenditures and other significant barriers to price-competition, there are commercial contexts that would not require enormous capital expenditures, in which PFGs could be price competitive with more modest financial outlays. For instance, sales platforms- websites where brands can sell their products- or sales agencies – mediums where insurance products are sold, for instance- could offer means by which consumers could buy identical products at the same price, but generate profit to charities (that would otherwise be generated for the owners of other sales platforms or media). Because philanthropists and impact investors can choose which sectors to launch, acquire or fund existing PFGs, businesses for which the Profit for Good factor might offer the highest advantage while being competitive with reasonable capital costs. These businesses would be the “low hanging fruit” of Profit for Good: businesses with a large Charity Choice factor that can be competitive with lower capital costs.

These low-hanging fruit could function as proof of concept/compelling case studies, establishing empirical evidence for the proposition that there can be a significant advantage to a business being a Profit for Good business. As the empirical evidence for this proposition compounds, more philanthropists will feel justified in using Profit for Good as a means to multiply their philanthropic funding, enabling larger Profit for Good capital deployments and expanding the contexts in which PFGs can be cost-competitive. Finally, as the evidence for significant P-factors in widening contexts compounds, the pool of Profit for Good capital could further expand to bonds from impact investors, normal investors, or banks. Leverage (business expansion through debt) could enable Profit for Good expansion far beyond what would only be available through donated dollars.

Essentially, there isn’t a structural reason that Profit for Goods should be more expensive. If the proposition that there is generally (or at least in predictable contexts) a C-Factor, this fact is discoverable. As this proposition is more strongly empirically validated, more actors will be incentivized to provide capital for growth.

2. Criticism: Profit for Good businesses will be held to a double standard by consumers or other economic actors, hamstringing their ability to compete

Brad’s Criticism Summary: Often different kinds of actors are held to different standards depending on the category that they occupy. For instance, Dan Palotta’s TED Talk describes the double standards between how for-profit and nonprofit organizations are expected to operate, arguing that the “purity” that we expect of nonprofits, including minimization of overhead costs, prevents nonprofits from their growth potentials, and, ultimately, their ability to maximize impact.

This criticism anticipates that PFGs will be held to different standards than their normal company counterparts. This ability, the critic contends will impair PFGs from being able to be maximally competitive, because they will pay higher reputational costs for engaging in competitive business practices than their competitors. For example, one can imagine that, in a given technological context, the by-far cheapest method of producing a product could be more environmentally harmful than a more expensive alternative and, in this context, consumers were not willing to pay commensurately more for the improvement. 

Consequently, PFGs will be less competitive because, sometimes, the best options available in a given industry will either not be available to PFGs, because of prohibitive reputational costs, or be disproportionately costly to deploy. 

Cited Arguments Supporting this Point of Criticism:

Grayden "Won’t there be moral objections to activities that normal businesses use to compete, such as extreme executive compensation, environmental effect, low worker pay?" - This would be my main concern about the idea. While I agree that bad behavior is not the most effective business strategy, there are a lot of behaviors that I would consider sensible (e.g. paying a CEO 6-figures, making redundancies, putting prices up when there's lot of inflation) but that many people would consider wrong (particularly in Europe). People can be very funny about capitalism. For example, many people prefer to buy from small, local companies rather than national companies, even when those national companies are cheaper and operated very morally. I suspect most consumers would choose a friendly privately-owned company over a ruthless charity-owned company. Bill Gates was an incredible philanthropist but people didn't flock to use Microsoft for that reason. 

Vincent van der Holst I think consumers would actually oppose high CEO pay and other activities they deem immoral from Guiding Companies. There's many examples from NGO's that got berated for activities that would be normal for traditional companies, like high CEO pay, and I'm not convinced it would be different for guiding companies.

Vincent van der Holst People might object to market or above market rates for employees. There have been many cases where reputations of non-profits have been harmed because executives made 200K USD per year, which is far less than they would make in for-profit organisations. This might also be true for guided producers. 

Vincent van der Holst How do you balance maximizing profit for designated charities and making that profit in a moral and ethical way. Is it ok to make your money in ways that might harm people and the planet if you give the profits away? How and where do you draw the line? Do you pay your warehouse workers minimum wage (not enough to normally live of off in the US for example) so you can donate more to charities? Do you squeeze suppliers for more profits so you can donate where it's needed more? The morals and ethics of this need to be developed and there are many opinions.

Brad’s Response Summary: Firstly, it is not clear that even if there is a double standard effect, it is incapable of resolution, such that a negative effect is not suffered to a PFG business. One way of possible resolution is that bringing awareness of the practice and the alternative could generate increased demand for ethical substitute behavior, such that the pro-social business decision becomes more competitive than the anti-social one. Another possible resolution where the antisocial business practice is likely to remain the most competitive option would be campaigns indicating that PFGs are more ethical products if you are going to buy the product. After all, it makes sense that if you are going to contribute to some harm by purchasing a product from which some social harm resulted, it is still better that the profits help charities that solve significant world problems than benefit random investors. Another strategy could be incorporating charitable destinations of profit that address the implicated issues, potentially more cost-effectively than directly changing the offending behavior. For instance, it may be more cost effective for a company to donate the cost of switching to an environmentally friendly practice, in a given technological regime, to the Clean Air Task Force, than to incur the switching costs.

Secondly, the agents who are using Profit for Good – philanthropists, entrepreneurs, impact investors, etc.- have the ability to choose the sectors in which they enter. If there are industries in which effective competition would be significantly impaired unless a business engages in behavior that is, or is perceived to be, unethical, PFG agents can avoid creating PFGs in those sectors. One could object that the kinds of activities that enable competition on price on a global scale will require some sorts of unethical activities, but going back to the first point, it would be perverse to allow this feature, if true, to force charities that could promote justice, to yield the stage to traditional investors.

Cited Arguments Against this Point of Criticism:

Vincent van der Holst: My background is in marketing and this is one of my major concerns as well. People don't behave and buy rationally, and don't accept perfectly rational actions from companies who are "good". We're not sure how people will react to a billion dollar guided company who has a CEO who earns 10 million or that pays workers an unfair wage. But I do believe that if that company is open about why they operate the way they do, and they market the impact from their giving, this will still be an advantage. The company might pay its CEO 10 million, but it donated 1 billion this year to effective charities and that saved 100.000 lives. If you focus on the incredible impact that company has I think the overall value of marketing your charitable giving is positive, even if it is small. We know from Newman's Own that 6 figure pay and increasing prices with inflation are accepted by the general public, so I don't actually think those are issues. FYI I am from Europe.

Brad West  As for consumer response to different activities by companies, the beauty is that charitable investors and other actors will be able to direct their activity in the ways that make sense in response to research and thought This is why one of the functions of the Consume Power Initiative is research.

Brad West The question isn't whether consumers would oppose high CEO pay of a Guiding Company/Producer, but rather whether they would choose that company over a normal company that serves normal shareholders and also has high executive pay. If you're a consumer and you're choosing a normal company's product over a Guiding Company's product due to high executive pay, you're cutting off your nose to spite your face, because you are enriching shareholders instead of charities.

It may even be they Guiding Companies can compete better for executive talent because of the social cache of leading an organization that generates $100 million/year for effective charities. Sure, normal fortune 500 companies can offer 10 figure yearly compensation, but a major Guiding Company could not only pay well (perhaps not quite as exorbitantly) but also grant one tremendous social status and the psychological benefits of being able to do lots of good through your job.

Brad West Hmm it strikes me as rather crazy if there was a CEO of a Guiding Producer for like a an electronics company that made $20 mil/year and a CEO of a competitor normal Producer making $20 mil a year that this umbrage at the Guiding Producer’s CEO’s compensation would cause them to screw over the charity by going with the normal Producer and thus enrich the wealthy shareholders. I think in this conversation, the real villains, if any, would be the Normal Producers.

Brad West Very interesting issue… I guess if a Guiding Producer needed to adopt the practices in its sector to be competitive, you could argue that it is still better than the counterfactual normal producer in its place. Needs to be grappled with as Guided Consumption develops.

Response to Response (Supporting Criticism)

Vincent van der Holst I completely agree that it makes no rational sense for people to choose traditional companies over guided companies with all things being equal. But I've been in marketing long enough to know that people are highly irrational and emotional, and charities evoke a whole host of strong emotions. It will be really interesting to see how the public responds to guiding companies, but I know it won't be rational. The CEO of Newman's Own apparently made 270K USD each year, this question on quora about the CEO's pay is also interesting. Most people tend to think that 270K USD isn't too much.