Time to establish Not For Profit Corporations in business sector.

The Global Financial Crisis gave us a clearer look at an ugly dimension of capitalism that we have endured for too long a time, and set many people thinking about an alternative to the selfish excesses that caused it.

Most agree that socialism is not an alternative. Indeed, its incompetence and oppression are in a category far worse that capitalism is ever likely to generate. The best option to replace both of them is the not for profit corporation which is traditionally used in the philanthropic sector, but is now proving to be effective in the business sector.

There are a number of concepts upon which such a company can be based, dependent on the laws of the nation in which it is established, but the one that I like best is that which envisages having members, not shareholders — with those members providing a basic capital requirement which they will lose if the company is unable to continue trading.

Members become personally responsible for guaranteeing all debts of the company, ie, they each pay their equal share in the event of a loan default. The banker or creditor just can’t get after those members who appear to be wealthy. This responsibility makes the members very careful about ensuring prudent financial behavior.

All employees become members and they are paid good salaries and responsible bonuses for achievement in the best possible working environment. When they leave, they are paid a mutually agreed severance package and their membership fee is returned at its base amount plus the appreciation of the currency during their term of employment. Their replacement becomes a member at that new figure.

Major emphasis is placed on the quality of work done and the service provided to customers, including the development of close working relationships with customers in meeting their needs. A significant feature is a regular and sizeable investment in research and development.

The emphasis of the company is not based on cost cutting or a mania about the bottom line or increasing returns to shareholders (there aren’t any).

All profits are reinvested in the company and in the quality of life of customers and staff.

The company cannot be taken over, it can only be wound up. In that event, the value that is realised, after repaying the capital contribution of members, is placed in a Charitable Trust which serves the community in a manner set-out in the Constitution.

If I could have my life all over again, I would base my career around such a company. I don’t know if there is one already existing in Australia outside of the field of philanthropy, but they are being pioneered in the United States.

A good example is a not for profit pharmaceutical company called the Institute for One World Health, which makes and sells medical products to the Third World in opposition to the big drug companies — and is outperforming them in a number of ways, particularly in making their drugs affordable. Bill Gates  gave them some startup capital. Now, several other not for profit companies have begun operations in the field of biotechnology, and none of them look like going broke.

There are taxation issues to be determined here in Australia, hopefully with these ground breaking companies being exempt from income tax but liable for the GST, but the overall lesson for us all is that the best values of humanity can prevail in the marketplace with financial rewards coming from excellence, service, innovation and community partnerships — something that companies with shareholders have never quite achieved under the pressure of highly competitive financial expectations.

In fact, with some innovation in planning the right corporate structure, a not for profit corporation could be the ideal vehicle for some special PPPs. Their role would make voters much more happy.

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This entry was posted in Business and Enterprise, Community and Values, Everald@Large Newsletter 2011, Funding and Finance. Bookmark the permalink.