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18th March 2021

 

The Foundation-Owned Companies Model: UK vs Abroad

 

What is the foundation-owned company model?

 

There are a number of very successful companies around the world that are owned by foundations. Examples include Carlsberg, Heineken, Ikea, and Rolex. Sometimes known as an ‘Industrial Foundation’ or ‘Nordic foundation’, these foundation-owned companies are non-profit institutions which typically combine business ownership and philanthropy. They are tax-exempt or charitable foundations that own/control a business and therefore have a company purpose—the preservation and development of the business. It can serve to either protect the value of an existing company or to be a practical way for a foundation to fulfil its philanthropic mission.

 

The foundation-owned-companies model is less prevalent in the UK, in comparison to elsewhere in Europe. It is particularly widespread in countries such as Denmark, Switzerland, and Germany. Often, owners of successful companies decide to donate their shares to a foundation and there are several benefits to this which include:

  • Protecting family values;
  • Protecting the company from a hostile takeover;
  • A way of maintaining the wealth in the origin country;
  • To ensure the company has a long-term owner so that the corporation itself can foster a long-term strategy;
  • As an alternative to selling the company or having heirs succeed;
  • Or even as a more extreme example of corporate philanthropy (See our previous blog post: The benefits of corporate philanthropy in the UK)

 

The tax incentives of donating a corporation to a foundation range depending on the country. These incentives are often motivated by a desire to keep capital within the national borders.

 

Foundations which own corporations often have a distinct governance model when compared to a traditional grant-giving foundation- the board tends to be diversified to cover the range of responsibilities they must uphold. Crucially, this model means that the foundation has a duty to ensure that the strategy of the company is in line with its statutes. This means that the company is obligated to act according to the same values.

 

In Germany, over 50% of the stock market value is made up of companies in which foundations are the majority shareholders. They make up 20% of charitable gifts every year and 10% of the national wealth. In parts of mainland Europe, the idea of a foundation-owned company is not merely an option, it is an integral part of economic structuring. Large corporations aren’t the only entities that can benefit from this model, even start-ups are owned by foundations. In Denmark, often the work of the shareholder foundations is linked to the corporation it owns. For example, the foundation may take part in research that is linked to the business. This is not the case, however, for Carlsberg, one of Denmark’s more famous corporations owned by a foundation which own a number of prestigious museums as part of its philanthropic work. This application of the foundation-owned model is very flexible and varied- often referred to as a ‘hybrid’ model.

 

In the UK, we have a movement of social enterprises and B-Corps, where the mission is locked into the business model. This provides a positive effect on the governance and impact of corporations, similar to being owned by a foundation. There is equally a long tradition of charities setting up businesses, trading subsidiaries, or entering into joint ventures. However, the UK simply doesn’t have the same prevalence of the shareholder foundation model. This could be influenced by the differences in the UK trust system, when compared to the continent. Equally, the tax incentives offered by the UK may be less attractive than other countries. However, we still do have foundation-owned corporations in the UK, including Cadbury’s, Rowntree’s, Boot’s, and Beecham’s, all companies that originated from religious ideologies. Similarly, the Scott Trust is a foundation which owns The Guardian newspaper. Perhaps one of the contributing factors to this lack of uptake is the lack of awareness amongst corporation owners of this option.

 

Prism attended a webinar, run by Philanthropy Impact: “Foundation Owned Companies”. This event was chaired by Rosamund McCarthy Etherington, Partner of the Charity & Social Enterprise Department at Bates Wells LLP. The speakers were Delphine Bottge, an Academic Fellow at the Centre for Philanthropy – University of Geneva, and Virginie Seghers, Co-founder and President of Prophil. For further insight into the foundation owned companies’ model, you can watch the webinar at https://youtu.be/6w2WtNglKlg . There is also a relevant article in the latest issue of Philanthropy Impact’s magazine, see page 12 of https://www.philanthropy-impact.org/sites/default/files/pdf/philanthropy-impact-magazine-issue-24-p4_0.pdf .

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