Business Education

5 Reasons Why You Shouldn’t Aspire to be a Rich Philanthropist

“I worry about the world. I want to make six figures off my business and then donate to charities. Maybe I’ll even start a nonprofit.”

I’ve heard almost that exact phrase from many entrepreneurs. In fact, I’ve said it a few times myself. That is, until I realized something about this “wealth-to-donate plan.”

First, you have to understand that the wealth-to-donate plan traces back to Milton Friedman’s revolutionary and still largely influential assertion that the purpose of the firm is to generate wealth; then, the wealthy who benefit from the firms can distribute their wealth to others.

That’s a good plan, Milton — until it’s not.

For those dreaming of doling checks out to struggling nonprofits while relaxing in the cheetah-carpeted study of an Italian mansion, here are six reasons why that plan might backfire, and what we as entrepreneurs can do instead.

1. Some social problems can’t wait until you’ve made your millions.

Social issues like climate change, poor public health, unemployment, poverty, and crime are still growing. These issues might be irreparable in 20+ years. Take air pollution, for example: If we didn’t do anything about our filthy air quality for 20 years, the population might either already be widely bedridden with respiratory disease or already be dying anyway because of lowered life expectancy due to pollution. By then, it’s too late. A similar principle applies to social ills that attack certain subpopulations: a starving child can’t wait 20 years for their next meal; suburbs with high crime rates can’t wait 20 years for increased safety. Even small efforts in the right direction now can abate the darkness of a future in which our social problems are compounding upon themselves.

Try this instead:

Donate a percentage of your company’s profits now to causes you care about.

One business owner decided to donate 10% of his start-up’s revenue to charity forever. A commitment like this definitely has its drawbacks and unknowns, however, the possibility of alleviating a social ill now that could be irreparable in the future is priceless. Plus, being socially-conscious is a rising trend in businesses and a “must” in many circles. Your brand image could only improve.

If you’re still waiting for your company to be in the black, you might also consider donating a portion of your personal income. According to research, donors receive personal benefits like improved overall health, lowered stress levels, boosted morale, and improved overall life satisfaction and happiness.

Connect now with grass-roots efforts in your community.

Contact your city council, community leaders, and local non-profits for information on high-priority social causes in your neighborhood. Even minimal participation will help you engage with these urgent and local social issues on a grass-roots level and position you to be a knowledgeable. Social issues are complicated. Grass-roots level work will help you overcome biases and debunk misinformation that might exist in circles that are farther removed from the issue. Volunteering a few hours a week will enable you to stand in solidarity with others which will ultimately buoy them and transform you.

2. Some problems can’t be solved with money, so waiting until you can throw money at them won’t help.

Not to diminish the impact of a well-placed charity donation, but most social ills just can’t be solved by more money. Social impact for good often requires empathy, willingness, and grass-roots effort on someone’s part. And in its absence, no amount of money can substitute for human-to-human interaction: it is necessary/critical/of the utmost importance in solving deep-rooted, systemic social ills.

“Some of the most intractable problems we face as a society — addiction, homelessness, systemic poverty, mass incarceration and lack of access to health care, education and economic opportunity — are symptoms of other, more deeply rooted issues. “Solving” the root causes of these conditions requires more than capital. It requires empathy and a willingness to change the existing conditions that create the inevitability of many of these inequities.” — Carter Stuart, former federal prosecutor

Many impactful organizations don’t need more money; rather, they need more people. For example, The Other Side Academy, a residency vocational school in Salt Lake City Utah for the homeless and recently-incarcerated, is responsible for an impressive 98% rehabilitation rate. The residents learn practical life skills by running the school’s 3 businesses which in turn, completely cover the cost of their 2-year stay. TOSA’s biggest impediment in expanding all across the country isn’t lack of money; it’s lack of personnel. Their model relies exclusively on the influence of staff members who aren’t professionals or psychiatrists, but rehabilitated criminals themselves who were once in the same place as the residents. No amount of money could replace an influence like that.

Money can also worsen the social ill. Unfortunately, some well-meaning institutions and movements trade short-term solutions for long-term stability. Sometimes free handouts, welfare programs, and stipends foster dependance and victimhood instead of self-reliance. In these capacities, money does little to fix the psychological and systemic root of social ills, even though on the surface, such efforts might appear like progress.

For example, the solution to poverty doesn’t lie in poverty reduction with handouts or welfare checks, but rather wealth creation. Henry Hazlitt in his book called “The Conquest of Poverty” wrote that welfare programs often stunt wealth creation, as well as require exorbitant amounts of debt in the long run to keep such one-sided cash flow programs operating. The donation-debt cycle eventually results in inflation, causing a lopsided distribution of money in the economy, thereby hurting the poor even more.

On a smaller scale, passing off a $10 bill to the homeless on the street corner might make you feel charitable, but your extra cash likely contributes to a cycle of panhandling and illegal activity — the “business of begging” as a Utah news source put it. Many aren’t even homeless or as desperate as they portray. The benefits of making $200-$300/day on the streets outweigh the prospect of getting an honest job.

Try This Instead:

Donate to nonprofits that promote sustainability and self-reliance.

Vetting nonprofits and charities for scamming is an unfortunate necessity, but don’t stop there. Supporting organizations that promote self-reliance is what does long-lasting good in our societies. Here are some resources to do this: 3 Websites to Check before Giving to Charity.

If you’re in person, donate goods not money.

Seeing the homeless on the streets with their cardboard signs pulls at my heartstrings, and I don’t want to believe that they’re all scammers. Offering them food or paying directly for a bus ticket is a step forward in making sure we’re not enabling them. However, a donation to a shelter or a vocational school for the homeless could likely be better placed.

3. By focusing on social impact only after making money means that you might be contributing to the very problems you will eventually try to solve.

Walmart has destroyed how much of the environment, only to then try to repair the environment? Perhaps the environmental alarm clock wasn’t ringing as loud in the 60s when many of the business empires started. Perhaps they didn’t design their processes with the environment in mind. But if any of these massive corporations — Walmart, Target, Amazon, etc. — want to make a difference in the world, maybe they should just mitigate their traditional contributions to social ills.

It’s all fine and good if these corporations can in fact repair the damage they’ve done, but like discussed earlier, that might not be possible. Simply donating to charity doesn’t cut it if you’ve irreparably damaged the planet for everyone. Hope you’re listening, Milton — your plan that businesses only job is to maximize profit in the hopes that some of that profit might spill over later might not work in a global market with global ills.

Try this instead:

Create your business processes with social impact in mind from the beginning.

Perhaps if Walmart had used renewable energy sources back when they started, they wouldn’t be in the same trouble they’re in now. They might have been an asset in their communities not just with their product offerings, but in social good as well. As you’re designing your business, make it a habit now to integrate social impact into what you do everyday — your processes, your employee relations, your community. Social impact can happen THROUGH your business, not IN SPITE of your business.

4. You might fall out of touch with social problems when you’re wealthy.

Social and cultural barriers make it difficult to understand social problems at their roots. Top-down solutions come off intrusive, disconnected, and sometimes even damaging. Executives at the Other Side Academy, for example, complain that politicians don’t understand what their constituents need, and their campaigns land more people in the streets. Solutions are often only apparent from the ground level by someone who can see, feel, and understand the day-to-day situation of those involved. This was exemplified by a groundbreaking discovery about the poverty-to-prison pipeline: the issue wasn’t lack of educational opportunities or even lack of health care, children were near-sighted! Eyeglasses changed everything for some of those kids, and is not the kind of solution that would be dreamed up by an executive sitting in an office. The only way this worked was because people worked personally with those affected.If you wait until you’re wealthy, you’re choosing to hire other people to make a difference with your money, rather than being part of the solution yourself.

Likewise, unless you select a social ill that relates to your expertise, you’ll be entering a completely new industry to make a viable social change. Social ills are nuanced and complicated, built on generations of multifaceted issues. To make an active difference, you’ll have to understand the literature, catch up on the work already done, and network with professionals and organizations in the field. Such effort would be comparable to learning an entirely new language and culture. After 40 years of 60 hour work weeks, I wonder if such an effort would still be attractive.

Try this instead:

Volunteer time; not money.

Depending on your salary or earning potential, a few hours of time each week is a significant donation, especially compounded over time. Volunteering in person at an organization or on a cause will also give you an inside perspective to the effectiveness of the solutions presented. You might identify gaps that others might not see because of your unique experience and business background. Oftentimes, the sphere of social impact is dominated by individuals with a virtuous motivation, but perhaps lacking a business mindset. You could provide that perspective.

Start the habit now of collaborating with people outside your social status.

Find places where all members of the social ladder come together. Church groups are a good place for this. Community centers are another. Your very own business might be yet another. Do you employ people of a different demographic than you? What about your target market?

5. You’re squandering the impact you could have now with the great resource you already have — your business.

This is to say — Milton was wrong. We’re waking up to the fact that defaulting to personal donations won’t fix anything long-term. But this is good news. Profits and social impact don’t have to be mutually exclusive. This means that business isn’t the bad guy anymore.

People are waking up to business’s potential for social impact across the globe: [description of Oxford], [description of b-corp], [description of virtuous organization project].

Not only that, but millennials are increasingly anxious to be part of a business that has a social purpose. [expand]

Business has a tremendous social impact on employees, customers, and shareholders just by doing business. And they do it without third-party, non-profit partnership or unrelated charity initiatives. Their impact grows as their profit grows. Friedman would disagree with me, but I say it’s not only the rich philanthropists that have power to make social change.

Try this instead:

Combine your business’s social impact with its core competency, so social impact increases as profit increases.

Up to this point the narrative has been that for-profit businesses create the social problems, and then the non-profits and government bail us out. However, there is a new wind blowing. People are realizing that for-profit businesses have the power, if harnessed correctly, to be a greater engine for social change than any other force (don’t hate me, non-profits).

But it doesn’t stop there. Not only do for-profit businesses have the power to make the greatest social impact, but they can do without sacrificing their profits or productivity. The new way is to structure your business so that your social impact grows in proportion to your profits. The bigger your business, the bigger the good you do.

Patagonia is a business that’s started down this path. When selecting new factories for outsourcing, they take into account a vetting approach that considers social and environmental practices equally with quality standards and business requirements like financial stability, adequate capacity and fair pricing, as an alternative to relying on “sweatshops” where workers are treated in deplorable conditions. They’re contributing to the solution, not the problem, and the amazing thing? They don’t sacrifice their profits to do it. Take that, Milton.

Start with what you can change in your own business.

Jeff Bezos made a post on Facebook saying that he was going to donate $200,000 to charity and was asking for suggestions. People lashed back at him immediately saying he should just pay his workers a living wage.

Start with your own sphere of influence. What problems is your business solving already, and how can you capitalize on that? Here are some ideas:

  • Diversify where you hire people from. Always hire the best candidate for the job, but maybe instead of hiring your buddies from college, post your job at the local community college, vocational school, or an area with a different demographic than yours. You could find a great and qualified hire, but just not have access to the same advantages your buddies do.
  • Source your materials locally. Support other growing businesses instead of the giant corporations who may or may not treat their workers humanly.
  • Humanize your interactions with your employees. Treat them like people, not resources. Take time to hear their feedback about your workplace. You’d be surprised what they say.
  • Capitalize on the problem your offering is already trying to solve. Vivant, a home-security and surveillance system company, spreads the word that their systems can help families with autistic children. They raise awareness about autism, while providing a service that can help, while also growing their own company.

Final thoughts:

We can get all starry-eyed about the prospect of repairing social ills doing what you’re doing already with your business, but this isn’t to say it won’t require some sacrifice. For one thing, it requires a paradigm shift. We entrepreneurs must not only think about efficiency, but also think about social impact. We can’t only consider maximizing profits, but also maximizing social change. We can’t just think about offering a competitive product, but offering a solution to an ill greater than our business. We can’t just think about our target market, but we must think about our global community.

I and many others are convinced that the fate of this planet and perhaps the entire human race doesn’t lie solely in the hands of government programs, humanitarian trips, or 3rd-party non-profit arms of corporations: Our future lies in the ever-globalizing private industry. You want less unemployment and poverty? Foster entrepreneurship. You want a cleaner environment? Design your supply chain with renewable energy. You want to end racism? Diversify your recruiting. You want a better world for your posterity? Look no farther than your own business.

Milton Friedman was right: the firm’s social responsibility is to maximize its profits, but that’s only one half of the picture. He overlooked social impact.

A new mantra: The social responsibility of the firm is to maximize its profits while maximizing its social responsibility.

So for all you aspiring rich philanthropists out there… you don’t have to wait to do good until you purchase your own Lamborghini or hire a secretary for your secretary’s secretary. You’re sitting on a powerful engine of social change right now. For the sake of the global community, don’t wait to fire it up

WRITTEN BY Susie Hofheins

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