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Motivate the Company by Rewarding the Investors

How do we combine ruminative incentives with moral ones? By measuring the way or amount that a company contributes to world benefit and tying this proportionally to the amount an investor is compensated in tax breaks.

Photo of Ian Wyosnick

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While searching through inspirations on tax incentives, I came across an interesting one in a previous challenge about the Brazilian law Rouanet.  This law "rewards those who invest in Brazilian cultural projects to get a tax exemption proportional to the incentive". How do we do this for those who invest in for-profit companies which do social good?

The idea would be to measure the way or amount that a company contributes to world benefit and tie this proportionally to the amount an investor is compensated in tax breaks. Non-profits such as B Lab/B Corp, or legislation such as the Social Purpose Corporation in Washington State, have developed guidelines on how to define a company which has incorporated social benefit into their mission statement. Expanding on this, criteria such as the percentage of overall profits contributed, number of man hours devoted, or the amount of innovation invested in world benefit could provide the measuring stick to establish a ranking system for such companies. An example ranking system is the LEED certification which awards Certified, Silver, Gold, or Platinum status to a building based on the level of adherence or innovation in the use of environmentally conscious processes or materials for various components of building construction and design. Accordingly, such a certification would be branded for a company to proudly display on their website or product, just as they do with LEED, USDA Organic, Rainforest Certified, etc. A special certification or prize could be awarded to the company deemed to have contributed the most to world benefit.

Depending on the level a company is awarded, a proportional tax exemption would be handed down to their investors, i.e. the better the company does, the better the tax break and thus the more investment. An example of how the rankings and tax exemptions could break down is as follows:

  • World Benefit Corporation (WBC) Gold: Awarded to those companies which have
    shown exceptional improvement and innovation in their programs and activities or have maintained an exceptionally high standard over a period of time. 50% tax exemption on investment.

 

  • WBC Silver: Awarded to those companies who have shown significant
    improvement or have maintained a high level over a period of time. 25% tax
    exemption on investment.

 

  • WBC Bronze: Awarded to companies which have achieved the threshold of
    compliance. 10% tax exemption on investment.

 

This would be a win-win situation for all involved. The promise of more investment would give a company monetary incentive along with moral incentive to become a "World Benefit Corporation". Those who invest gain the benefit of a tax exemption and the possibility of seeing their initial investment flourish with the company. And at the end of the day, competition between companies to gain or maintain a higher level of compliance than their competitors would help inspire and drive innovation towards world benefit.

Outstanding questions I still have about this are:

Should it be scaled by size of business? Larger companies could possibly be able to devote more time and resources than smaller ones.

Should it be categorized by type of industry? Certain industries will be better suited to innovate or provide more.

Which agency or governing body would award the levels of certification or determine the exact criteria?

How does your concept celebrate, identify or inspire for-profit businesses that act as agents of world benefit?

The independent ratings agency for this concept would identify the companies and provide the ratings. A Nobel Prize type award could be given to one company for their achievements in world benefit, or a few companies which are the industry leaders. The results of the work would be immediately tangible in the level of investment gained through this certification.

How will your concept help us create or leverage stories of world benefit that are sticky and shareable?

The idea of branding the level of certification with the logos (such as what is pictured above) could provide a pathway for companies to advertise their level of benefit. This could be done through a link on their company website or the ratings agency itself. If someone does not have the time to learn about exactly what the company does/did to be rated, it would be intrinsically implied that a company which has achieved WBC certification provides an exceptional standard of world benefit.

What will it take to scale your concept so that its reach is global and widespread?

Initially, the idea of tax exemptions will only be relevant on a country by country basis. Certainly, if the concept is successful in the United States or wherever it is implemented, it will become attractive to other countries to adopt. A more grandiose route could be through an international agreement which would set targets for countries to contribute to world benefit. This tax incentive framework could be a suggested mechanism, much like emissions trading was for the Kyoto Protocol.
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Ian,

First, I do believe success begets success. However, country barriers are enormous when it comes to economic systems. Second, the time frames involved would seem very log. Third, what would be in it for countries to be motivated? Fourth, opening up to this idea might also clear the way for us to see a solution to many global sustainability issues like ocean acidification or climate change, etc.

Interesting topical space.

Roger

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