Cheap Philanthropy
IKEA, the world’s largest furniture manufacturer, made a large donation today to help starving people in the Dadaab refugee camp in Kenya.
Well, that’s what international news outlets will report.
More accurately, the charity that owns IKEA made a large three-year grant to the UN refugee agency to help people in Dadaab.
Why is there a difference between these two statements? Because IKEA is an interesting creature: a big corporation owned by an even bigger charity. Imagine if someone donated a wildly profitable company to the Gates Foundation, and you have an idea of what IKEA looks like... except IKEA is bigger.
This leads to some peculiar choices elsewhere in IKEA’s business. For instance, IKEA usually rents its facilities from its charitable parent company, which tends to build large parking lots rather than multi-storied parking garages. Why? Presumably because these postcode-sized parking lots are tax-exempt, thanks to charitable status.
A fascinating 2006 article in The Economist first highlighted that the foundation that owns IKEA is one of the world’s wealthiest and, also, one of the world’s least generous. This touched off a fight among attorneys, legislators, and legal scholars like me about what IKEA really is. At the time of the article’s writing, 207 of the 235 IKEA stores were operated by Ingka Holding, which is owned by the Dutch-registered, tax-protected Ingka Foundation. The same article valued Ingka Holding at about 36 billion 2006 U.S. dollars (over forty billion today, even if IKEA hadn’t grown, which it has...). I’ve been wondering, as an author of a forthcoming book on philanthropy, when IKEA would finally make a charitable donation of any size. Well, it’s finally happened.
My take on IKEA goes something like this: if IKEA can be a charity, every corporation should be tax-exempt. Surely Apple’s attempts to bring industrial design to mobile telephones or Nike’s work comforting the feet of millions would be equally admirable? No doubt alleviating the pains felt by so many makes the pharmaceutical companies altruistic? And let’s not forget Monsanto, Cargill, and ADM, among others, who accomplish precisely the same task every day: feeding people. The difference is that these companies are not structured as IKEA is structured – these companies pay taxes.
Whether IKEA will be allowed to continue to avoid taxes in dozens of jurisdictions while moving cash to its founder in the form of “licensing fees” paid in the Dutch Caribbean playground of Curacao remains to be seen. The coming weeks will be a regulatory test of whether a single instance of helping starving people in Africa will be enough to shield one of the most cleverly-structured corporations on earth from criticism. It’s hard to come up with a better donation from a strategy standpoint: well-publicised, well-timed, well-chosen. Well played, Ingvar.
Yes, the famine situation in East Africa is terrible and a matter of public concern.
Yes, this sort of philanthropy is worthy of notice and praise.
Yes, this gift is of dramatic size, but particularly in the context of its IKEA’s tax-free and conspicuously miserly existence since 1982.
To learn more about how IKEA is structured, read the very good original Economist article [here].
