Adv. Dov Kivlovitch
Integrating Social-Public Responsibility as Part of the Modern Corporate Strategy
In today’s era, leading companies in Israel and around the world have already internalized that business oriented entities can no longer focus solely on generating profits for shareholders.
Customers, investors, employees, and regulators expect any corporation seeking local or international recognition to act according to values of ethics, sustainability, and social responsibility (ESG – Environmental, Social, and Governance).
Accordingly, Israel’s large companies, especially international ones, are investing significant resources in social-environmental branding, understanding that corporate governance has become critical for valuable and positive positioning. It is now a measurable criterion by which financial investors assess the company – both to gain distinction in the competitive environment in which it operates, and in light of Israel’s unique security-economic-social situation following October 7, 2023.
Corporate Responsibility Is Also Relevant for Small and Medium Businesses
While in recent years the change has been led by public companies included in the “Maala” ESG rating or companies oriented toward foreign markets, the logic behind this trend applies equally to small and medium businesses, each according to its nature and needs, particularly within the local communities in which they operate.
Numerous studies show that cooperation or strategic initiatives by a business toward public goals aligned with its core identity and operations increase its value, enhance its performance, and grant long-term competitive advantages.
Is Partnership with a Nonprofit Corporation Preferable to Monetary Donation?
Major businesses and wealthy donors worldwide already understand this and actively establish funds and initiate multi-year programs aimed at advancing social/public goals (e.g., the “Gates Foundation”). This stems from a desire to influence public matters that are close to their hearts through involvement and initiative.
It can now be affirmed that the shift from the traditional practice of one-sided monetary donations (old-school philanthropy – “handouts”) toward proactive, independent action or joint ventures with a nonprofit body for a declared, defined, and measurable public purpose significantly increases the level of interest, involvement, and commitment of the business and its employees, thereby generating greater value for the company and its owners.
Why Is Strategic Cooperation with a Nonprofit Entity Preferable Over Running Public Activity Within a For-Profit Company?
The principle of specialization, along with the experience, knowledge, reputation, and public/community work of the nonprofit entity, tips the scale toward cooperation.
The nonprofit partner acts as an expert in long-term public projects that require learning and credibility. Such collaboration shortens the learning curve and reduces unnecessary costs and risks for the business that would otherwise have to employ additional staff and managers for these public efforts.
Moreover, the success of a business’s investment in an existing nonprofit or in a newly established nonprofit created for the joint project may attract additional investments and public funding to the nonprofit, enhancing its impact and success – and, in turn, boosting the public reputation of the business that initiated or co-founded it.
Studies also show that in such partnerships, each side contributes its strengths, creating a win-win situation. The business gains not only in reputation but also through enhanced internal values – education, ethics, and improved functioning – stemming from deeper employee engagement and identification with the company’s mission.
What Benefits Can a Business Gain by Initiating a Public Purpose Partnership?
- Development of joint projects that are strategically aligned with the company’s values, core operations (including technology), and its ESG or social mission.
- Legal and regulatory validation of public/social activities allows businesses to operate for public purposes in an organized way while enjoying tax benefits, incentives, and government grants.
- Operating within the nonprofit framework connected to the business can help shape its communication strategy around social responsibility.
- Linking the business to a public cause through the nonprofit entity may also assist in communicating with the public sector and positioning the company as positive and publicly contributive in its core operations – toward regulators and large investors.
Why Is the Public Benefit Company (PBC) the Right Legal Tool for Business-Public Partnerships?
The PBC is a nonprofit corporation, established and operating for defined public purposes, with a binding legal obligation to reinvest all profits toward advancing those goals.
It is prohibited from distributing profits to shareholders.
Its advantages over an Amutah (association) include: preserving control and investment in the hands of its founders/investors through shareholding mechanisms. It enables flexibility and efficient management while operating under the Companies Law, which also governs for-profit companies.
Hence, it is familiar and relatively accessible to businesspeople and corporate managers who find it credible and practical.
The share-based ownership structure allows the allocation of proportional rights to investors according to the nature and scope of their investment. It suits partnership models and is appropriate for fundraising from both Israeli and foreign sources – businesses and foundations alike – while giving investors control and influence, including in high-potential fields such as technology research and development.
In addition to these advantages, it also qualifies for all the tax benefits granted to recognized nonprofit organizations – including VAT exemption on its services and recognition as a “public institution” under Section 46 of the Israeli Income Tax Ordinance, which entitles donors to tax credits.
These features make the PBC an ideal tool for defined, recognized public-purpose investment – not merely a “donate and forget” approach. Its shareholding structure is suited for partnership arrangements and strategic resource development, offering a convenient legal format for collaborative social-business frameworks.
Therefore, in the foreseeable future of smart collaborations between business and “public, society, and environment,” the Public Benefit Company (PBC) is the modern and appropriate legal vehicle for such frameworks.
The author, a member of the Nonprofit Corporations Committee of the Israeli Bar Association, has decades of experience in establishing, advising, and accompanying public-purpose corporations and their modern integration into the business sector.
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