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TygerSpark (62.62)

Capital Allocation - Philanthropy?



June 28, 2016 – Comments (2) | RELATED TICKERS: SBUX , TTWO , FB

Capital Allocation – Philanthropy?

I have recently finished reading The Outsiders by William N. Thorndike (which was a much appreciated gift from The Motley Fool). One of the things that stood out to me is the importance of proper capital allocation. What assets are bought or sold and when? When does a stock buyback makes sense? How to utilize available cash; build the business or pay out to shareholders?

How do you, as an investor, feel about a company using their capital for philanthropy? Don’t misunderstand me, I think it is a wonderful thing for individuals to make personal contributions to causes they are passionate about. But, do you want the companies you invest in to use the capital they could be using to improve and grow the business for charitable causes?

Is this a relevant question for Foolish Investors?

Starbucks (SBUX), a current Motley Fool recommended buy, had the following to say on their website. “Bringing people together, helping provide education and employment opportunities and making a difference in people’s lives – it’s all part of being a good neighbor and a sustainable company. Starbucks, even as a public company, has always believed that we can balance profitability and a social conscience”.

Is this good business? Good marketing? Just, ‘The right thing to do’.

How about Take-Two Interactive Software, Inc. (TTWO), also a current buy. The Wall Street Journal reported June 23rd that “Take-Two interactive Software Inc. said Thursday it will donate “Civilization V,” the most recent installment in the 25-year-old series, to a nonprofit [GlassLab] that modifies games for classrooms in the U.S. and Canada. Later in the article it reads, “Take-Two isn’t charging GlassLab, though exposure to potential gamers can’t hurt”.

What do you think? An ingenious way to introduce more young people to gaming? When I attended college (back in the dark ages when everyone did not own their own computer) the software on all the computer lab computers was Microsoft. What do you think I bought when I purchased my first computer? So, I do see the benefit of specifically targeted donations. It can introduce people to your product(s) and make for positive name association.

“In 2015, [JPMorgan Chase & Co (JPM)] and its Foundation gave more than $200 million to thousands of nonprofit organizations…”. ( from the JPMorgan Chase & Co website) Is that the best choice they could make for the allocation of $200 million?

As a matter of policy the company I work for does not make charitable donations with company money, but encourages employees to support any causes they feel strongly about.

I applaud those that chose to allocate their own funds for charitable causes. I have donated 10% of my income my entire life and feel it enriches my life to do so. I think it is fantastic that On December 1, 2015, The New York Times reported that Mark Zuckerberg, the co-founder and chief executive of Facebook (FB) announced that he and his wife would give 99 percent of their Facebook shares “during our lives” to charitable purposes.

The Bill & Melinda Gates Foundation is a beautiful thing doing amazing good works. But, if Howard Schultz wants to save the world I would prefer he use his own dime to do it and JPMorgan Chase can increase the interest rate on my accounts if they cannot figure out anything else to do with $200 Million to build their business.

What do you think? Is Philanthropy a Foolish choice for corporate capital allocations?

2 Comments – Post Your Own

#1) On June 28, 2016 at 10:53 PM, notyouagain (42.24) wrote:

I think if they want to nurture a positive image, do some good, and earn a little love by doing something compassionate and you don't like it, then you don't have to buy their stock.

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#2) On June 29, 2016 at 12:44 PM, TygerSpark (62.62) wrote:

Yes, notyouagain, I completely agree.  I do not own SBUX.

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