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Profiting from Marx

An information-technology firm promises to give away all of its profits to charity. So why is that so hard to believe?

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Editor's note: In the print edition, Style incorrectly identified Michael Pirron.

Something's tickling their noses, and it's not the Mary Kay products.

In a tiny office off Marshall Street in eastern Henrico County, two slender, well-groomed men are giving a $1,000 check to the women of Safe Harbor, the battered-women's shelter.

It's the second check the Safe Harbor board members, just finishing a Mary Kay party last week, have received from Michael Pirron and Steven L. Wilson, co-founders of an IT consulting firm called Impact Makers.

Pirron and Wilson have promised to cut more such checks to Safe Harbor next year, $12,000 in all, as part of their business strategy, which is to give away all of the company's profits.

The business plan isn't a new concept altogether. Social entrepreneurship, or socially responsible business, has been around for years. Ethos Water and Ben & Jerry's ice cream spring to mind, companies that usually elicit warm fuzzies.

But Pirron and Wilson offer a new twist on charitable capitalism. Their business, launched in early October, is a non-stock, not-for-profit corporation without any of the tax advantages that nonprofits typically enjoy, without any specific cause in mind.

They decided to make Safe Harbor the recipient of their first round of contributions because it's "secular and apolitical in nature," Wilson says. "I think people can pretty well get behind that without a lot of conflict."

They set up the business as a non-stock entity to ensure there is no equity in the firm, Wilson says. In other words, there are no shareholders in the company. "We can't sell the business five years from now and get rich," he explains.

They do collect paychecks. But they promise to keep their prices market rate.

Safe Harbor board member Barbara T. Kallus, who is senior vice president and chief financial officer of Virginia Business Bank, says the idea seems aboveboard. After all, she says, they can't jack up their prices or salaries and stay competitive. "They can't be lining their pockets," Kallus says.

Then why does Impact Makers' business concept seem so, well, un-American? Perhaps because it is. Essentially, it's a business structure based on socialistic principles. In fact, Pirron, whose father is Israeli, got the idea from childhood visits to Israel, where small communities called kibbutzes and moshavs, "completely socialistic communities," thrive within a capitalistic state.

"Originally, these kibbutzes and moshavs were largely agricultural, but in recent years, they have moved into manufacturing and even high-tech," he wrote in his college thesis in 2001 at Northwestern University (he received his MBA from the Kellogg School of Management). "What is interesting is that these kibbutzes internally are socialist, but compete in a capitalist market both in Israel and internationally. For example, my cousins live on Kibbutz Gat, where they make and package fruit juice and market it all over Israel, Europe, Asia and South America."

It's what Pirron dubs the "nonprofit competitive business."

While the concept is well-received by women of Safe Harbor, others see such nontraditional business concepts as an invitation to fraud.

Talk to anyone who studies business ethics, and they'll tell you about The Body Shop International, an English beauty supply chain that made millions by selling itself as an environmentally and socially friendly business. It not only used 100 percent natural products, but also created jobs in developing countries to produce the products.

It did little traditional advertising, instead relying on a fawning national media to tell its story. In the mid-1990s, however, reports emerged that the company wasn't so charitable. The company used a tiny percentage of raw materials from developing countries and had made no charitable contributions in its first 11 years in business, contrary to its advertising campaigns.

"What about those time periods where they are not as profitable as they expect to be?" asks Richard Coughlan, an associate dean in the Robins School of Business at University of Richmond who teaches business ethics. "The real test is the degree to which the business keeps its promise even when profits decline. There is a good deal of cynicism in me with businesses such as this."

It all comes down to the definition of "profit," says Ron Moore, a business consultant with Fidia Advisors. "The entire thing rests on how they decide how to define the term profit," he says.

Technically, profit's defined as the net income after expenses are paid. But here Wilson hedges a bit. While many small businesses don't consider reinvesting in the business as operating expenses, Wilson does. In other words, for Impact Makers, the profit margin starts after it reinvests and grows the business, while many small businesses would consider profits before reinvestment. Ultimately, the profit margin can be manipulated to mean whatever a business owner wants it to mean.

"The answer really is really in the semantics of what profit is," Wilson says.

Wilson and Pirron say they invite the skepticism. Their books are open to the public, they say, and always will be. They field a few questions from the all-female board of Safe Harbor but seem to leave a positive impression.

More often than not, people ask them, Why? Most social entrepreneurs have a specific cause they're passionate about, one to build the business around. In the case of Impact Makers, there is no such cause. They seem almost Mormonesque but swear that Jesus isn't their CEO. "Even in my personal life, it's not a driving force for me," Wilson says.

The good Samaritan pitch has already driven customers their way. Shannon E. Heady, executive director of Safe Harbor in Richmond, says she sent a letter to Impact Makers' first customer thanking them for their business. But no, Safe Harbor in no way wants to be seen as "promoting" Impact Makers.

At the meeting, Pirron and Wilson pass out their business cards and thank the board members, offering to answer any questions. When board members ask what they can do, Wilson lights up, and responds with a smile.

"You can drive clients to us," he says. S

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