IKEA Is the Largest Charity in the World

A month ago, in an article about Bill Gates philanthropic impact, I plotted the size of the largest charitable foundations in the United States. The Bill and Melinda Gates Foundation dwarfed all of the other charities on the graph. Days later I learned about another outlier in the world of charitable foundations: Stichting Ingka Foundation, a relatively unknown charity with a less than heroic founding story.

In 1982 Ingvar Kamprad, the founder of IKEA started Stichting Ingka Foundation in an effort to avoid Sweden’s notoriously high taxes. Using a combination of shell companies and charitable organizations, Kamprad created a complex relationship of subsidiaries that enabled IKEA to pay one of the lowest tax rates in Sweden. It also made his company immune from hostile takeover.

The strategy enabled Kamprad and IKEA to amass a huge amount of wealth over the last 30 years. So much so that his foundation was the largest in the world at the end of 2014. Estimating the value of a private non-profit is tricky. But IKEA releases its earnings each year and we can use comparable global retailers like Target to determine the price to earnings (p/e) ratio that investors might use to value the company if it were public. In 2014 IKEA made $3.79B in net profit and Target’s p/e ratio was 31.68. That means that IKEA was worth an estimated $120B. The Stichting Ingka Foundation owns IKEA, therefore they own the assets.

In the second part of my article I attempted to put Bill Gates charitable contributions into perspective. I highlighted the tremendous impact in world health The Gates Foundation has had, contributing to the decline in AIDS and Malaria related deaths between 2005-2012. It’s reasonable to expect the same results from a charitable organization as large as Stichting Ingka Foundation. But in reality, The Gates Foundation puts the flat packers in Sweden to shame. The Gates Foundation has given $36.7B worth of grants through 2015. In comparison, the most generous estimates put Stichting Ingka Foundation donations in the hundreds of million range. Up until 2011 — a time following The Economist’s original investigative report into the odd charity — the organization didn’t release annual reports.

The Swedish foundation’s unimpressive track record leaves many to suspect that it is simply a tax avoidance strategy by Kamprad. According to 2011 research conducted by Swedish television channel SVT, the foundation allowed Kamprad to save between 2.3 and 3.2 billion euros in taxes over the course of the last 20 years. If measured as a charitable foundation, that amount of tax savings alone would rank somewhere between the 23rd and 39th largest charity in the world.

One can argue that Kamprad's tax avoidance strategy may well lead to a larger amount donated to charitable causes if and when he and his family decide to give the wealth away. Had he been taxed, the money would have gone to Swedish government expenditures. Instead — assuming his wealth managers were aggressive and successful — his wealth could have grown 5-20% compound each year since he set up the shell companies in the 1980s. It’s impossible to verify whether Kamprad did this. At any rate it is not the popular choice, especially amongst the Swedish: a population known for its trust in the government.

According to recent annual reports by the Foundation it appears that most of the money is going to international issues instead of domestic ones in Sweden. Kamprad’s fans could also argue that this move promotes global equality by moving money from Sweden to poorer countries. If the money is ever given away, it is certain to spark an ethical debate as to the role of philanthropists in solving the world’s problems.

 

Sources

"Flat-pack Accounting." The Economist. The Economist Newspaper, 13 May 2006. Web. 23 June 2016.
"Foundation Fact Sheet." Bill & Melinda Gates Foundation. N.p., n.d. Web. 23 June 2016.

Financial data found at the following websites:

https://ycharts.com/companies/TGT/pe_ratio
http://www.statista.com/statistics/241806/gross-income-of-ikea-worldwide/