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Goodwill!

Many companies work to make their business look good to society. General Motors sponsors environmental initiatives and community involvement. Pepsi backs HIV/AIDS initiatives and human rights. Verizon promotes Internet Safety Education and volunteering for their employees.

So - why do these companies do this? I believe it directly relates to a financial concept called Goodwill. Goodwill is actually a line item in accounting statements which allows companies to value themselves above their net worth. Basically, a company can be worth $100 (assets minus liabilities), but the company could state that with Goodwill, it's worth $120!

Goodwill tries to assess the value of things such as reputation, brand recognition, unique products, productive employees and other intangibles. In addition, costs incurred during the promotion of their societal goals is factored into their final tax amounts.

Call me cynical, but I honestly believe that if goodwill was not allowed to factor into the financial statements, that many companies might not make the effort. Of course - that's short sighted thinking, but how many executives keep their eye on long range goals without pushing for short range results? In my opinion, companies would not be sponsoring these initiatives without the contribution to their goodwill and the tax breaks involved.

Of course, when companies do contribute, it usually does make a difference for many individuals, so who am I to complain? If one more child can gain a better education or cars, that spew less pollution into the air, are manufactured then perhaps the IRS policies and financial policies are the right way to go. Maybe companies are like kids - they sometimes need the incentive before taking action.

Learn more about this author, Linda J Banks.
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