The Business Motive for Bose's Gift to MIT

Last Updated May 3, 2011 10:58 AM EDT

At first glance, it sounds unbelievably generous: Amar Bose, the founder of Bose Corporation has given the majority of stock in his company to MIT. As a private company, its value can only be estimated. In 2004, the business reported $1.3 billion in revenues. In 2006, sales had risen 38.4%. Since then, the alliance with Apple has only boosted growth further. So any way you look at it, even for MIT - with its $8 billion endowment -- this is a significant gift.

But while many may gasp at its size, what intrigues me is what it ensures for the company's future. In fact, this gift effectively re-structures the business in ways that seem to preserve and protect Bose's original vision.

A "Mission Lock"
MIT will become BOSE's majority shareholder - but under the terms of the agreement, it cannot sell these shares. One intriguing consequence of this gift is, therefore, that makes it far more likely that the corporation must remain privately held. This is almost a "mission lock" - a structural arrangement which locks a business into the values of its founders.

Many organizations struggle with this issue: how to ensure that the founder's original vision and desire for his business are protected against management or owners with different priorities. The transfer of non-voting stock to MIT makes the company less attractive to acquirers and highly unlikely ever to go public. Which is presumably what Amar Bose wanted in the first place.

Research Remains Key
Amar Bose himself was an undergraduate, post-grad and teacher at MIT. He and his company has always had a strong research bent with an annual research and development budget in the region of $100 million per year. (At one point, the company even looked into cold fusion, before concluding it would never work.) It's clear that Bose intends that research orientation to remain a permanent feature of the way it does business. Giving MIT majority ownership embeds that relationship and the character that high-end research bestows. It's pretty unlikely that the company can or would turn itself into the stylish producer of merely trendy hi-fi accessories.

So Bose has done three things with his gift: he's given his money to an organization he knows well and cherishes; he's locked his company into private ownership and he has - as far as anyone can - locked in its research-driven mission. This is as strategic as any gift gets.

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    Margaret Heffernan has been CEO of five businesses in the United States and United Kingdom. A speaker and writer, her most recent book Willful Blindness was shortlisted for the Financial Times Best Business Book 2011. Visit her on www.MHeffernan.com.