I like Canada.  Growing up in Buffalo I watched a lot of "Hockey Night in Canada," and like Don Cherry, I appreciate the value of a good enforcer.  But as much as I love Canada, I'm not sure I'd bet $1.4 Billion on it as the ideal global branding location if there wasn't some other motivation.

Let me explain.  When MasterCard went public, it donated a pile of stock to a newly-formed charitable foundation.  A couple of Canadian readers drew my attention to this story from the Globe and Mail (the Canadian "Paper of Record"), which describes MasterCard's decision to locate its charitable foundation in Canada.

From the Globe and Mail story:

"Toronto is a diverse, dynamic city; it's the centre of finance in Canada and it's got a reputation as an international player," said Deanna Rosenswig, president and chief executive of the $1.4-billion (U.S.) foundation that will invest in charitable causes around the world, largely in developing countries.

"If you're MasterCard, and you're sitting in New York and saying to yourself, 'I represent MasterCard worldwide, I want this to be an international player' -- why not Toronto?"

I'm not sure this passes the smell test.  Last time I checked, New York wasn't exactly provincial.  Especially for finance.  Toronto is a great city, to be sure, but still.  A MasterCard spokeswoman explained further:

A MasterCard spokeswoman confirmed the company wanted to put the foundation "in a place that reflected our global nature." She added that Toronto "reflects both North American and European roots."

That's sort of odd too.  I know they speak French in Quebec, but does that make Canada "European"? 

There's two other possible explanations; both are rooted in the fact that the MasterCard foundation is more of a corporate governance device than a philanthropic endeavor.

Neutral Territory.  The US and European banks who once owned all of MasterCard continue to own a substantial economic stake in the company, although they no longer control it directly.  The foundation will instead be the controlling shareholder for the next 20 years or so.  One possible explanation for locating the foundation in Canada is that the European banks didn't want to see the foundation dominated by the interests of the US banks.  So in that sense, organizing the foundation in Canada -- and away from New York -- may have reflected a compromise between North American and European interests.

Tax.  The second possible explanation is tax.  (What else?)  Under US law, the foundation would have to spend down 5% of its endowment every year to retain its nonprofit status; under Canadian law, the limit is 3.5%.  Since the foundation is barred from selling its stock for four years, and MasterCard's dividend yield isn't quite that high, locating the foundation in Canada limits the amount of additional cash that MasterCard has to contribute to the foundation.  (I've got more detail on this in my MasterCard paper.)

The MasterCard foundation will do some great things, I'm sure, and its location in Toronto will be a great platform for accomplishing its goals, whatever those may turn out to be.  But it's also clear that philanthropy isn't the only goal MasterCard has in mind.

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