Corporate Philanthropy: Sham, Responsibility, or Opportunity?

Many motives exist for corporations to engage in philanthropic activity, just as individual motivations for giving can vary from human needs, to tax benefits, to improving one’s standing in the community. Corporate philanthropy can “help companies reduce business risk, open up new markets, engage employees, build the brand, reduce costs, advance technology, and deliver competitive returns.” And it is effective: according to the CSR Branding Survey 2010, 75% of those who have read about a company’s social responsibility agenda on its website say it made them more likely to purchase products or services from the company in the future.

A cartoon from Puck Magazine in 1903 depicting Andrew Carnegie’s philanthropy. Carnegie bequeathed $7 billion dollars (adjusted for inflation) to various causes and attested to the responsibility of philanthropy of the American nouveau riche.

Former CEO of Campbell’s Soup Company Doug Conant is a committed corporate philanthropist: “I observed that the more we leveraged our business resources to deliver social value to the communities around us, the more engaged our employees became and the better we performed in the marketplace.” Philanthropy allows companies to make thoughtful investments in sectors where the return profile is typically more speculative, mirroring the purposes of conventional R&D. Moreover, corporate philanthropy’s counterpart, shared value ventures, goes beyond simply writing checks to actually decreasing market entry costs for firms. Cisco’s Networking Academy teaches thousands of students worldwide the skills needed to build, design, and maintain networks, which improves their career prospects while ultimately satisfying the firm’s demand for networking professionals.

But critics of corporate philanthropy abound with a variety of counterclaims. After all, philanthropy is about giving because you care about a cause, not tapping into another revenue stream. Targeting communities to find a match for a product is marketing, not philanthropy. This blurs the line between traditional grants or volunteering and strategic programs that are critical to a corporation’s bottom line in hopes of diverting attention away from otherwise rapacious behavior that is detrimental to society. Milton Friedman once called social responsibility programs “hypocritical window-dressing” and declared that the single social responsibility of business is “to use its resources and engage in activities designed to increase its profits.

Corporate social responsibility viewed through the most denunciatory of lenses (Friedman most certainly wore these glasses) can be seen as stealing the money of shareholders without a clear business purpose or even as a way to bypass government regulation and increase corporate domination of our lives. Critics of corporate philanthropy assert that “solving problems” is itself a skewed and biased framework for philanthropy that privileges expert analytical solutions over the accumulated and idiosyncratic knowledge in local communities.

Besides, even if they may be well-intended, corporate charitable donations can often be small gestures at the margin of what firms are really trying to do: make money. Even though the absolute levels of corporate donations to charities have increased substantially over the past 30 years, giving as a percentage of profits—the best measure of relative generosity—has fallen precipitously from a high of 2.1% at its peak in 1986 to just around 0.8% in 2012 and is subject to volatility as contribution percentages tend to rise in periods of poor corporate earnings. Are these findings valid indicia of unimpressive corporate giving or does it signal corporations becoming more savvy and efficient with philanthropic endeavors?

“I observed that the more we leveraged our business resources to deliver social value to the communities around us, the more engaged our employees became and the better we performed in the marketplace.”

-former Campbell’s Soup Company CEO and current chairman of the CECP Doug Conant

Furthermore, the poster children of American corporatism are not good standard bearers for corporate philanthropy.  Do any philanthropic endeavors of Apple and Steve Jobs come to mind? Probably not as there is no eponymous hospital wing or academic building donated by the longtime Apple co-founder and CEO. Despite an estimated net worth of $8.3 billion and Apple earning profits close to $42 million in 2012, Jobs was not a member of Warren Buffet’s Giving Pledge. The lauded technological advances Apple has rolled out with numerous savvy presentations still do not permit charitable donations to be made through iPhone applications. Apple’s defenders will argue that the company’s greatest contribution to society is providing tools that spark creative innovation and creating $350 billion dollars in shareholder value out of tinkering with a computer in a garage.

If you turn on an NFL game in October, you will see players sporting bright pink cleats, armbands, and towels via the league’s “A Crucial Catch” breast cancer awareness and cancer research fundraising campaign. But in actuality, a miniscule 8.01% of actual funds spent by the league and its fans on pink merchandise goes towards cancer research with many other worthy causes getting drowned out by the NFL’s pink fury that clearly has little noise. Similarly, on the Sunday before Veteran’s Day last year, the NFL announced it would donate funds to military groups for each point scored. Amidst all the praise the league received, the donation amounted to just $444,000, a parsimonious charade for a $9 billion dollar operation that enjoys non-profit status.

For many CEOs, making money and producing social value do not have to be mutually exclusive. The essential question is whether these sorts of business growth strategies can and should be reconciled with promoting general well-being with the answer appearing to be in the affirmative. Aren’t corporations that bring good business insight and discipline to the development process better than asymmetric government-to-government aid that is increasingly composing fewer of the financial flows to developing countries? What’s wrong with investing in projects that turn a profit and benefit society? If you take on the shared value perspective, there’s nothing wrong with that.

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2 thoughts on “Corporate Philanthropy: Sham, Responsibility, or Opportunity?

  1. Jeff October 31, 2013 / 1:12 pm

    I agree that for many cases, CSR and profit maximization aren’t mutually exclusive. A WSJ blog I read cites healthier options in fast food chains as a long-term profit-maximization strategy that happens to do social good. These are cases where such strategies are terrific.

    But there are cases where they are exclusive goals. For example, I don’t think NFL should be upping the size of its charity promotions. Who’s to say that a company should sacrifice profits to contribute to philanthropy? That’s just not the objective for companies, and it’s probably not the reason why shareholders invested in the first place.

    If shareholders want to contribute to cause, a much more effective way of doing so than investing in the NFL would be donating directly to their favorite charity. Or perhaps social impact bonds. Corporations are there to maximize their shareholders’ utilities; and I don’t believe that reducing returns for social causes would do that.

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