ETHICS : Corporate Philanthropy – Getting it right
Corporate philanthropists engage both their head and their heart when donating to wider causes. Here’s how.
By Tyron Love
At a time when attacks on humanity – both human and natural – are so evident in the daily media, it is natural for us to consider how we may be able to prevent, or at least try to alleviate, social concerns. Such thought characterises our philanthropic nature. Like many developed countries – even more so for developing and less-developed countries – social issues besiege our quality of life. Failure of the education system, the lack of appropriate health services and deficient support for families, all present themselves as threats to our collective social well-
being. Such issues escalate when government fails to act, forcing the community and voluntary sector to react.
Michael Porter and Mark Kramer, co-founders of US-based non-profit organisation FSG, have suggested that Milton Friedman’s view that corporations provide no greater benefit to society than is provided by individual donors, is only true when corporate contributions are unfocused. This, they claim, is because corporations can leverage capabilities and relationships in support of charitable causes, which exceed individual effort.
What’s more, with the human and material resources at their disposal, corporations can have the greatest impact on society by supporting those individuals and community organisations around them that have something positive to offer society. Frank Koch, author of a number of texts on corporate philanthropy, suggests this may include the ability to encourage and assist non-profit organisations to be more effectively managed.
Leading researchers in the United States and the United Kingdom suggest that corporations make contributions for a large number of reasons. These include an active attempt to influence society; to seek public acceptance and applause; to increase their name recognition among consumers; to develop a better public image; to achieve greater consumer loyalty; and to improve community relations.
It has also been suggested that good corporate reputation is the result of contributing to society and the natural environment and that charitable giving can, to some extent, even reclaim a corporation’s self-diminished reputation.
Problems arise when contributions are seen as beneficial to a corporation and harmful to society. In these cases, organisations are likely to be seen as manipulating and cynical, which in turn can damage reputation. This is especially the case if stakeholders expect more to compensate for acts of wrong-doing than what has been contributed. It has been suggested that some companies have moved away from making contributions in order to avoid societal charges of hypocrisy. This may further explain why expectations have been placed on corporations to become involved in the society in which they live, and to align their interests with those of society in general.
Corporate philanthropy also plays a role where large corporations build power to secure their place in society. Further, as the health of the community system improves, so does the performance of the firm within the system. Researchers have claimed that managers may be able to justify contributions through their effort to preserve free society, by strengthening the private sector, limiting state control and by maintaining societal conditions to ensure the viability of the corporation and corporate capitalism in general. This is based on the notion that the welfare of the company is significantly tied to the welfare of the society in which it operates.
But giving is not this straightforward and ‘social benefit’ is based purely on perception. To assume that all corporate stakeholders perceive acts of philanthropy as ‘good’ would be dangerous. Such ignorance on the part of managers could be damaging.
Substantial research in the United States and the United Kingdom backs up the need for corporations to be cautious and knowledgeable about the effects – both corporate and the wider social effects – of their contributing.
Corporate contributions may lack focus, create social dependence and can be harmful. Such contributions may also consume a corporation’s resources and divert managerial focus from other activities.
Both the social and corporate benefits arising from corporate philanthropic acts are obscure to say the least. But should corporations refrain from making such contributions in the face of such incertitude? Not at all. Whilst considering other sources, individual corporations must research the viability and consequences of any potential philanthropic programme, taking into consideration what they have to offer and the individual requirements of recipients.
Think first. Here are a number of considerations that may assist corporations in limiting corporate and social harm when making philanthropic contributions.
Be proactive with giving. It has been suggested that corporations which proactively seek social issues to support are acting in a philanthropic manner. Reactively giving to an organisation’s or individual’s request is an act of charity. Both hold much social value. The former, however, is more likely to be aligned with corporate goals and target areas where the corporation has the ability to make a significant social impact with the resources it has at its disposal.
Professionalise the giving programme. Top managers should invest managerial time and other resources to investigate potential philanthropic programmes. In that way, philanthropy becomes a complex and strategic operation that should be removed from other departments if at all possible. Corporations must proactively contribute and support the philanthropic exchange. To do this, they must also invest in the development of their own contributing programme through their own research.
Identify potential harm to both the corporation and social recipients. Managers giving away more than the corporation can sustain is a clear example of corporate detriment. Funding the start-up of a not-for-profit organisation and then removing continued support, can be detrimental to society.
Consult international academic/practitioner publications for ideas on how and why to allocate resources. Seek advice from intermediary organisations such as Philanthropy New Zealand, the Funding Information Service and the Robin Hood Foundation. The bulk of the academic/practitioner literature currently available is based on empirical studies of US and European corporations with markedly different economic and social systems to ours. These local institutions will ensure a New Zealand perspective. Analyse the activities of philanthropic leaders such as the Tindalls, McKenzies and Todds for inspiration. Managers of social organisations will also shed light on their practices and intentions for social wellbeing.
Tyron Love is an assistant lecturer, Department of Management & Enterprise Development, and research associate, Te Au Rangahau (Maori Business Research Centre), at Massey University.
© Copyright NZ Management magazine October 2006
All material appearing is copyright and cannot be reproduced without prior permission of the publisher.
Please contact the copyright officer: Ph 0-9-529 3000, Email firstname.lastname@example.org.