The Keys to Rethinking Corporate Philanthropy

Although the relevance of corporate philanthropy is widely accepted, few companies achieve significant, lasting societal impact because most lack a cohesive strategy. Effective philanthropy must be run no less professionally than the core business.

Corporate philanthropy has gained substantial relevance to daily business operations. In the United Kingdom alone, leading publicly traded companies made donations to nonprofit organizations in 2003 and 2004 that were valued at more than $1.6 billion and that equaled close to 1% of the companies’ pre-tax profits.1 However, for leading companies, corporate philanthropy goes well beyond mere donations. Fannie Mae, a private mortgage company that works with the U.S. government to facilitate home loans, and the Procter & Gamble Co., were ranked first and second inBusiness Ethics’ 100 Best Corporate Citizens list in 2004. They engage in a variety of philanthropic activities, such as volunteer initiatives, community service and educational or cultural projects. Often, such engagement is part of a larger framework of corporate social responsibility that also covers issues such as ethical business conduct, diversity and protection of the environment.2

Academics and practitioners alike have been emphasizing the strategic relevance of corporate philanthropy. They argue that companies can and should strategically use their charitable activities to create win-win opportunities for themselves and for the beneficiaries of their philanthropy.3 A similar idea is reflected in a joint statement that CEOs from renowned companies such as Accenture, McDonald’s Corp., Deutsche Bank AG, Siemens AG and Renault S.A. signed in January 2003 at the World Economic Forum. These corporate leaders acknowledged that social issues are crucial elements of their businesses and that taking active responsibility for such issues in a sound way is both economically and ethically crucial.4

Although the strategic relevance of corporate philanthropy is widely accepted, its effectiveness varies substantially. Few companies achieve significant lasting societal impacts with their philanthropy, and even fewer manage to accomplish both sustainable social effects and significant economic returns. Most companies’ philanthropic activities lack a cohesive strategy and are conducted in a piecemeal fashion, causing investments in corporate philanthropy to often simply dissipate.

In most cases, executives dismiss this ineffectiveness as an inevitable part of philanthropic engagement. By doing so, they misjudge the situation. There is no reason to treat a company’s charitable activities less professionally than the core business.

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References

1. See M. Armstrong, “Top 100 Firms Give Less Than 1% of Profits to Charity,” The Guardian, Monday, Nov. 8, 2004.

2. See R.P. Hill, D. Stephens, and I. Smith, “Corporate Social Responsibility: An Examination of Individual Firm Behavior,” Business and Society Review 108, no. 3 (2003): 339–364. In our definition of corporate philanthropy, we follow A.B. Carroll, “The Pyramid of Corporate Social Responsibility: Toward the Moral Management of Organizational Stakeholders,” Business Horizons 34, no. 4 (July–August 1991): 39–48. Thus, corporate philanthropy is regarded as the discretionary part of a company’s social responsibilities, which “encompasses those corporate actions that are in response to society’s expectation that businesses be good corporate citizens. This includes actively engaging in acts or programs to promote human welfare or goodwill” (p. 42).

3. See, for instance, J.J. Chrisman and A.B. Carroll, “Corporate Responsibility — Reconciling Economic and Social Goals,” Sloan Management Review 25, no. 2 (winter 1984): 59–65; M.R. Porter and M.R. Kramer, “The Competitive Advantage of Corporate Philanthropy,” Harvard Business Review 80, no. 12 (December 2002): 57–68; and C. Smith, “The New Corporate Philanthropy,” Harvard Business Review 72, no. 3 (May––June 1994): 105–116. Empirical studies generally confirm a positive relationship between companies’ social performance and their financial results. For an overview, see M. Orlitzky, F.L. Schmidt and S.L. Rynes, “Corporate Social and Financial Performance: A Meta-analysis,” Organization Studies 24, no. 3 (2003): 403–441.

4. See World Economic Forum (ed.), “Global Corporate Citizenship: The Leadership Challenge for CEOs and Boards” (Geneva, Switzerland: World Economic Forum, 2003).

5. See H. Bruch and U. Frei, “Tata Steel 2005: The Vision of Harmonizing Profitable Growth and Social Responsibility,” University of St. Gallen case no. 405-023-1 (St. Gallen, Switzerland: University of St. Gallen, 2004).

6. See K. Gazdar and K.R. Kirchhoff, “Unternehmerische Wohltaten: Last oder Lust [Corporate Charity: Burden or Pleasure]” (Munich: Luchterhand, 2004), 336.

7. See R.M. Kanter, “IBM’s Reinventing Education (A),” Harvard Business School case no. 9-399-008 (Boston: Harvard Business School Publishing, 2001).

8. See R.S. Kaplan and D.P. Norton, “The Balanced Scorecard: Translating Strategy into Action” (Boston: Harvard Business School Press, 1996).

2 Comments On: The Keys to Rethinking Corporate Philanthropy

  • Jennifer Hayes | May 3, 2011

    Indeed, there is a growing awareness among business owners to be socially responsible.

  • John Monterro | October 10, 2011

    I agree with what Jennifer has said in the comment above.

    Personally speaking, as a resident here in the UK and having worked for a number of these companies I can attest to the fact that there is a vastly increased awareness these days compared to what it was like just a few years ago.

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