Consider the example of a Swiss producer of armored vehicles. To strategically direct its donations, this 550-employee company developed stringent guidelines to govern its corporate giving. These internal rules explicitly state that employees’ personal interests are secondary in donation decisions. In addition, the guidelines define specific categories of preferred recipients that represent areas of strategic company interest, such as military and political institutions and events, as well as local sports and charitable organizations and occasions. Each of these categories is assigned a particular share of the overall sum that the board of directors reserves for donations. Finally, all contributions exceeding about $830 have to be approved by the CEO. According to the executive in charge of corporate donations at this company, transparency is the main advantage of these rules. While funding about 50 to 60 events and institutions a year, the company declines about three-quarters of the applications for funding it receives. Prior to the formal guidelines, such decisions were made on an ad hoc basis. Because of the new guidelines, it is now possible to draw upon clear-cut directives for corporate grants. Both positive and negative funding decisions can thus be justified to stakeholders in an appropriate way, and corporate charitable activities are now more predictable and directed toward strategic objectives.
Throw Light on Good Deeds
Some companies fail to realize the market benefits of corporate philanthropy because they do not sufficiently communicate their charitable activities to important stakeholder groups, other than direct beneficiaries. In contrast, companies with effective communication about their philanthropic activities identify and target their most important stakeholder groups and provide them with relevant information. To prevent their efforts from being dismissed as mere marketing fads, these companies put an emphasis on the credibility of their philanthropy-related communication. They may integrate such information into a communication system that covers all of the company’s activities in the field of corporate social responsibility, including the social and environmental effects of its day-to-day operations. Finally, successful corporations accommodate their stakeholders’ preferences for more than mere one-way information. They actively involve stakeholders in dialogues and allow for their participation in important decisions related to corporate philanthropy.
Moving Beyond Myths and Misconceptions
Too often, management thinking about corporate philanthropy is shaped by myth and misunderstanding. Although executives recognize the importance of philanthropic programs and willingly pay for them, the programs’ effectiveness often suffers from four widespread misconceptions: (1) Corporate philanthropy cannot be managed with the same degree of rigor applied to core business activities; (2) good deeds should not be publicized; (3) corporate philanthropy should serve as emergency aid and is best practiced briefly or spontaneously, and; (4) a company’s level of giving is all that matters, rather than its level of strategic engagement with philanthropic activities.
In reality, some companies achieve much more than others in their corporate philanthropy programs. A serious and consequential corporate social engagement ultimately requires that the implementation and responsibility for corporate philanthropy be linked with the system of management responsibility in a company. Questions of strategic direction for corporate philanthropy should not be handled purely by lower-level staff, but instead should be top management’s responsibility. To be effective in the long term, corporate philanthropic initiatives should be addressed with the same professional standards and value-creating ambitions that are applied to any other business issue.
(Reprint #:47111)
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).
