Corporate Philanthropy, A Win‐Win Model

Citation

Levine, P. (2007), "Corporate Philanthropy, A Win‐Win Model", Journal of Consumer Marketing, Vol. 24 No. 2, pp. 118-120. https://doi.org/10.1108/07363760710737120

I admit it. I am not a fan of corporate social responsibility (CSR). I have followed the “debate,” but come down more firmly on the side of Milt (Friedman, that is), who is oft quoted “the business of business is business,” continues to ring true. Little in this collection of papers and case studies suggested I drop my cheerleading for the “dark side,” despite the unrelenting effort of most of the authors in this collection. Perhaps my unabashed sarcasm, acquired after a New York lifetime and years in Corporate America could not be overcome in 222 pages. Seinfeld's George Costanza may be correct. Once the word “society” is used in a sentence all rational thought disappears. It is simply hard to believe that the senior executives who brought us Enron's greed; BP's pipeline corrosion; Ford's green layoffs; Miller Beer's immigration rallies, and (my favorite) WalMart diversity spokesman, and former UN ambassador Andy Young's despicable comments (telling an African‐American newspaper that WalMart's advance into inner cities was good because Jewish, Arab, and Korean shop owners had historically ripped off urban communities) are those I wish to entrust with doing good on my behalf. A little bit more time worrying about the “business of business” might enhance shareholder value, and allow the shareholder to do the “good” that senior execs shallowly espouse. Plus, I am certain charitable organizations would welcome a bit more tithing from the outrageously paid executives who brought us these headlines.

That being said, Corporate Philanthropy, offers a number of positive discussions and case studies to support the case for corporate social responsibility, some of which are compelling. However, the presentations are often without critical discussion of both sides of the issue, and typically fail to emphasize the obvious, that is that CSR is often meant to offset corporate sins committed elsewhere.

In paper 1, “Corporate philanthropy: the business of diversity,” Shaw starts by noting that corporate foundations derive their funds from profit making business, but fails to consider whether foundation efforts promote profit. The foundation can generate positive publicity for the parent, but the author found it difficult to actually interview foundation representatives, and one wonders why? Shaw, an apparent cheerleader for diversity by any means, focused on activities related to promotion of diversity, and acknowledged that exposure to lawsuits often lead to supporting corporate philanthropy and creation of diversity policies, but she failed to be as critical as the American public who exhibited far more skepticism about corporate motivations. Like so many CSR advocates, the author focused on examples of statements supporting diversity (General Mills: “We value diversity”) versus the actual implementation of such practices, and gave a free pass to the composition of foundations. The Wells Fargo Foundation, for example, wanted their “table to look like our audience” (p. 7). But, of the six professional staff, four are gay or lesbian, three are white, two are Asian and one is Hispanic. Hardly representative of the community the bank serves. The conclusion that doing “good” necessarily results in positive impacts to the shareholder and community remain in doubt.

In paper 2, “Strategic philanthropy”, authors Mrudula and Rao, promote the benefits of a corporation meeting both organizational and “societal” goals. They claim that such philanthropy increases employee motivation, increases customer loyalty and improves overall goodwill, although I have never overheard such a conversation on the “D” train. I have however, heard talk of hostile takeover, downsizing and leveraged buyouts, that the authors acknowledge as commonplace. Mrudula and Rao also claim it is “the company's obligation to be responsible for all (emphasis added) of its stakeholders” (p. 24). But one wonders whether such nobility is possible, from senior managers who had just failed to implement their most socially responsible role, that is, to run a profitable business and keep their employees employed?

Full disclosure is in order here. Dr Lantos, author of paper 3, “Corporate social responsibility,” asked me to review this book. I respect his scholarship nonetheless. Lantos critically reviews CSR in the business context, and considers ethical, altruistic and strategic CSR. He notes that ethical CSR (profitable for shareholders, conducting business legally, avoiding harm) is a mandatory requirement of all business. He cautions however that altruistic CSR (“giving back”) creates responsibilities that extend beyond delivering a return on investors' capital, and is therefore a violation of shareholder property rights, unjustly forcing stockholders to support causes they do not advocate. He argues for strategic CSR, as it benefits the shareholder, while secondarily helping other stakeholders. Strategic CSR, he argues, benefits the firm financially, addresses community concerns, improves corporate image, increases motivation of employees and solidifies customer loyalty. He concludes however, that to neglect the business' welfare, is to “behave socialistically, and hence unethically” (p. 34). Or as we might say in New York, what CSR lacks in morality, is compensated for in ingenuity.

Paper 4, an interview with David Zucker, manager of social marketing programs, discusses cause‐related marketing (CRM), modeled after American Express' successful campaign to contribute one cent to the Statue of Liberty restoration project, for every transaction. That campaign was a success, and markedly increased transaction activity. Zucker points out that if properly done, the American public will switch brands as a result of CRM, but notes a certain amount of inbred skepticism. For example, a firm should not promote environmental causes, if it can be accused of polluting streams near its factories and similarly should not spend five times as much to tout its philanthropic giving, than its actual donations (as one example noted). Zucker notes that a firm must communicate its philanthropy to its employees, and notes that often most employees do not know what their employer is doing. He concedes however, that it is difficult to gauge the effectiveness of such programs.

In paper 5, Mullen contends that charity can be good business, if strategically planned. The presentation is replete with examples of corporate giving and statistics. She notes that NGOs are increasingly “demanding” a piece of the corporate funding pie, and contends that 58 percent of those interviewed believed its important to patronize organizations that contribute to causes and 45 percent said they would buy from socially responsible companies, even it meant switching brands. She also notes that research has identified a negative correlation between corporate irresponsibility, such as criminal, personnel or environmental wrongdoing and patronization. The correlation is apparently stronger in the negative, than in the positive. Yet with all these statistics, one is left to wonder why Americans consistently buy goods from China (retail goods) and Saudi Arabia (oil), where oppression and environmental degradation is rampant? Although she acknowledges that cause and effect were difficult to prove, she suggests that businesses with higher philanthropic scores had higher rates of return on assets. But given the stronger correlation in the negative, one questions whether corporate philanthropy is merely window dressing to distract the public's attention from downsizing, environmental, salary discrepancy and consumer issues that she reluctantly acknowledges. As Chris Rock might say: “If you're on Martine Luther King Boulevard … there's some violence going on.”

Hyphenated phrases often scare me So when I read titles like “Intra‐organizational collaboration”, as we do in paper 6, I know we are in for repackaged milk condensate, fortified with much esoteric phrasing. Clearly, we should collaborate with one another, but after discussions of personal interest models, catalytic converter models, and integrated systems models I can only conclude that managers who need to be lectured about cooperation, should immediately be sent back to tackle kindergarten blocks, and not be allowed to attend executive MBA programs or “offsites.” Well, at least the author spared us the “there is no I in team” model, so reminiscent of a former employer.

Conclusions reached in Paper 7, while surprising to the author, should not be instinctively surprising at all. Corporate philanthropy actually increases after an acquisition within the same industry. Both philanthropic and business strategy literature suggested otherwise. In fact, the motivation for goodwill is the need to overcome objections from local media, communities, employees and regulators, particularly during hostile takeovers. In effect, corporations offer “goodwill compensation” to offset the realities of reducing redundancies, cutting overhead, and eliminating jobs. Laid off employees can be vocal, demanding and disruptive at shareholder meetings, unless tipsy on large quantities of Kool Aid. If a company contributes $100 MM to philanthropic causes, while simultaneously laying off $3 billion in payroll, the savings still cover the CEO's bonus.

Ibuki's paper 8 is an interesting read, noting that money that goes to philanthropic activities actually belongs to shareholders and the current form of corporate giving must be dramatically reformed to provide some linkage to corporate values. She notes that corporate philanthropy is being questioned, requiring justifications for expenditures, even though some philanthropy has assumed a sanctified status. Five issues are discussed: the inability to communicate the importance of philanthropy; the unclear mission behind corporate giving; the lack of effective and efficient strategies to achieve clear goals; optimal management resource allocations; and lack of adequate systems to evaluate the results of philanthropic activities. She advocates the use of the “balanced scorecard” approach to set financial and nonfinancial measures of success and assure that philanthropic activities are successful and in line with corporate missions.

Paper 9 similarly notes that it is difficult to measure the results of charitable contributions and offers some down to earth alternatives for monitoring (did the grantee fulfill the agreement?) and evaluation (what is the impact of the grant?). The author suggests that appropriate measures include activity, process, inputs, strategies, outputs, outcomes, impact and effectiveness, while recognizing that some variables are harder to measure than others.

Paper 10 presents a rather unique CSR case study, by an Indian corporation. In this case, Tata Steel, attempts to provide social services in areas where the government lacks the will or resources to provide them. The company was so committed to providing these resources, that its slogan through the 1980s was “We also make steel.” In the end, however, the company succumbed to the demands of globalization and investor questions, and the company's own management transitioned from stakeholder to shareholder. Some compelling arguments were advanced regarding Tata's “tradition of compassion” (lower strike frequency, employee and customer loyalty, no support for nationalization), but business reality forced a massive reduction in “family size” from a bloated workforce of 78,000 in 1992 to 48,800 in 2001. Further, and in retrospect, management acknowledged that they had never asked themselves the question of how much they were actually spending on social services that do not directly benefit employees or communities. Tata is still grapping with how to be both profitable and socially responsible, in an environment where the government provides little if any social services. Yet, there is an increasing understanding that their core competency is steel, and not providing social services.

Paper 11 describes the efforts of the Cisco Corporation, as it pursues the triple bottom line of “people, profits, and presence.” But the company apparently found “religion” merely to find creative ways to manage its workforce and come up with “an ingenious alternative to traditional corporate severance packages” (p. 163). The initial program was “born out of desire to treat our employees with respect … while at the same time, giving back to the community” (p. 163). Shades of George Orwell, “War is peace, Freedom is Slavery, Ignorance is Strength.” After providing a seemingly endless list of good community works, including support for Groundhog Job Shadow Day (you cannot make that up), and a partnership with King Abdullah II of Jordan, the Mideast's most enlightened unelected official, one wonders how much better off Cisco's shareholders and employees might have been had they invested management time to devise better ways to make routers, rather than overcoming cycles of poverty, creating educational opportunities and promoting a culture of volunteerism.?

Paper 12 is largely a description of an Indian foundation's efforts for improving the conditions of the underprivileged. Because the setting is one of extreme poverty, the foundation's efforts to catalyze change, build collective stakeholders and facilitate mentoring are a bit more compelling than in an industrialized nation. Improving sanitation and childcare are amongst the service stressed, and so, the “halo effect” switch is in the “on” position. While understandable however, no direct evidence is presented to suggest a positive impact to the corporation. Oddly, the corporate interest in efforts began after an inquiry by a minority shareholder.

Paper 13 notes that “managing social issues is a critical reputation asset” (p. 187) and so Coca Cola has taken up the quest. Coke's social initiatives include improvement of health, education, diversity and environment, claiming that the “stakeholders who influence the company's practices the most are the shareholders” (p. 188). The paper proceeds to tally Coke's social efforts in China, Saudi Arabia, Moscow and the Palestinian Territories, all of which, of course, lack a commitment to all or at least most of the above social responsibilities; none of which prevented Coke from operating there. Like Cisco, Coke's commitment to CSR was a response to lawsuits, union charges, surface water discharges, high bromate levels, and not surprisingly, whistle blowing. Almost as shocking as Captain Louis Renault, in Casablanca, being shocked that gambling is going on here. Even more obvious sarcasm was suggested by analysts who suggest that Coke could make “its maximum contribution to planetary and human health by electing to stop producing its pernicious line of junk drinks … conning the public and minorities into buying products that are bad for them can hardly be called socially responsible” (p. 198). However, it may just be better to look good than to feel good. Classic.

The last paper, describes an Indian auto manufacturer's CRM efforts to promote proper driving habits. The author claimed that the consumer's intrinsic satisfaction of participating in a social cause might result in a preference to switch brands. CRM initiatives included traffic reports, safe driving films, driving schools, and handbooks. Critics noted that the appeal is not universal, particularly if not properly executed, and cannot be mimicked universally. For example, advertisements for particular brands of medicine might not be interpreted as promoting a social cause, but rather a simple infomercial, or worse, can have an adverse impact on brand image.

In summary, the book is written for CSR practitioners and a wider audience of “stakeholders.” It should be read with a healthy dose of skepticism. While the book recounts positive examples of corporate goodwill, suggesting that good things happen to good corporations, it fails to make the correlation that such action results in increased profit for the shareholders, an increasingly overlooked class in this debate. Some tools are provided to more fully evaluate CSR efforts, but their applications are more qualitative than quantitative. The case for CSR is most compelling in Third World countries, by Third World corporations, where government services are lacking. But even here, this can no longer be done without increased investor scrutiny. Additionally, there is a lack of acknowledgment, except in passing, that such goodwill, particularly as practiced by the multinationals, is often the result of mismanagement, scandal, layoffs or environmental sins. The danger, of course, is that the hypocrisy is exposed, and the corporation is then measured against it's own feeble policies. Generally speaking, the authors take a less critical microscope, than the general public might. Further, there is little critique of the “doublethink” that underlies much of CSR today. As Fromm, commenting on Orwell's 1984 suggests, the successful manipulation of the mind is no longer saying the opposite of what is true, but rather to think the opposite of what is true. We have come a long way baby.

(The views expressed here are those of the author and do not reflect the views of his employer.)