Business insight

Published November 14, 2005 12:01 am


Associate professor of strategy BYU's Marriott School of Managemen

What is the long-standing debate surrounding corporate philanthropy?

Critics say philanthropy results in management perks and are just ways that executives get great seats or access to events. Thus, it's like an untaxed salary bonus. And, even under the best of circumstances, is an unfair tax on shareholders. Executives should focus on making money and giving it to shareholders so they, themselves, can make donations.

Proponents argue that executives may not be so evil as critics contend, giving to causes because they (and their employees and shareholders) care. Plus, corporations have been granted the right to make profits by society, and some of those profits should be returned to society.

Why would a company want to be involved in philanthropy efforts? Shouldn't that money go back to shareholders?

Philanthropy is a way for companies to build goodwill in the community, showing a willingness by a company to become involved in community life and helping the firm build a reputation for doing good things. When bad things happen - accidents, lawsuits, plant closings - philanthropic firms can draw on that goodwill to mitigate the anger and punishment some critics would heap on the firm. Thus, philanthropy is a type of insurance.

How do you know companies that give to charity are looked at more favorably?

Give some examples of corporate giving preserving shareholder wealth.

I have done a large study of more than 150 companies and found solid evidence that, when bad things happen, firms active in philanthropy experience less damage to their stock price than firms that don't give. Take Unocal. The company is building a pipeline in Burma and contracted with the Burmese military for security services. Critics contend that the military forced local people to work on the pipeline, and are suing Unocal. The company counters these accusations by pointing directly to their philanthropy program in Burma and asks, "If we are doing so much good, why would we permit slave labor?"

What type of giving is most appropriate for which companies?

Companies should look at their stakeholder base. Some companies, like REI, have a very narrow base. They should target philanthropy to causes these stakeholders care about, such as the Nature Conservancy. Companies like Questar have a broad stakeholder base with very diverse values and interests should focus their efforts on general causes that everyone thinks are worthy, like literacy or homelessness, or paying for heating bills of senior citizens.

What advice would you give to a manager who is interested in starting a corporate philanthropy effort?

* Do it - it's like buying insurance for your brand or reputation.

* Be consistent - establish a clear pattern of involvement over a number of years. Just like insurance, you have to pay premiums in advance and you need to keep the policy in force.

* Be transparent - some people will think you are just getting perks through philanthropy, but if you have an open donation process and a clear set of guidelines, you have defense against being vilified.

* Donate to tangible projects - my research shows that these types of involvement have the greatest insurance value. Most people know a CEO will never live in low-income housing, so it really is likely to be perceived as an act of goodwill if a company gives in these areas.



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