Articles

Corporate Social Responsibility and Philanthropy

MHCi MONTHLY FEATURE:

April 2004

Corporations should abandon philanthropy and concentrate on CSR

by Michael Hopkins

Corporate philanthropy - or corporate social responsibility - is becoming an ever more important field for business. Today's companies ought to invest in corporate social responsibility as part of their business strategy to become more competitive.

[Michael Porter, http://www.ebfonline.com/debate/debate.asp]

Introduction

Sorry, Michael Porter, you have got it wrong. When even an internationally respected management guru mentions philanthropy and Corporate Social Responsibility as being the same, it is hardly surprising that business leaders, academics and politicians confuse them. Corporate social responsibility (CSR) is NOT the same as corporate philanthropy and this short monthly feature will explain why.

CSR is a system-wide concept that touches all the stakeholders of a corporation - see our earlier monthly features on definitions and concepts [or look at glossary ]. CSR, as we define it, does not concentrate on only one stakeholder but philanthropy, "the practice of performing charitable or benevolent actions" does. Most, if not all, philanthropy is devoted to items that Governments should be doing [health grants to developing countries, help to the handicapped, drugs for HIV/AIDS for example]. And their failure should not be the preserve of corporations. However since Government is one of the stakeholders of a corporation there is nothing to stop corporations offering their management and technical skills to Government to improve or introduce programmes to help vulnerable groups. Corporations exist to make profits. There is nothing wrong with that, only the way profits are made is the concern of CSR practitioners. Philanthropy does little or nothing to help companies make profits, while all CSR activities are linked to improving a company's bottom line.

CSR is before profit

One of the confusions over defining and acting upon corporate social responsibility (CSR), according to Professors Young-Chul Kang and Donna Wood of the Katz school of business in the USA, results from a flawed assumption that CSR is an after-profit obligation. This means that if companies are not profitable they do not have to behave responsibly!. They say 'in the extreme, if all firms are affected by severe economic turmoil or are run by lazy, short-sighted managers, then societies would have no choice but to accept pollution, discrimination, dangerous working conditions, child labour etc.'

Embedding socially responsible principles in corporate management is what the two authors call a 'before-profit' obligation. They cite corporations who embody these ideas and see the trend accelerating. For instance, in 1950 Sears's CEO listed four parties to any business in order of importance as 'customers, employees, community and stockholders'.For him, profit was a 'by-product of success in satisfying responsibly the legitimate needs and expectations of the corporations' primary stakeholder group'. By the 1980s, Levis even repurchased its stock in the public market under the rationale that stockholder's interests might limit the firm's effort to be a socially responsible organisation. And, Migros, of Switzerland, funds its cultural and social programmes not by profits, but by gross sales, so that profitability does not influence the firm's level of involvement.

CSR is sustainable, philanthropy is not

CSR is sustainable in that CSR actions become part and parcel of the way in which a company carries out its business. Its links to the bottom line of a company must be clearly laid out simply because, if it does not contribute to the bottom line, it will eventually be rejected by hard-nosed directors and shareholders.

Philanthropy is whimsical. It simply depends on the whims of the company directors at a particular time. Many NGOs receive their funds from corporations and carry out excellent work. Rather like Heineken beer, most NGOs carry out programmes that other programmes (mainly Government ones) can't reach. But NGO interventions are based on a scatter gun approach and are spotty. They can intervene wherever they like. Governments, on the other hand, have to intervene everywhere or nowhere. Better, much better, for a company to assist a Government in making its contributions either nationally, or internationally, more efficient and appropriate. This then ensures widespread, and even coverage.

Should sponsorship be stopped too?

Corporate sponsorship is different from corporate philanthropy. Sponsorship is a business tool used by companies as part of their communication, advertising or PR budgets to associate the corporation's products and services with dynamic images for their customers' consumption.Sponsorship usually requires a service, or action, in return for financial support, so this frequently has clear marketing benefits and is therefore directly linked to a company's bottom line.Sometimes, this may indeed be for good causes such as supporting UNICEF to associate the company's products with reducing child labour around the world. Philanthropy does not necessarily ask for a definite service or action in return and it is certainly not usually based on a business relationship or partnership. On a personal level, this is like responding favourably to the postal requests made by the major charities. Yet the line between philanthropy and sponsorship is difficult to draw and there are many grey areas - but better to have a clear sponsorship potential than a fuzzy charitable action that is more than likely to be unsustainable.

But what about all those good causes?

I can see that my words will irk many readers who may accuse me of undermining good people and good causes. But this is not my point, I want sustainable actions that do not depend on the whims of, albeit, good-natured people. But, what about all those charities that depend on companies for financial support? Should these be stopped? Obviously this is unreasonable and many hundreds of millions would suffer if corporations suddenly stopped contributing to charitable organisations.

Yet, there is a structural problem here. Governments mainly encourage charitable giving, often through tax breaks, since it takes the responsibility away from them. Governments are also corporations and must act in a socially responsible manner. My suggestion is that charitable giving is phased out over a long term, say ten years, so that both existing charitable organisations and Governments can adjust. Corporations can help in this transition period not only with managerial and technical advice but with cash too.

In conclusion, here are some actions that could be considered:

Companies should abandon all philanthropy which is outside of a CSR framework.

Companies should work hand-in-hand with Governments to promote economic and social development.

Government should help those people who cannot be helped to help themselves through a subsidy. Government should look after vulnerable groups and not just await the whim of corporate philanthropy: if a charity fails because a company fails then this is a disaster for all the vulnerable groups and people concerned.

In the end, a company that is philanthropically generous but is not aware of, or engaged in, its broader CSR role will not be in business for very long. In this we agree fully with one point of Michael Porter:

If companies are just being good and donating a lot of money to social initiatives then they will be wasting shareholders' money. That is not sustainable in the long-run, and shareholders will quickly lose interest.

[contributed by Michael Hopkins with comments from Ivor Hopkins]

If you would like to sign up to receive our Monthly Feature on a regular basis

This e-mail address is being protected from spambots. You need JavaScript enabled to view it. !