Illustrate Business Ethics, Social Issues, and Responsibility

SAGE Brief Guide to Corporate Social Responsibility

Strategic Philanthropy

Contributors: By: SAGE Publications

Book Title: SAGE Brief Guide to Corporate Social Responsibility

Chapter Title: "Strategic Philanthropy"

Pub. Date: 2012

Access Date: August 19, 2020

Publishing Company: SAGE Publications, Inc.

City: Thousand Oaks

Print ISBN: 9781412997225

Online ISBN: 9781452243986

DOI: http://dx.doi.org/10.4135/9781452243986.n3

Print pages: 15-22

© 2012 SAGE Publications, Inc. All Rights Reserved.

This PDF has been generated from SAGE Knowledge. Please note that the pagination of the online

version will vary from the pagination of the print book.

Strategic Philanthropy

Strategic philanthropy

Strategic philanthropy is an approach by which corporate or business giving and other philanthropic endeavors of a firm are designed in such a way that it best fits with the firm's overall mission, goals, and values. This implies that the business has a carefully articulated strategy and that it understands how to integrate its philanthropic initiatives with this strategy in actual practice. A major characteristic of strategic philanthropy is that the motivation is not solely altruistic. To understand how strategic philanthropy has become an everyday practice, it is useful to trace this concept as it has unfolded in business history.

Beginnings of Corporate Philanthropy

The concept of philanthropy evolved through business history even before the broader corporate social responsibility movement had taken shape. The concept of business responsibility that prevailed in the United States during most of its history was fashioned after the traditional, or classical, economic model of the firm. Dominant in the late 1800s and early 1900s, the economic model of the firm thought of the marketplace as the primary determinant of what business firms did in their communities and in society. The pattern of corporate philanthropy in Europe and other parts of the Western world paralleled its development in the United States. Unfortunately, though the marketplace did a reasonably good job in deciding what goods and services should be produced, it did not fare as well in ensuring that business always acted generously, fairly, and ethically. In addition, business created many social problems and the view was developing that business had some responsibility for these social problems that extended beyond just producing goods and services.

Years later, when laws began to be passed constraining business practices, it might be said that a legal model emerged. Society's expectations of business changed from being strictly economic in nature to encompassing issues that previously had been at business's discretion. Over time, a social model of the firm emerged. What this social model did, in effect, is embrace both the economic and legal emphases and add yet another layer of expectations by society that business would assume some role in addressing social problems and issues that had arisen.

In the late 1800s and early 1900s, initial indications of business's willingness to contribute to the community were localized efforts toward meeting community needs through philanthropy, or business giving, and paternalistic practices. It is evident that businesspeople did engage in philanthropy— contributions to charity and other worthy causes—even during the periods that were dominated by the traditional economic view. Voluntary activities to improve, beautify, and uplift the community were evident. One very early example of this was the cooperative efforts between the railroads and the Young Men's Christian Association immediately after the Civil War to provide community services in areas affected by the railroads. These initiatives, in hindsight, can now be seen as early examples of strategic philanthropy, because they benefited both the communities and the railroads.

The emergence of large corporations during the late 1800s played a major role in hastening the movement away from the strict classical economic model of the firm in society. As the economy transitioned away from one dominated by small, powerless companies to large corporations with more concentrated power, questions of business responsibility began to be raised. By the 1920s, community service had become much more important for business. The most visible example of this was the Community Chest movement, which received its impetus from business.

One example of early progressive business ideology was reflected in Andrew Carnegie's 1889 essay “The Gospel of Wealth.” Carnegie asserted that business must pursue profits but that business wealth should also be used for the benefit of the community. Philanthropy turned out to be one of the best ways in which firms could benefit the community. A prime example of this was Carnegie's funding and building of more than 2,500

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libraries for communities.

Corporate philanthropy continued to grow into the 20th century and by the late 20th century had become one of the institutionalized ways by which businesses could aid communities, the growing number of nonprofit organizations, and other national and international groups. Today, corporate philanthropy is considered to be one of the foremost means by which companies fulfill their social responsibilities and come to be regarded as good corporate citizens.

Philanthropy Defined

Before developing the concept of strategic philanthropy further, it is useful first to examine the concept of philanthropy itself. The word philanthropy has generally been defined as a concern for or love of humankind. Philanthropy has been linked to efforts to demonstrate this fondness or concern for humankind through charitable gifts, aid, or donations. Though most people would not philosophically disagree with the concept of philanthropy, throughout history some have. Friedrich Nietzsche, for example, objected to it as a concept of universal good because he thought it represented the weak parasitically living off the strong. Ayn Rand is another major philosopher who held a similar view. Political views on philanthropy have also been present. Most governments have been supportive of philanthropic efforts on the part of companies and individuals and have supported these efforts through tax incentives and tax breaks. Though the term philanthropy seems to imply some altruistic expression, as in “love of humankind,” today the concept more nearly refers to the giving of resources for the benefit of others.

Conceptually, today, philanthropy may be seen as a part of companies' corporate social responsibility or corporate citizenship initiatives. Archie Carroll has argued that philanthropy fulfills businesses' discretionary responsibilities to be good corporate citizens. These philanthropic activities are voluntary, guided only by businesses' desire to engage in social activities that are not mandated, not required by law, and not generally expected in an ethical sense. Philanthropy is “desired/expected” in most societies. The public has an expectation that business will engage in philanthropy, in part because it has become so much a part of business tradition and in part because many believe it is part of the social contract between business and society, especially between business and the local community. Others believe business should engage in philanthropy to partially offset some of the social harm or social problems business has engendered.

By the first decade of the 2000s, philanthropic initiatives include corporate giving, matching programs in which companies match contributions given by their employees, product and service donations, employee volunteerism, partnerships with local governments and other organizations, and any other kind of community involvement on the part of the organization and its employees. These philanthropic initiatives are in response to ongoing needs in the community in areas such as education, culture and the arts, health/human services, and civic and community activities. In addition, special needs arise due to emergencies such as the tsunami in Southeast Asia in 2004 and Hurricanes Katrina and Rita in the United States in 2005.

Strategic Philanthropy Takes Shape and Evolves

The concept of strategic philanthropy has evolved out of traditional forms of business giving. Early on, corporate giving was more focused on the needs that had arisen in the community and so philanthropy was more altruistic in nature—more focused on an exclusive consideration of the needs of others. With the passage of time and the heightened competition and cost pressures that have characterized the business community in the past several decades, corporate executives have begun looking more carefully at the kinds of impacts philanthropic efforts might have. It has become evident that business can not only help others but help itself at the same time, and this germ of thought is what has produced the modern strategic philanthropy emphasis. At the same time, corporate giving has become institutionalized and professionalized, and as it has been turned over to professional managers, top management has come to view the giving function as one that should deliver more specific, direct benefits to the company, and thus, the idea of strategic philanthropy has been born and cultivated in a business climate that has been more driven by profitability and accountability

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toward the bottom line.

Strategic philanthropy is an approach to business giving that seeks to achieve goals for the community or recipient of the giving and for the business itself as well. Strategic philanthropy is more focused. It does not just address any legitimate need in the community but rather focuses on those needs or issues that are consistent with or aligned with the firm's overall mission, objectives, programs, or products/services. A classic example of strategic philanthropy is the Ronald McDonald Houses sponsored by McDonald's hamburger chain. The Ronald McDonald Houses are facilities usually built near children's hospitals to help families who want to be close to their children who may be receiving longer-term treatment at the hospital. The Ronald McDonald House Charities maintains more than 200 houses in 44 countries around the world where families can stay together for free when traveling for a sick child's treatment and 48 rooms within hospitals for the same purpose. McDonald's, which has long viewed children as one of its target markets, thus is able to generously contribute to children and their families, thus enhancing its own interest or strategy at the same time. The children and their families win and McDonald's as a corporation wins. It should be clarified that McDonald's, as a company, initiated and sponsors the Ronald McDonald House Charities, but many other companies also contribute to the charity. In addition, each chapter also relies on individual contributions. In a sense, then, this is an ideal example of strategic philanthropy in that McDonald's gets high name recognition and publicity for the charity, even though the company is just one of the many supporters of the charity.

In using strategic philanthropy, companies strive to align their corporate giving or community relations initiatives with their own goals, objectives, or markets. The idea is to have a double impact—a positive impact on the recipients of the philanthropy and some kind of positive impact on the businesses' bottom lines or strategies. Two other examples are worthy of mention. The first is Novartis' creation of its nonprofit, Novartis Research Institute for Tropical Diseases. The nonprofit Institute allows it to focus on the discovery of new drugs for treating neglected diseases. The company benefits and the victims of neglected diseases benefit. Second is IBM's On Demand Community Program. This program permits IBM employees around the world to share the company's technology and other resources with the agencies where they sign up for volunteer service. Both parties benefit.

Strategic management expert Michael Porter has argued that the term strategic philanthropy has begun to be used to explain virtually any type of charitable giving that has some definable theme, focus, or approach that builds bridges between the businesses that are giving and needs in the community. Porter has been critical of strategic philanthropy, arguing that the link between the companies and the charities are often weak, tenuous, or semantic. He suspects that most of these initiatives really do not have anything at all to do with corporate strategy but are aimed at achieving positive publicity or goodwill for the companies and for improving employees' morale. His belief is that for strategic philanthropy to be viewed as genuine or valid, it needs to effectively integrate social and economic goals in such a way so as to produce legitimate social impact in the community. Of course, his criticisms may be broadened to include any corporate citizenship initiatives on the part of business, not just philanthropy.

Cause-Related Marketing

One of the shapes or variations that strategic philanthropy has taken on is that of cause-related marketing, or cause marketing. Many critics claim that this is more marketing than philanthropy, but others have held that it is an extreme form of strategic philanthropy in that the link between the businesses' interest and some social or public cause is tightly tied together. In cause marketing, each time a consumer uses a service or buys a product, a donation is given by the company to the charity. Thus, cause marketing has sometimes been referred to as “quid pro quo philanthropy.”

One of the earliest examples of cause-related marketing was in the early 1980s when American Express Company introduced a program whereby it would contribute 1 cent to the restoration of the Statue of Liberty each time one of its credit cards was used to make a purchase. This initiative generated $1.7 million for the restoration of the historical monument and a substantial increase in the use of the company's cards.

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Today, American Express coordinates its philanthropic and marketing efforts with its community business program and cause-related-marketing campaign to help small business owners acquire access to the credit and resources they need to start or grow their businesses. So the company now gives a portion of credit card charges to three national nonprofit organizations specializing in community economic development when American Express Community Business Card customers use their cards. Today, many different companies have linked using their products or services to the amount they would then donate to some worthy charitable cause.

Just as Porter has been critical of strategic philanthropy, he has especially been critical of cause-related marketing. He thinks these efforts are more targeted toward improving the companies' reputations than doing good in the community and, thus, fail as authentic efforts toward strategic philanthropy. In his view, the best way to maximize philanthropy's value is to follow a path that effectively combines pure philanthropy with pure business in such a way that genuine social and economic values are created.

The Business Case for Strategic Philanthropy

The impetus behind the movement toward strategic philanthropy has been the expectation by CEOs and top echelon executives that for corporate giving to continue, the “business case” for it has to be established. The business case is the argument or rationale as to how the business is specifically benefiting from the philanthropic endeavors. It is the explication of reasons why business is believed to be benefited by the philanthropy. One of the leading business groups supporting the idea of strategic philanthropy is Business for Social Responsibility (BSR), a nonprofit association of firms and executives who support the idea of integrating business's social role with its economic objectives. BSR has assembled research that indicates that companies, through their philanthropic giving, may

• increase customer loyalty and enhance brand image, • strengthen employee loyalty and productivity, • enhance corporate reputation, and • expand into emerging markets.

In short, specific business advantages that strengthen the companies' bottom lines are achievable through carefully designed philanthropic initiatives.

An interesting aspect of strategic philanthropy is that two firms in the same industry may decide to pursue divergent philanthropic projects and initiatives while both are focusing on the bottom-line benefits to the company as well as helping the community. In the home improvement/products industry, for example, The Home Depot supports sustainable forestry, community impact grants, and volunteerism, while Lowe's, its major competitor, supports Habitat for Humanity, sponsorship of American Red Cross disaster relief, and community college scholarships. Executives in these two firms made strategic choices to engage different philanthropies but with doubtless similar objectives in terms of strategic impact on the company's profitability and reputation.

Since strategic philanthropy is a part of corporate social responsibility initiatives, it follows that these same benefits accrue due to these efforts. Also, it can readily be seen that most of these reasons are business related, not philanthropy related. Thus, the business case is strengthened. Finally, it is worth noting that Paul Godfrey has developed and presented an analysis of literature and research that supports the idea that (a) corporate philanthropy can generate positive moral capital among stakeholders and communities, (b) this moral capital can provide business owners with insurance-like protection for a firm's relationship-based intangible assets, and (c) this protection contributes to shareholder wealth. Thus, through logic and research, he has added to the business case for corporate philanthropy, especially strategic philanthropy.

—Archie B.Carroll

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Further Readings

Burlingame, D. F., & Young, D. R. (Eds). (1996). Corporate philanthropy at the crossroads. Bloomington: Indiana University Press. Business for Social Responsibility. (2005). Issue brief: Philanthropy. Retrieved from http://www.bsr.org Carroll, A. B., & Buchholtz, A. K. (2006). Business and community stakeholders. In Business and society: Ethics and stakeholder management (6th ed., pp. 471–504). Mason, OH: South-Western. Epstein, K. (2005). Philanthropy, Inc.: How today's corporate donors want their gifts to help the bottom line. Stanford Social Innovation Review, Summer, 21–27. Godfrey, P. C. (2005). The relationship between corporate philanthropy and shareholder wealth: A risk management perspective. Academy of Management Review, 30(4), 777–798. Logsdon, J., Reiner, M., & Burke, L. (1990). Corporate philanthropy: Strategic responses to the firm's stakeholders. Nonprofit and Voluntary Sector Quarterly, 19(2), 93–109. Porter, M. E., & Kramer, M. R. (2002). The competitive advantage of corporate philanthropy. Harvard Business Review, December, 57–68. Saiia, D. H., Carroll, A. B., & Buchholz, A. K. (2003). Philanthropy as strategy: When corporate charity “begins at home.”Business & Society, 42(2), 169–201. http://dx.doi.org/10.1177/0007650303042002002 Smith, C. (1996). The new corporate philanthropy. Harvard Business Review, 72(3), 105–115.

• strategic philanthropy • philanthropy • corporate philanthropy • cause-related marketing • corporate social responsibility • charities • social responsibility

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