Philanthropy
Business Strategy, or Just a Good Deed?
Donations
Employee Volunteer Programs
Cause-Related Marketing
Strategic Development
Discussion Questions: The Economist argued in January 2005 that corporations should not be reducing profits and shareholder dividends by making contributions to victims of the Southeast Asian tsunami. Companies in certain cities have jointly pledged to give 5 percent or more of their pre-tax earnings to charities. What’s the right amount of corporate philanthropy? Cite dollar amounts or other statistics in making your case.
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Corporate philanthropy to an average person may mean “how businesses support the communities in which they operate?” To a company, its philanthropy may also be an opportunity to build camaraderie amongst employees or a public relations Band-Aid. To local charities, it may be a much-needed source of support.
Corporate philanthropy will continue to undergo changes that increase transparency. The main aspects of it are donations, employee volunteer programs, cause-related marketing and strategic development.
Donations
In the past it was enough for a company to offer support to the communities in which it operated by sponsoring a town event or donating money to charity. Often unrelated to the core business, public companies faced the critique that shareholders were being shortchanged, while public relations departments advocated such behavior as an opportunity to build community support and brand recognition.
While charitable giving is still common in the United States, it is less common for a company operating in developing nations. Giving tends to be concentrated in the headquarters country and community. Companies in developing countries that face challenges to basic operations such as corruption, lack of government services (such as education or clean water), and intense poverty may use charitable community development programs to improve the supply of food, shelter, and education, and thereby support development of a supply of labor capable of meeting the increasingly demanding employment needs of the company.
Employee Volunteer Programs
Another philanthropic practice many US companies use to build community recognition and support is employee volunteer programs, such as: participating in one-day service events, fundraising walks, or regular volunteering. Companies that participate encourage participation, arrange activities, excuse work absences, and in some cases even pay for the time spent volunteering. In addition to benefits incurred by the community, these programs build a sense of community within the company and employee loyalty.
Cause-Related Marketing
Cause-related marketing campaigns are a way that companies answer the concern that charitable activity doesn’t help the financial bottom line. Cause-related marketing can tie donations for a specific cause to a specific product or business function. The concept is that consumers who support the given cause are more likely to purchase the offered good or service than if the promotion did not take place. Sometimes, a portion of the revenue profits associated with the sale of the specific good or service are donated to the specified cause. Newman’s Own pledges to donate all profits to charitable causes. Ben & Jerry’s earmarked “1% for peace” of its Peace Pops. The RED campaign has been embraced by a multi-company consortium. Questions to ask about cause-related advertising include: What portion of profits is appropriate? Should this portion be disclosed to the customer? How can the customer be assured that the donation is made?
Strategic Development
The newest trend in corporate philanthropy is to build it into corporate strategy, advancing activities that can support core business while meeting community needs. In practice, this type of corporate philanthropy is perhaps the hardest to define, as it varies both by the business and the community it serves. Ranging from providing new products to meet niche populations to providing worker training for the purpose of increasing diversity of labor supply or to fill a labor shortage, these programs tie activities to real business objectives rather than public relations activities. Strategies could include investing in inner cities, or creating housing for the poor or elderly.
At the 2002 World Economic Forum in New York City, CEOs presented a management Framework for Action that executive management teams can use to place corporate philanthropy at the core of business strategy. The group encouraged their peers to lead their companies to implement principles and practices for managing the company’s impacts on society and its relationships with stakeholders. Signatory CEOs commit to make every effort “to enhance the positive multipliers of their activities and to minimize any negative impacts on people and the environment, everywhere they invest and operate, recognizing that the frameworks adopted for being a responsible business must move beyond philanthropy and be integrated into core business strategy and practice.”
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