Strategies Towards Impactful Corporate Philanthropy in the 2020s
Corporate social responsibility (CSR) is no longer a choice for businesses. Today, investors, consumers and stakeholders around the world expect that corporations and wealthy individuals give back to improve the community, society and the environment at large.
This sentiment also led to the revision of the Business Roundtable’s Purpose of a Corporation in August 2019, which was redefined to promote ‘an economy that serves all Americans’. The new statement was signed by over 180 CEOs and, while the document is focused on the United States, it symbolises a shift in business leaders recognising the importance of having to lead their companies for the benefit of all stakeholders, not just shareholders.
While Milton Friedman advocated that businesses maximise profits as their primary objective, it is often overlooked that he also suggested businesses should do so by “conforming to the basic rules of the society, both those embodied in law and those embodied in ethical custom.” As such, neither extremes of maximising profit at all costs, nor engaging in CSR (of which corporate philanthropy is one of them) to the detriment of shareholders, are sustainable business models.
Herein lies the dilemma. As stewards of shareholders’ investments, businesses must be accountable for how they deploy those resources. Yet, there is also increasing external expectations from the public and non-financial stakeholders to deploy those resources better and more sustainably. In this context, it is unclear if managers can be considered as responsible stewards when they deploy resources for CSR activities that are not related to a firm’s primary business or purpose, but which are nevertheless needed for the company to survive and to pay their own employees and suppliers.
Through my research, I have found that while CSR engagements can be valuable to firms, they are less so when firms are not financially healthy. For instance, is it socially responsible to run down a company in pursue of CSR engagements that yielded benefits incommensurate to job losses within the company and its supply chains, many times to sole breadwinners of families? As such, it is essential that conversations surrounding CSR engagements in general – and corporate philanthropy more specifically – need to be context-specific.
For businesses to fulfil their responsibilities towards immediate stakeholders, such as employees and shareholders, and still be responsible corporate citizens that conform to broader societal expectations, they must consider three critical points.
1. It’s not just about money – be purposeful and teach a man to fish
Over the years, society has moved away from the cliché of ‘more is better’ and the publicity stunts of philanthropy. High net worth individuals often come in for criticism for generously donating to well-publicised causes while ignoring the social challenges encountered in the communities where their businesses operate. This is a reminder of the perils of using such causes to engender goodwill without the right motives.
Although generous donations can be helpful, more purposeful and strategic philanthropy is likely to achieve greater impact. As the saying
goes, “Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime.” How much one gives is not necessarily as important as how resources are deployed for maximum impact.
2. Less can be more if done with purpose and effort
Similarly, it is important for firms to align what they do as a business with their corporate philanthropy activities. For example, my research shows that generous donations by firms operating in socially contestable industries are discounted, as they are often perceived as a type of ‘blood money’. More importantly, while doing good can be beneficial to firms, not all ‘good’ is created equal. That is to say, substance is more important than form.
This suggests several ways firms can enhance the impact of their philanthropy activities. For example, they should champion causes that are consistent with their company values and thereby enable mobilization of their employees’ support and participation. In this way, businesses can focus on fewer projects but commit to them for the long-term and see them through.
This also applies to individuals who don’t necessarily need to balance the interests of shareholders with those of other stakeholders. While their financial support creates resources and facilitates the causes, time and effort from individuals are essential for those charitable causes to come to fruition.
3. The right mindset is needed at all levels of an organisation
While senior leadership has the final say when it comes to choosing philanthropic causes and activities, all employees can be champions of causes and advocate for them internally. This means that social responsibility is felt throughout a business, regardless of job roles and scopes.
To ensure employees understand this, it is important for us to nurture individuals to be responsible citizens before they join the workforce. Educational institutions can play an important part in this by informing students of the roles they can play in the future.
At ESSEC Business School, for example, we require our students to participate actively in internships with social enterprises around the world. This is a way to ensure the next generation of leaders can internalise the importance of good business leadership, helping them to understand the broader context in which organisations operate.
When corporates and individuals engage in meaningful and purposeful charitable causes, inevitably some of their convictions will line up against one or more of the UN’s 17 Sustainable Development Goals. It is important that a company’s involvement or claims to be making a difference are not simply showboating or one-off engagements. Rather, their contributions should be genuine and driven by deep convictions that become longer-term commitments. Only then can we make real progress.
Professor Ping-Sheng Koh, Professor, Accounting and Management Control Department, ESSEC Business School
