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Skyline Business School |
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Skyline Business School |
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Issue:5
From Corporate Philanthropy to profitability
and back…
Corporate philanthropy is on the decline. Charitable contributions
by companies, especially in the U.S., are falling year after year in real terms. Today,
companies find themselves in a no-win situation. The more companies donate, the more is
expected of them and executives find it extremely difficult to justify such expenditure in
terms of bottom- line benefit.
This dilemma has led many companies towards 'strategic'
philanthropy. But what is termed as "strategic" is almost never truly strategic,
nor fulfils the purpose of philanthropy. Companies find themselves stuck in advertising,
promoting its brand through cause- related marketing and high- profile sponsorships, which
do good to the society, but are intended to increase as much company visibility as create
social impact. Whether these approaches actually work or merely breed public cynicism
about company motives is questionable.
Given this dilemma surrounding corporate philanthropy, one needs to find out whether
corporations need to engage in philanthropy at all.
Economists argue that a corporation is an instrument of profit generation and hence, the
only social responsibility of business is to increase profits. However, this school of
thought advocates that social and economic objectives are distinct, and that a
corporation's social spending comes at the expense of its economic results. Corporations
can use philanthropy to improve their competitive context; the quality of business
environment in the location in which they operate, bringing social and economic goals into
alignment furthering its long- term prospects.
The second assumption it makes is that when corporations address social objectives, they
provide no greater benefit than individuals. This is not true as a company not only gives
money but can also leverage its capabilities and networks that produce social benefits far
exceeding individual charitable benefits.
The importance of 'corporate philanthropy' in present times requires fundamental changes
in the way companies approach such programs.
Where to focus
In the long run, social and economic goals are integrally connected.
Competitiveness today, depends upon the location in which a company operates, labor,
capital and natural resources, which it draws from the society. This depends on having
people who are educated, safe, healthy, motivated. Preserving the environment benefits not
only the society but companies too, because reducing pollution and waste leads to a more
productive use of resources, producing goods which customers' value. Hence, corporate
sector should be mobilized in ways that benefit both them and the society at large.
Most corporate expenditures generate benefits only for the business,
and charitable contributions unrelated to business does only social good. It is only when
corporate expenditures lead to a "convergence of interests" and produce
simultaneous social and economic gains that philanthropy is truly "strategic".
Competitive context has always been important to strategy. Availability of motivated
employees, local infrastructure and government regulations have always influenced
companies' ability to compete, and have become even critical, as the basis of competition
has moved from cheap inputs to superior productivity.
Philanthropy can be the most cost- effective way, and sometimes the only way to improve it
by enabling companies to leverage the efforts and infrastructure of non- profits and other
institutions.
Competitive context consists of four interrelated elements:
Factor conditions: Productivity depends on trained workers,
high-tech institutions, adequate infrastructure, natural resources and other areas which
philanthropy can influence. By pooling in efforts with other institutions, companies can
create coalitions to improve the local quality of life. Contributing to a university is a
far less expensive way to strengthen a local base of advanced skills than developing
training in- house.
Demand conditions: Demand conditions depend on the size of
the local market, product standards, sophistication of customers, who enhance
competitiveness by applying pressure for innovation. Philanthropy can influence the size
and quality of the local market as was done by Apple Computer when it donated computers to
schools as a means of introducing its products to young people.
Context for strategy and rivalry: Rules and norms governing
competition in a nation or region have a fundamental influence on productivity.
Philanthropy can have a strong influence on creating a more productive and transparent
environment by measuring and focusing public attention on corruption.
Related and supporting industries: Productivity can be
greatly enhanced by having high- quality supporting industries and services nearby, as
proximity enhances responsiveness, exchange of information and innovation in addition to
lowering transport costs. Philanthropy can foster the development of clusters, which are
more competitive, and grow better.
When 'corporate philanthropy' improves competitive context, the benefits may spill over to
other companies in the cluster, but the benefits reaped by the donor company remains
substantial. Not all competitors will be based in the same location, the leading company
will always be best positioned to reap maximum benefits, and the company who initiates the
philanthropy in alignment with its strategy will always benefit the most.
How to contribute
Understanding the ways in which philanthropy creates value
highlights how they can achieve the greatest social and economic impact. As we will see,
the where and how are mutually reinforcing. Focusing on the following principles ensures
that corporate donations have a greater impact than donations of the same magnitude by
individuals.
Selecting the best grantees: Philanthropic activities should
involve giving money to organizations that truly deliver social benefits. The impact
achieved by a donor is largely determined by the effectiveness of the recipient. Extensive
research is required to select such recipients, which individual donors rarely have the
time or expertise for.
Signaling other funders: A donor can publicize the most
effective non- profit organization and promote them to other donors, attracting greater
funding and thus creating a more effective allocation of overall philanthropic spending.
Their reputations command respect and they are often able to influence a wide network of
people.
Improving the performance of grant recipients: By improving
the effectiveness of nonprofits, corporations create value for society, increasing the
social impact achieved of the money expended.
Advancing knowledge and practice: Corporations can facilitate
global knowledge transfer and coordinated implementation of new social initiatives that is
unequalled by most other donors.
Corporations must remain focused not only on the public relation benefits but more
so on the impact achieved by their contributions so that they do not have to sacrifice any
opportunity to create social value.
If pursued systematically by corporations, context focused philanthropy can maximize value
not only for itself but also for the society at large, which in the long run maximizes the
betterment of the society.
Reviewed from Harvard Business Review-
by Priyanka
Chaudhary,BBA-L3-NAU
Comments and questions: info@skylinecollege.com
URL: http://www.skylinecollege.com
