Corporate Philanthropy and its Meaning

Discuss about the Business Discourse Colonizing Philanthropy.

The vibrant nature of the current market environment has subjected corporation to diverse ways of maintaining competitive advantage and market their brand name. Factors such as technological advancement, corporate unions, globalization and improvement in cash flow have opened up the market to new players further intensifying market competition. Therefore, organizations now strive to marry social and economic activities. The main reason for setting up a corporation is to obtain profits. However, to achieve this goal, there must be close coordination with the society. Furthermore, close observance of business ethics is vital for good performance. This notion of creating a positive societal image has seen the rise of corporate philanthropy in the global market. This increase has triggered mixed feeling in the economic world with some critic raising question on the effectiveness of this measure in the corporate world and society. However, there are those who support this move and view it as a humanistic move.  Therefore, this paper aims at exploring the function and effectiveness of corporate philanthropy. This is with the goal of justifying if more organization should adopt or avoid this course of action.

The term corporate philanthropy has gained popularity in the modern world with many people attaching its meaning to the acts of charity. However, it is vital to draw clear, distinctive lines between charity and corporate philanthropy. So, what is corporate philanthropy? According to Paetzold (2010, p. 60), Corporate Philanthropy is the act of corporations donating part of their profits or resources such as human resource to nonprofit organizations. Paetzold notes that the term is often used together with corporate giving. According to Brennan (2011, p. 544), the term has the same meaning as corporate social responsibility (CSR). Brennan further elaborates that such actions are geared towards addressing the welfare of the society and hence should be viewed as significantly independent on a business profitability. Therefore, according to Brennan, it is the obligation of the corporation to address the needs of the society regardless of whether they are operating on a profit or not. His view disagrees with Paetzold (2010), who urges that philanthropic actions are optional and depend on organization benefits. Such discrepancies on the meaning of the term have also led to disagreements on the relevance of corporate charitable activities. However, Mullerat (2010) points out that there is a big difference between corporate philanthropy and corporate social responsibility. According to Mullerat (2010, p.51), the main difference between the two is that philanthropy entails the acts of giving to the needy people or entities through charitable aid while CSR is an integration of managerial attitudes and strategies to promote human and global welfare which are incorporated in an organization’s operations. He further outlines that charitable giving and philanthropic actions are distinct from accompanies business and are not in its strategic plan. Hence, corporate social responsibility is a form of management and not a way of giving donations.

Approaches to Corporate Philanthropy

Organizations engage in various corporate philanthropic activities. These practices vary according to organizations. However, there are two conventional approaches employed by organizations in achieving this quest. One is through matching gift programs and the second one is through volunteer donation programs. This method aims at giving a donation to nonprofit organizations addressing the conditions of the needy in the society. According to Burlingame (2004), matching gift programs are contribution programs that will match employees’ donation to qualifying nonprofit organizations. On the other hand, a volunteer donation program is when the employees donate their time to nonprofit entities. The donations are directed to organizations which deal with issues affecting humanity. For instance, they can be used to finance education program, health problems or clean water supply. The choice depends on the donating organizations. Some agencies such as Google have advanced their philanthropic approaches from mere donations to technological advancements.

When the concept of corporate philanthropy first emerged, people associated it with charitable gifts and never attached business importance to the practice. However, Paetzold (2010, p.60) outlines that modern corporations have aligned this practices with their activities to enhance their competitive market advantage. This is what he calls “New corporate philanthropy.”  According to Paetzold, this change is due to the pressure to balance between stakeholders’ objectives and the overall communities’ expectation of responsibility. Therefore, it is more like a tag of war. Remember both the stakeholders and the society is critical components of an institution. The stakeholders own the firm while the community purchases the good and services from organizations. Therefore, it is the role of executives to monitor these opposing forces. They are opposing since each would want their demands addressed adequately.

The question on the effectiveness of corporate philanthropic has raised heated debates over the years. However, a keen analysis of these arguments leads to one solution that is the efficiency of this initiatives depends on perception. Because from a financial point of view, one might see them as a waste of money since the aim of a business is to maximize profits (lucky, et al., 2012). For the socialists, the move is effective since it addresses societal needs. However, for the economists, the effectiveness of the initiative will depend on the organization’s objectives. According to Bruch and Walter (2005), a cohesive philanthropic strategy is essential for the success of corporate philanthropy. They reiterate that most the failed charitable initiatives by firms are due to lack of proper planning. Hence they advocate for the strategic philanthropic approach. This is the one who unites both the needs of the external players and the unique competencies of the donating firm.

New Corporate Philanthropy

Organizations have employed corporate philanthropy as a tool to create a positive public image. This is more common in a firm whose operations have negative societal impacts such as the tobacco industries. According to Tesler and Malone (2008), Philip Moris succeeded in changing the image of the tobacco industry in the United States through philanthropic initiatives. His efforts made him win over policymakers, public health policies and thus improving his company image. However, they note that such moves cause more harm than good to the society. This is because companies continue producing harmful substances to the society and cover up using philanthropic initiatives. This is only an indication of how powerful Corporate philanthropic is on community’s psychology.

In a study to establish the effects of philanthropy initiatives on consumer-company identification, Lii and Lee (2012), found out that corporate philanthropic efforts have significant effects on consumer-company identification and brand attitude. However, they note that the level of the effect depends on individual organization’s charitable efforts. This is where leadership efficiency plays a vital role (Peloza et al., 2009).  Leaders are the ones with the mandate of designing corporate philanthropic strategies. Since many organizations are doing the same thing, individual brilliance of a leader can make is or her initiative more efficient than the rest.

However, the level of effectiveness of this actions has been questioned. According to Porter and Kramer (2012), corporate philanthropy is on the decline because most executives see them as a no-win situation. This is because it creates tension between the society and investors. The investor focuses on maximizing short-term profits of their investments while the community continues to demand more contributions from the firms. Porter and Kramer note that the more the companies contribute, the more the society demands. Furthermore, the executives are always in tight situations to explain and justify charitable disbursements on bottom-line expenditures (Porter & Kramer, 2002). Porter and Kramer see corporate philanthropy as an ineffective approach of marking a firm brand. They reinstate the role of a corporation, which is to make profits. Furthermore, they argue that a company is a tool of the stakeholders who own it. Therefore, it is only the stakeholders who should decide how to spend their income not the organization. When establishments engage in corporate philanthropy, they infringe the investor’s freedom of using funds from their investments (Porter & Kramer, 2002). They further acknowledge that, regardless of the name given to this initiative such as smart or strategic philanthropy, an overhaul is required in the whole approach to clearly defines the benefits which stakeholders and the society obtain from this practices. Wirgau et al. (2010) concur with the arguments put forth by Porter and Krammer, on the relevance of this, acts to the society. They claim that the modern firms have diluted the meaning of corporate philanthropy to marketing philanthropy. Organizations are using the approach of donation to the campaign for consumption of individual product which some are of adverse effects to the society. This is against business ethics; because a good thing cannot be used to cover for the bad. Therefore, companies should be transparent on the contents in the products they produce.

Effectiveness of Corporate Philanthropy

Conclusively, corporate philanthropy is an excellent and smart idea. The program has been effective in supporting numerous humanitarian activities such as the fight against HIV and AID, poverty eradication, clean water provision and mitigating epidemics. Presently, such donations are the ones supporting those individuals in nations experiencing civil wars and terrorist attacks. There are kids whose education have been financed through this approach. Therefore, it is a vital move towards attaining a better society. However, proper planning is essential to maximize the efficiency of this program. Furthermore, firms should avoid using this approach to exploit the community through promoting consumption of products which cause health problems such as tobacco. However, I would encourage more organization to incorporate this practice in their activities and construct strategies to efficiently execute it since it is a way of appreciating the society. Furthermore, it is a way of marketing their brand through creating a positive public image.

Reference List

Brennan, D., 2011. Corporate Social Responsibility: The Corporate Governance of the 21st Century International Bar Association Series. 2nd ed. AH Alphen: Kluwer Law International.

Bruch, H. & Walter, F., 2005. The Keys to Rethinking Corporate Philanthropy. MIT Sloan Management Review, 47(1), pp. 49-55.

Burlingame, D., 2004. Philanthropy in America: A Comprehensive Historical Encyclopedia, Volume 1. Califonia: ABC-CLIO.

Lii, Y.-S. & Lee, M., 2012. Doing Right Leads to Doing Well: When the Type of CSR and Reputation Interact to Affect Consumer Evaluations of the Firm. Journal of Business Ethics, pp. 69-81.

Lucky, O.-I. E., Olusegun, I. A. & Bakar, S. M., 2012. Determinants of Business Success: Trust Or Business Policy? Researchers World, 3(3), pp. 37-42.

Mullerat, R., 2010. International Corporate Social Responsibility: The Role of Corporations in the Economic Order of the 21st Century. AH Alphen: Kluwer Law International.

Paetzold, K., 2010. Corporate Social Responsibility: An International Marketing Approach. Hamburg: Diplomica Verlag.

Peloza, J., Hudson, S. & Hassay, D. N., 2009. The Marketing of Employee Volunteerism. Journal of Business Ethics, suppl. Supplement, pp. 371-386.

Porter, M. E. & Kramer, M. R., 2002. The competitive advantage of corporate philanthropy. Harvard business review, 80(12), pp. 56-68.

Tesler, l. E. & Malone, R., 2008. Ethical Conduct in Public and Private Arenas: Corporate Philanthropy, Lobbying, and Public Health Policy. American Journal of Public Health, 98(12), pp. 123-2133.

Wirgau, J. S., Farley, K. W. & Jensen, C., 2010. Is Business Discourse Colonizing Philanthropy? A Critical Discourse Analysis of (PRODUCT) RED. Voluntas, 21(4), pp. 611-630.