Essec Business School

When companies provide cash and assistance in the wake of a natural disaster, make grants to charitable organizations, or set up a foundation of their own, the first question on many people’s mind is usually: what’s in it for the company? We question the sincerity of corporate philanthropy (an often perceived oxymoron) because we expect greed and rugged individualism from business executives and managers, rather than “the love of mankind”. As Professor R. Edward Freeman puts it, we are still trapped in “the old narrative of business as anything-goes capitalism”.

From motivations to outcomes

Academic research reflects this perspective, as about half of published articles are concerned with a single question: is corporate philanthropy altruistic or self-interested?  Scholars are intrigued by the true motivations of business executives, either relying on agency theory insights to conclude that they use “slack resources” for their own benefit, or seeing corporate philanthropy as a way for businesses to buy goodwill and reputation. While the discussion raises some fascinating ethical questions, focusing solely on motivations leads to a deadlock.

First, the multifaceted and subjective nature of human motivations makes it impossible to properly assess whether an action is genuinely altruistic or self-interested. As we know since the work of anthropologist Marcel Mauss, giving is a complex phenomenon of its own which mixes freedom to give and obligation to reciprocate, creates power imbalances, and so on.  Second, even if we could prove that company X gives on altruistic grounds, it would tell us nothing about the good or bad quality of its philanthropic activities. So, instead of spending endless efforts to decipher the motivations behind corporate philanthropy, I suggest we now focus on its consequences.

Don’t forget about impact on beneficiaries

To be fair, scholars have already tackled this issue. Nearly a third of academic papers on corporate philanthropy try to measure its outcomes in terms of image, business reputation, employee motivation, or customer loyalty. Rigorous empirical studies have identified a positive relationship between the amount invested in philanthropy and financial performance of businesses. “Doing well by doing good” is the motto that best captures this insight. Countless books and reports rephrase this finding and jump to the conclusion that businesses benefit from their giving.

However, as all scholars know, correlation does not imply causation. Is it that companies perform well because of philanthropy? Or is it that companies already performing well have sufficient resources, vision and strategy for philanthropy? Extant research does not allow us to answer this quandary. But the main problem of such research is that it’s entirely focused on the benefits for businesses, leaving an elephant in the room: is corporate philanthropy doing any good for the causes and beneficiaries it targets? Much additional research is currently needed to better understand and assess the social value created by philanthropic programs. The buzz around about evaluating the impact of philanthropy should also be applied to corporate giving, so that we focus more on its outcomes for recipients and society in general.

Is corporate philanthropy doomed?

A final misconception is the idea that corporate philanthropy is withering away.  Long considered the forerunner of corporate social responsibility (CSR) or its most discretionary element, philanthropy appears old-fashioned to many observers. Over the past decade or so, new concepts have emerged that rethink the links between business and society, beyond traditional grant-making from businesses to nonprofit organizations: social business, base of the pyramid and emerging markets, stakeholder capitalism, shared value, co-creation, etc. It is expected that businesses in the 21^st century will abandon “peripheral”, “diffused” corporate giving and develop practices that integrate social issues directly into the core activities of the business.

This evolution is probable, but I think corporate philanthropy still possesses two unique strengths that newer concepts do not. First, through matching grants and corporate volunteering programs for instance, it can leverage the generosity of all business stakeholders including staff, shareholders, clients and suppliers. Second, philanthropy can finance pilot projects that are innovative, risky, or not immediately profitable. Most, if not all, social entrepreneurs and nonprofit organizations do not solely require investments or market-based solutions, especially at early stages of their development. Philanthropy can provide useful “seed money” capital to projects which can then be scaled, diffused or replicated. Provided it is used wisely, corporate philanthropy still has a role to play for the common good.