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The Promise of a Managerial Values Approach

to Corporate Philanthropy

Jaepil Choi

Heli Wang

ABSTRACT. This article presents an alternative

rationale for corporate philanthropy based on managerial

values of benevolence and integrity. On the one hand,

top managers with benevolence and integrity values are

more likely to spread their intrinsic concern for others

into the wider society in the form of corporate philan-

thropy. On the other hand, top managers high in

benevolence and integrity are likely to contribute to

improved managerial credibility and trusting firm-stake-

holder relationships, thereby improving corporate finan-

cial performance. Therefore, the article makes the

argument that both corporate philanthropy and corporate

financial performance can better be interpreted as result-

ing from managers benevolence and integrity values.

KEY WORDS: corporate financial performance, corpo-

rate philanthropy, managerial values, stakeholders

Business corporations continually encounter pressure

from groups of social and community activists to

participate in philanthropic causes (Margolis and

Walsh, 2003; Smith, 1994). Some firms have re-

sponded to these heightened pressures by devoting

substantial resources to promote social welfare. For

example, approximately $12 billion in cash as well as

in-kind donations were made by business corpora-

tions during 2004, up 7.3% from the $11.18 billion

recorded for 2003 (Giving USA, 2005). Many othersfirms, however, decide not to become involved in

philanthropic causes at all.

The divergence in corporations responses to the

call of philanthropic causes has stimulated some de-

bate regarding why public corporations engage in

corporate philanthropy and how corporate philan-

thropy relates to corporate financial performance.

Some opponents of corporate philanthropy hold an

agency perspective. This perspective is based on the

classical argument made by Friedman (1970), who

suggested that corporate philanthropy is the result of

top managers desires to fulfill their own needs at the

expense of shareholders. According to this view,

there are few economic benefits to be gained from

corporate philanthropy, but numerous costs associ-

ated with it. Furthermore, the costs of philanthropic

causes should be borne by charitable not-for-profit

organizations or individuals instead of by public

firms because valuable corporate resources should be

used to improve the firms operational efficiency.

The reason for some firms engaging in corporate

philanthropy, therefore, is that philanthropy can

benefit top managers themselves by, for example,enhancing their reputations within their social circles

or furthering their political and career agendas

(Friedman, 1970; Galaskiewicz, 1997; Werbel and

Carter, 2002). Sometimes top managers may even

engage in philanthropic activities purely because of

their other-regarding values (Buchholtz et al., 1999;

Salancik and Pfeffer, 1977) without deriving any

political or career benefits. But to the extent that

corporate philanthropy diverts valuable corporate

Jaepil Choi is an Assistant Professor at the Hong Kong Uni-

versity of Science and Technology. His research is focused on

organizational justice perceptions, leadership, work-family

interface issues, and corporate social performance. He has

published in Academy of Management Journal, Journal ofInternational Business Studies, Journal of Organizational

Behavior, Leadership Quarterly, Administration & Society,

and Management and Organization Review.

Heli Wang is currently an Assistant Professor in strategic manage-

ment at the Hong Kong University of Science and Technology.

Her areas of interests are in the resource-based view of the firm,

stakeholder incentives, risk management and social performance.

She has previously published in Academy of Management

Review, Journal of Economic Behavior and Organization,

Journal of Applied Psychology, and Long Range Planning.

Journal of Business Ethics (2007) 75:345359 Springer 2007

DOI 10.1007/s10551-006-9257-4

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resources that could be spent on increasing organi-

zational efficiency, it still represents a form of agency

costs that reduce the firms value and shareholder

wealth (Helland and Smith, 2003). Therefore, the

agency argument suggests that corporate philan-

thropy may reduce an organizations financial

performance (Figure 1).

The agency perspectives main arguments regard-

ing corporate philanthropy, however, have been

challenged by some recent studies that hold a perfor-mance-enhancing view of corporate philanthropy

(e.g., Drucker, 1984; Porter and Kramer, 2002;

Reder, 1995). In contrast to the agency argument,

these studies suggest that managers decision to engage

in corporate philanthropic activities can indeed im-

prove firm financial performance and shareholder

wealth. The financial benefits to a firm may arise, for

example, from the goodwill, the positive image and

the improved reputation that are created by corporate

involvement with philanthropic causes (Haley, 1991).

Positive social image and reputation lead to enhancedmorale among employees and greater loyalty among

suppliers and customers; and they may also influence

regulators and government officials in ways that ben-

efit corporations financially (Figure 2). Furthermore,

despite differences in sampling, methods and mea-

surement (Margolis and Walsh, 2003), many studies

have found support for a positive relationship between

corporate social performance1

and corporate financial

performance (Griffin and Mahon, 1997; Orlitzky et

al., 2003; Roman et al., 1999), a result that seems to be

consistent with the argument that corporate philan-

thropy improves firm financial performance.Although the key argument for the positive effect

of corporate philanthropy on corporate financial

performance has gained increasing acceptance and

received largely consistent empirical support, several

key issues remain to be resolved.First, the current state

of the research still lacks integrative and systematic

frameworks that illustrate the underlying mechanisms

and contingencies through which corporate philan-

thropy is associated with corporate financial perfor-

mance2

(Orlitzky et al., 2003; Rowley and Berman,

2000; Ullmann, 1985; Wood and Jones, 1995). As a

result, the literature still falls short in guiding futureresearch and helping practitionersto makeappropriate

corporate policies regarding philanthropic activities.

Second, although there is some support for a positive

relationship between corporate philanthropy and

corporate financial performance, because of the

existing studies lack of due consideration of causality

in this relationship (e.g., Hillman and Keim, 2001;

Waddock and Graves, 1997), we are unable to con-

clude that corporate philanthropy leads to greater

financial performance.Lastly, agency-related variables

such as managers shareholding, ownership structure,board composition and managerial discretion have

been continually cited as the most robust factors that

predict corporate philanthropy (e.g., Atkinson and

Galaskiewicz, 1988; Bartkus et al., 2002; Boatsman

and Gupta, 1996; Helland and Smith, 2003; Johnson

and Greening, 1999; Wang and Coffey, 1992). If

managers engage in more corporate philanthropy

when they are able to act out of self-interest and

personal preferences, we should not observe that on

average corporatephilanthropy is positively associated

with financial performance.3

However, the weight of

evidence seems to support a positive philanthropy-performance relationship, inconsistent with the

agency theory argument.

Corporate

Philanthropy

++

Corporate image and

reputation

Enhanced morale and loyalty

among stakeholders

Advertising

Corporate

Financial

Performance

Figure 2. The performance-enhancing perspective of corporate philanthropy.

Top Managers:

Concern for reputation

Personal needs and values

_+ Corporate

Philanthropy

Corporate

Financial

Performance

Figure 1. The agency perspective of corporate philanthropy.

346 Jaepil Choi and Heli Wang

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Incorporating ideas from organization theory,

strategic management and social psychology, this

article provides alternative explanations for corporate

philanthropy and its relationship with corporate

financial performance, and attempts to resolve theissues highlighted above. The main argument of the

article is drawn from the observation that managerial

values4 strongly influence organizational behavior

(Beach and Mitchell, 1978; Hambrick and Mason,

1984; Hemingway and Maclagan, 2004). Strategic

behavior and decision-making in organizational

settings can, therefore, be viewed as reflections of

the values of top managers. The managerial values

that are of particular interest in this context are

benevolence and integrity. Benevolence leads man-

agers to demonstrate intrinsic concern for others,while integrity results in managerial behaviors that

are consistent with their values and/or based on

morally justifiable principles.

It will be argued in this article that, on the one

hand, top managers with benevolence and integrity

values are more likely to spread their intrinsic con-

cern for others into the wider society in the form of

corporate philanthropy. On the other hand, top

managers high in benevolence and integrity are

likely to contribute to trusting firm-stakeholder

relationships, thereby improving corporate financial

performance. The key argument made in this article,

therefore, is rather different from the conventional

argument that corporate philanthropy directly leads

to higher corporate financial performance. Instead, it

suggests that the relationship between corporatephilanthropy and corporate financial performance

found in the existing literature may be largely

spurious. An organizations philanthropic activities

and financial performance may be correlated, but

this relationship is not necessarily a causal one: Both

corporate philanthropy and corporate financial per-

formance can be the results of managerial values

(Figure 3). In fact, this argument is in accord with

the role of integrity in strategic leadership suggested

by Worden (2003). According to Worden, tension

can occur when strategic planning is aimed atenhanced financial performance while the firms

mission strives to contribute to the wider society.

Here, integrity can function as a mediator providing

for credible leadership that resolves this tension. In

this regard, this article expands Wordens (2003)

argument on integrity to also include managerial

benevolence as such a mediator.

The article thus directly contributes to the extant

literature that examines the relationship between

corporate philanthropy and corporate social perfor-

mance: The role of managerial values should be

Managerialcredibility and

stakeholder

trust

Corporate

philanthropy

Corporate

financial

performance

Managerial values:

Benevolence

Integrity

Organizational

culture

Figure 3. A managerial value model of corporate philanthropy.

The Promise of a Managerial Values Approach to Corporate Philanthropy 347

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explicitly taken into consideration in order to discover

the true philanthropy-performance relationship.

Further, this article also contributes to the literature

on the antecedents of corporate philanthropy, by

outlining a much richer argument for the role ofbenevolence and integrity values in affecting corpo-

rate philanthropy and the mediating role of organi-

zational culture. Although some previous empirical

studies have established some association between

managerial values and corporate social activities

(e.g., Buchholtz et al., 1999; Lerner and Fryxell, 1994;

Thompson et al., 1993), their discussions were often

limited to very general terms and thus did not identify

the specific managerial values. Furthermore, few

studies have discussed the indirect link between

managerial values and corporate philanthropythrough organizational culture.

The main focus of the article, therefore, is to

argue for two main inter-related relationships. The

first is that between managerial values (i.e., benev-

olence and integrity) and corporate philanthropy:

Managers high in these values are more likely to

spread their concern for the welfare of others to

community settings in the form of corporate

philanthropy. The second relationship is that

between managerial values and corporate financial

performance: The same set of values also helps to

build trust among the firms primary stakeholders,which in turn may contribute to the firms financial

performance. We now turn to the discussion of the

first relationship between managerial values and

corporate philanthropy.

Managerial values and corporate

philanthropy

Managerial values

Individual values are fundamental elements in

peoples belief systems. They consist of definable

goals that motivate and guide peoples preferences,

attitudes, and behaviors (Bardi and Schwartz, 2003;

Rokeach, 1973; Schwartz, 1992, 1994). Individuals

demonstrate considerable differences in personal

values and beliefs (Middlemist and Hitt, 1981;

Schwartz, 1992).5 Due to a need for consistency

between ones values and actions (Rokeach, 1973)

and the reward one obtains from taking actions

consistent with ones values, people often behave in

ways that express their important values or promote

the attainment of those values (Bardi and Schwartz,

2003). It then follows that managerial values, which

reflect the managers philosophical view of howothers inside and outside the corporation should be

treated, are fundamental to managerial decision-

making (Beach and Mitchell, 1978; Buchholtz

et al., 1999; Hemingway and Maclagan, 2004) and

strongly influence organizational outcomes (Hage

and Dewar, 1973). Similar argument also emerges

from the upper echelons perspective (Finkelstein and

Hambrick, 1990; Hambrick and Mason, 1984),

which suggests that managerial values and charac-

teristics combine with top managers eventual per-

ception of a situation to provide the basis for makingstrategic choices.

Among multiple values of managers, of direct

relevance to corporate philanthropy are clusters of

managerial values that reflect benevolence and

integrity. According to Schwartzs (1992) value

structures, benevolence encompasses all those spe-

cific values having as their core objective the pres-

ervation and enhancement of the welfare of others.

Therefore, top managers who value benevolence

show understanding of and appreciation for the

welfare of others and attempt to promote it. In this

sense, benevolence shares the common feature ofplacing others welfare ahead of ones own, in

common with some of the other-regarding values

that have been emphasized in previous studies, such

as altruism (Batson, 1991; Krebs, 1970), concern for

others (Korsgaard et al., 1996), and social interest

(Crandall, 1975). Another dimension of managerial

values relevant to this discussion is integrity. In this

article, we define integrity as encompassing two key

elements, both of which are essential for a complete

understanding of its meaning. The first element of

integrity refers to consistency between an individ-uals values and behavior; and the second element

refers to the adherence to the moral principle of

fairness. The first element of integrity, i.e., consis-

tency between values and behaviors, has been argued

by various researchers (Badaracco and Ellsworth,

1989; Simons, 1999; Yukl and Van Fleet, 1992;

Worden, 2003). For example, Yukl and Van Fleet

have stated integrity means that a persons behavior

is consistent with espoused values (1992, p. 151).

Similarly, Worden has defined integrity as consistency


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between word and deed, in line with a consistent

set of principles or commitments, especially in

the context of a temptation or challenge to the

contrary (2003, p. 33). Integrity, however, means

more than mere consistency.6 It also refers toadherence to a set of principles. Although no

agreement has yet been reached regarding which

specific principles are required for integrity

(Worden, 2003), it is often argued that they must

be morally justifiable. For example, fairness and

honesty are often cited as necessary (Badaracco and

Ellsworth, 1989), although not sufficient (Becker,

1998), principles underlying integrity. In this article,

we combine these two aspects of integrity to posit

that managers who value integrity are considered

more likely to demonstrate both consistencybetween their values and behavior and adherence to

fairness as its underlying moral principle. The

inclusion of fairness in the definition of integrity is

particularly relevant in the context of this article,

where interpersonal dynamics between managers

and other stakeholders (and society at large) is the

primary concern.

Before proceeding, it is worth noting that that

although we focus on benevolence and integrity,

these values are only part of a top managers value

system, which is typically composed of multiple

values ranked in a hierarchy (Hambrick andBrandon, 1988). Top managers may be confronted

by situations in which they cannot satisfy all their

values. For example, they may sometimes have to

choose between fulfilling their duty to an organi-

zation and devoting resources to the community.

When there are conflicts among multiple values,

they will submerge other values in favor of the

dominant values at the top of their value systems.

Thus managers can indulge their benevolence and

integrity values only when these values do not

conflict with other values or they are dominant intheir value systems.

Benevolence and integrity values as the antecedents

of corporate philanthropy

In this section, the contention that top managers

benevolence and integrity affect a firms likelihood

of engaging in corporate philanthropic activities,

both directly and indirectly through top managers

influence on organizational culture (see Figure 3),

will be explored in greater detail.

Corporate philanthropy is, by definition, gifts

given by corporations to social and charitable causes.

It is generally considered as a component of thelarger domain of corporate social responsibility.

Carroll (1979) identified four levels of corporate

social responsibility: economic, legal, ethical, and

discretionary. Since corporate philanthropy often

extends beyond areas that are directly associated with

a corporations business relationships, it fits within

the discretionary category of social responsibility,

which has been weighted the lowest in importance

among the four categories. Wood, for example, rates

corporate philanthropy as last in, first out (1991,

p. 698) on a firms action inventory. Thus philan-thropic contributions are generally described as

purely voluntary (Hemingway and Maclagan, 2004;

Wood, 1991). Such a categorization of corporate

philanthropy suggests that top managers at the apex

of the corporate hierarchy are likely to be the key

players in setting policies and making decisions about

corporate philanthropy (Buchholtz et al., 1999).

Indeed, according to Salancik and Pfeffer (1977),

administrator (manager) impact is greatest for issues

not directly subject to the constraints established by

powerful interest groups. Similarly, Galaskiewicz has

stated that corporate philanthropic contributionsfall to the discretion of managers who can only use

their good judgment in deciding whether to give

and at what level (1997, p. 445). The discretionary

nature of corporate philanthropy suggests that

philanthropic activities are largely under manage-

rial discretion (Finkelstein and Hambrick, 1990;

Hambrick and Finkelstein, 1987). Thus top man-

agers personal characteristics, such as the values that

they hold, are expected to play a significant role in

decisions on corporate philanthropy.

The evidence provided by some empirical studies,albeit limited, seems to be supportive of the exis-

tence of a relationship between managerial values

and corporate philanthropy. For example, Lerner

and Fryxell (1994) found that corporations demon-

strate high levels of corporate philanthropy when top

managers are scored high in community orienta-

tion,7

which is a proxy for managerial values. Using

similar measures of managerial values, Thompson

et al. (1993) have reported that in small businesses,

owner values are the most important factor


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predicting levels of charitable donations. In addition,

a study by Buchholtz et al. (1999), which measured

managerial values by asking top managers to weight

the relative importance of six different organizational

goals, demonstrated that managerial values empha-sizing service to the community is positively

associated with corporate philanthropy.

Benevolence, integrity, and corporate philanthropy

As we have seen, a key feature of benevolence

is a concern for others welfare, like similar other-

regarding values such as altruism (Batson, 1991;

Krebs, 1970). Since benevolent top managers are

more likely to show understanding of and appreci-

ation for the welfare of others, and to act to promote

it, their intrinsic concern for other people is likely tobe expressed in the form of corporate philanthropy

that enhances social well-being.

Consistent with the above argument, Campbell

et al. (1999) have demonstrated in a study of food

distributors and producers that top managers social

consciousness could reliably predict which firms

would or would not indulge in philanthropic

activities. In addition, Agle et al. (1999) examined

the levels of CEOs self-interest versus their other-

regarding interest, a construct similar to benevo-

lence, and reported that CEOs compassion for

others and willingness to work for the welfare ofothers were associated with philanthropic service to

the community. Therefore, firms with top managers

who value benevolence would be expected to en-

gage in greater corporate philanthropy. As managers

vary greatly in their values (Hambrick and Brandon,

1988; Hambrick and Mason, 1984), substantial var-

iation in corporate philanthropy as a function of such

variability is to be expected.

Proposition 1a: Managerial benevolence has a positive

effect on a firms likelihood ofengaging in corporate philanthropic

activities.

In addition to benevolence, integrity is also expected

to affect corporate philanthropy. Based on our def-

inition of integrity as encompassing both consistency

between values and behavior and adherence to

fairness as a fundamental moral value, we argue that

integrity affects corporate philanthropy in two

interrelated ways. First, integrity is expected to

moderate the relationship between managerial

benevolence and corporate philanthropy highlighted

in Proposition 1a. Since one important aspect of

integrity is the consistency between words anddeeds, or between an individuals values and

behaviors (Simons, 1999; Yukl and Van Fleet,

1992), top managers with integrity should be more

likely to engage in behaviors that are consistent with

the values that they hold. This suggests that benev-

olent top managers with integrity will be more likely

to behave according to their value of benevolence in

organizational decision-making. Integrity thus

ensures that behavior based on the value of

benevolence will be delivered to stakeholders with

consistency, regardless of the existence of directbusiness relationships with the stakeholders. There-

fore, when a benevolent top manager also values

integrity, the effect of managerial benevolence on

corporate philanthropy will be stronger than when

the top manager only values benevolence but is lack

of integrity.

Proposition 1b: Managerial integrity positively mod-

erates the effect of benevolence on a

firms likelihood of engaging in

corporate philanthropic activities.

In addition to the moderating effect of integrity on the

relationship between benevolence and corporate

philanthropy, managerial value of integrity may have

some direct impact on corporate philanthropic activ-

ities as well. Another important aspect of integrity is

the adherence to principles deemed morally accept-

able8 (McFall, 1987). For example, some authors argue

that integrity involves adherence to moral and ethical

principles (Simons, 1999, p. 90) or includes moral

obligation (Husted, 1998). Becker (1998) has also

stated that the principles in integrity require moraljustification.

While there is no overall agreement on the specific

principles that underlie integrity (Worden, 2003), it

may be possible to identify the particular moral

principles that are relevant to corporate philanthropy.

Several researchers (e.g., Bews and Rossouw, 2002;

Mayer et al., 1995) have suggested that fairness

should be considered one of the moral principles

underlying integrity. Fairness refers to equal moral


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consideration of the interests of others (Bews and

Rossouw, 2002, p. 382), as seen in the common

metaphor of a level playing field. Mayer et al.

(1995) have pointed out that the belief that a person

has a strong sense of fairness affects the degree towhich the person is judged to have integrity. McFall

(1987) also states that a key requirement for moral

integrity is impartiality, a construct close to fairness.

In the moral connection between a business and its

many social constituencies, corporate philanthropy

can be understood as a mechanism for managers to

promote fairness in society by alleviating its burdens.

For example, firms may endeavor to level the playing

field by equalizing opportunities for education for a

disadvantaged group (Schwartz and Post, 2002).

Similarly, programs supporting childcare, culturalevents, minority education, and sports activities help

people in local communities enjoy similar quality of

life. A concern for fairness has also prompted many

U.S. companies to give a big donation to victims of

9/11 or of natural disasters, victims who are generally

considered to have been unfairly damaged.

A concern for fairness, one of the moral principles

underlying integrity, is thus likely to result in greater

corporate philanthropy. It then follows that a man-

ager who values integrity will also value fairness as a

moral principle and will be more likely to engage in

corporate philanthropy. Therefore,

Proposition 1c: Managerial integrity has a direct

positive effect on the likelihood of

engaging in corporate philanthropic

activities.

Organizational culture as a mediator

The discussion so far has focused on the direct effect

of the values held by a firms top managers on the

firms likelihood of engaging in corporate philan-

thropy. However, the direct effect of managerialvalues may be limited, to the extent that top

managers are not always in direct charge of decision-

making regarding corporate philanthropic activities.

For example, many large firms have set up inde-

pendent corporate foundations to institutionalize

philanthropic programs, which to some extent re-

duce the direct influence of top managers in making

decisions about corporate philanthropic activities

(Werbel and Carter, 2002). Moreover, in some

firms, authority to make these decisions is delegated

to specialized divisional managers (Saiia et al., 2003;

Waddock and Boyle, 1995). When other specialized

managers plan, execute, and monitor philanthropic

programs, the influence of top managers would be

expected to dwindle. Therefore, the argument thattop managers values will directly determine

corporate philanthropic activities may be an over-

simplification.

Still, top managers can, at least in part, have an

impact indirectly via their influence on organiza-

tional culture. Organizational culture describes the

social interactions among members of an organiza-

tion (Rousseau, 1990). It shapes members behav-

ioral patterns and creates an environment in which

certain behaviors are encouraged and receive support

(Trice and Beyer, 1993). Although top managers areaffected by already established organizational values

and culture, they are also often considered the

architect of their organizations culture (Day and

Lord, 1988; Schein, 2004). Their influence on

organizational culture can even go beyond their

career span in firms (Zucker, 1986).

Top managers can, in various ways, affect the

formation of a corporate culture and thereby pro-

mote patterns of behavior that are consistent with

their personal values throughout the entire orga-

nization. They indoctrinate and socialize employees

to their ways of thinking through, for example,speeches, stories, rituals, and mission statements.

They also mold organizational culture through

daily management practices, strategic decision-

making, and other exemplary behaviors that reflect

their personal values. They also interpret social

reality faced by organizational members in such a

way that particular values are emphasized (Smircich

and Morgan, 1982). Over time, organizational

members may thus develop mental schema that are

consistent with the managers values, ideologies,

and strategies.Top managers personal integrity may also shape

organizations moral culture through its role in

facilitating the development of integrity capacity at

the firm level. According to Petrick and Quinn

(2000, 2001), integrity capacity is the individual

and/or collective capability for repeated process

alignment of moral awareness, deliberation,

character and conduct that demonstrates balanced

judgment, enhances sustained moral develop-

ment and promotes supportive systems for moral


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decision-making. Integrity capacity encompasses

four dimensions of firm capability: process, judg-

ment, development, and system. These dimensions

of integrity capacity represent the firms capacity to

be aware of moral issues and to prepare to act, tomake balanced judgments on those issues, to foster

an ethical work culture in the firm, and to institu-

tionalize organizational policies and systems to

handle moral complexity. Therefore, to the extent

that the integrity of top managers influences a firms

capacity to foster an ethical work climate and to

institutionalize relevant policies for ethical issues, it

reinforces an organizational culture that emphasizes

integrity (Petrick and Quinn, 2000, 2001).

Top managers values can also shape organiza-

tional culture through attraction-selection-attritioncycles (Schneider, 1987). As managerial values

become integrated into the normal channels of

organizational decision-making, such as the devel-

opment of missions and strategic goals, the allocation

of resources, and the promotion of key employees,

those values will have an impact on the type of

people who are attracted to, are selected by, and

stay with the organization. Over time, people who

belong to the same organization become more alike

because organizations tend to attract and retain those

individuals who appreciate top managers values and

organizational culture, while those who do not fitthe culture leave (Schneider, 1987).

Taken together, though many other factors

can affect the formation of organizational culture

(Martin et al., 1985), top managers play a very

crucial role in influencing culture as they pass down

their own values to other organization members

through their direct influence or through the

development of organizational integrity capacity. In

addition, top managers may also influence culture

through the process of attracting and retaining those

who appreciate their values (Schein, 2004). It thenfollows that a firm with a top manager who values

benevolence and integrity is likely to have an

organizational culture that promotes such values. As

a result, benevolence and integrity values provide a

behavioral norm that organizational members follow

when they interact both among themselves and with

outside stakeholders. For instance, to the extent that

those directly in charge of corporate philanthropic

activities internalize the values of the top managers,

top managers benevolence and integrity values will

indirectly affect a firms likelihood of engaging in

corporate philanthropic activities. So, even when

independent corporate foundations are not directly

controlled by top managers, the activities of such

charitable foundations may reflect an organizationalculture as established on the basis of top managers

values. Therefore,

Proposition 2: Managerial benevolence and integrity

have an indirect effect on a firms

likelihood of engaging in corporate

philanthropic activities through the

top managers impact on organiza-

tional culture.

Managerial values and corporate financial

performance

Having discussed the relationship between manage-

rial values of benevolence and integrity and corpo-

rate philanthropy, we move onto examine the effect

of the same set of managerial values on corporate

financial performance. In particular, we argue that

managerial benevolence and integrity should en-

hance top managers credibility and help to generate

trust among stakeholders, both directly and indi-

rectly through top managers influence on organi-zational culture. High levels of credibility and trust

will, in turn, augment corporate financial perfor-

mance (see Figure 3).

Benevolence is likely to influence trust forma-

tion through an attribution process. Stakeholders

draw inferences about top managers intentions and

motives by looking behind their words and

behaviors (Deutsch, 1973; Doney et al., 1998). If

stakeholders perceive top managers to behave pre-

dominantly according to self-interested motives,

they are unlikely to trust the managers. In contrast,if an attribution of benevolent intentions is made

by the stakeholders, a trusting relationship will

develop (Lindskold and Bennett, 1973). To the

extent that top managers benevolent values lead

them to demonstrate genuine interest in the welfare

of stakeholders and society and to the extent that

the interpretation of such benevolent intentions by

the stakeholders is facilitated, for example, through

sufficient interactions between the two parties,

stakeholders will experience affective attachments


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to top managers (Williams, 2001). As a result, trust

emerges in the relationship between top managers

with benevolent values and the firms stakeholders.

On the other hand, integrity may affect the

development of managerial credibility and trustbetween a firm and its stakeholders through a

prediction process (Doney et al., 1998). When

managers demonstrate integrity, i.e., when the

managers future behavior is predictable based on

their past actions and words, the credibility of the

managers is established (Simons, 1999, 2002;

Worden, 2005). Managerial credibility is in turn

necessary for the development of stakeholder

commitment and trust between the two groups

(Good, 1988; Whitener et al., 1998).

In addition to their direct effects on firm-stake-holders trust formation, managerial values of

benevolence and integrity may also influence cred-

ibility and trust indirectly through organizational

culture as a mediator. To the extent that organiza-

tional culture reflects and supports top managers

values, employees will be influenced and guided by

those values in their interactions with stakeholders.

Furthermore, as we have argued earlier, the personal

integrity of top managers facilitates the development

of integrity capacity at the firm level, which in turn

reinforces an organizational culture that emphasizes

integrity. In particular, a firms capacity to foster anethical work climate and to institutionalize policies

to handle ethical issues allows stakeholders to attri-

bute a moral character to the firm at the system level

(Petrick and Quinn, 2000, 2001). Thus, while some

stakeholders, such as suppliers and customers, may

not have direct contact with the top managers

themselves, they can be indirectly affected by the top

managers values when they interact with employees

who have internalized the same values. So to the

extent that top managers benevolence and integrity

values are institutionalized and become embedded inan organizations culture over time, the organization

is likely to be perceived by stakeholders as a

trustworthy entity. Hence organizational culture

promoted by top managers values may have a

long-term and persistent effect on credibility and

trust formation.

High level of managerial credibility and trust

between a firm and its stakeholders, either as a direct

result of managerial values of benevolence and

integrity, or as an indirect result of these values

through organizational culture, often has financial

consequences for the firm. First, managerial credi-

bility and trust facilitate information and knowledge

sharing between the firm and its stakeholders, which

improves the firms problem-solving abilities,providing important foundations for organizational

learning (Huff and Kelley, 2003; McEvily et al.,

2003). Second, trust mitigates stakeholders con-

cerns about holdup by the firm, especially when

stakeholders are required to invest in valuable firm-

specific assets. Thus, when there is sufficient trust,

the stakeholders will have stronger incentives to

make valuable firm-specific investments that

promote new revenue generation and competitive

advantage (Das and Teng, 1998; Shleifer and

Summers, 1988). Credibility and trust can alsoreduce transaction costs (Barney and Hansen, 1994;

Whitener et al., 1998) and expand a firms ex-

change opportunities (Carson et al., 2003; Ring

and Van de Ven, 1994; Zajac and Olsen, 1993).

Economic exchange relationships are often replete

with various risks of opportunism (Barney and

Hansen, 1994; Whitener et al., 1998; Williamson,

1975). Although some monitoring and bonding

mechanisms may be used to manage these risks and

thus reduce transaction costs, high levels of credi-

bility and trust is often a more effective alternative

that reduces the need for complex contracts andfurther enables the firm to exploit otherwise fore-

gone exchange opportunities (Hagen and Choe,

1998; Hosmer, 1995).

The above arguments suggest the following:

Proposition 3: Managerial benevolence and integrity

enhance corporate financial perfor-

mance through promoting managerial

credibility and high levels of trust

among firm stakeholders.

Implications of the managerial values

approach to corporate philanthropy

To recapitulate, top managers benevolence and

integrity values lead to corporate philanthropy; these

same managerial values also facilitate the develop-

ment of managerial credibility and trust with stake-

holders, which, in turn, increase corporate financial

performance. This suggests that the relationship


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between corporate philanthropy and corporate

financial performance that has been found in previ-

ous research could be a spurious one, since both

corporate philanthropy and corporate financial

performance are derived from the same set ofmanagerial values. To further understand the insights

provided by the managerial values model of corpo-

rate philanthropy, it is helpful to discuss some of the

implications the model, especially in relating the two

other existing perspectives of corporate philan-

thropy: the agency perspective and performance-

enhancing perspective.

First, although the managerial values model sug-

gests that top managers engage in philanthropic

activities because of their benevolent values and

moral obligations without deriving any personalfinancial benefits, corporate philanthropy based on

this motive can still be considered an agency cost to

shareholders since it indulges the managers utility

for doing good while shareholders incur opportu-

nity loss (Helland and Smith, 2003, p. 2). In this

sense, the argument developed here appears to be

aligned with the basic argument of agency theory,

which states that corporate philanthropy is the result

of top managers desires to fulfill their own needs or

values at the expense of shareholders (e.g., Friedman,

1970; Margolis and Walsh, 2003; Werbel and

Carter, 2002). Despite this apparent consistency, theargument presented here makes an important

departure from the agency argument. A key differ-

ence is that the managerial values model identifies an

additional relationship that links managerial values

with corporate financial performance. The addition

of such a link has important implications for

understanding corporate philanthropy. According to

the agency perspective, because corporate philan-

thropy is inconsistent with shareholder wealth

maximization, top managers who engage in such

activities should be constrained by various corporategovernance mechanisms. The managerial values

approach, however, suggests just the opposite. It

implies instead that constraints imposed on managers

who value benevolence and integrity may be costly,

because these constraints will also reduce the

potential financial benefit that these managers can

bring to the firm and its shareholders. As a result,

shareholders may find it to their own benefit to give

more discretion to such managers, even if doing so

encourages more corporate philanthropy. This

implication drawn from the managerial values model

agrees to some extent with the thinking of Werbel

and Carter, who argued that even if charitable

donations are not supportive of the companys

mission, cost control constraints that intrude onCEO decision latitude may have more negative

financial consequences than positive financial

consequences (2002, p. 57).

Thus, even though as the agency perspective

argues, corporate philanthropy itself may reduce a

firms wealth by diverting valuable resources, the

managerial benevolence and integrity values that lead

to corporate philanthropy may also have counter-

vailing positive effects on the firms financial perfor-

mance, because these values help the firm build

credibility and trusting relationships with its stake-holders. When the increase in corporate financial

performance more than offsets the cost of corporate

philanthropy, the firms shareholders will benefit

from top managers benevolence and integrity, and

thus they may not put significant constraints on man-

agers with these values. In this sense, managerial

benevolence and integrity can be considered as mech-

anisms intervening between corporate philanthropy and

corporate financial objectives, making the seemingly

contradictory goals complementary (Worden, 2003).

Second, as having been illustrated earlier, the main

difference between the managerial values argumentand the performance-enhancing argument for

corporate philanthropy is that the former suggests that

the corporate philanthropy and financial performance

are both the result of managerial values of benevo-

lence and integrity, while the latter suggests that firms

engage in corporate philanthropic activities because

they lead to better corporate financial performance.

Although the two perspectives provide different

explanations for the positive relationship between


performance, they do not have to be mutuallyexclusive: a manager who values benevolence and

integrity may engage in corporate philanthropic

activities that also induce positive stakeholder support

and thereby improve the firms financial perfor-

mance. Therefore, although the managerial values

approach to corporate philanthropy suggests that the

relationship between corporate philanthropy and

corporate financial performance may be correlated

but not causal, this approach does not entirely exclude

the possibility that a direct relationship between


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performance still exists.

However, it is our conjecture that the argument

based on the managerial values model should be able

to demonstrate greater validity in explaining the linkbetween corporate philanthropy and corporate

financial performance than the argument that cor-

porate philanthropy enhances corporate financial

performance. The latter perspective emphasizes the

instrumental use of corporate philanthropy. But as

stakeholders scrutinize the organization for cues as to

its morality (Godfrey, 2005; Trevino and Young-

blood, 1990), the instrumental use of ethics and

other-regarding values by the organization may

cause mistrust from these stakeholders. Moreover, if

such tactics are perceived as insincere by stakehold-ers, they may even be counterproductive (Green-

berg, 1990). Thus, to the extent that such an

instrumental use of corporate philanthropy is antic-

ipated by stakeholders, its role in inducing positive

stakeholder support will be discounted, and the

validity of the argument will be challenged.

On the other hand, the managerial values model

of corporate philanthropy, which argues that cor-

porate philanthropy and stakeholder trust result

from managers benevolence and integrity, is less

subject to such concerns. Intrinsic benevolence and

integrity are hard to fake (Depaulo et al., 1980;Frank, 1988), so firms without such managers will

not be able to reveal such values in order to build

stakeholder trust. Similarly, Barney and Hansen

(1994) have argued that mimicking others values to

achieve high levels of trustworthiness is not easy,

and even if some trustworthiness is achieved, it is

difficult to sustain. Further support for this argu-

ment can be found in the resource-based view of

the firm. Managerial attributes, such as values,

principles, and standards, which make high levels

of trustworthiness possible, reflect top managersunique paths through history (i.e., path depen-

dence) and are socially complex. This makes these

types of individual attributes immune from imita-

tion and rapid diffusion (Barney, 1991; Barney and

Hansen, 1994; Dierickx and Cool, 1989). There-

fore, the process underlying the managerial values

model whereby intrinsic managerial values lead to

stakeholder trust may be more robust than that

underlying the argument that corporate philan-

thropy improves corporate financial performance.

Conclusions

The article provides alternative explanations for cor-

porate philanthropy and its relationship with corpo-

rate financial performance. It argues that corporatephilanthropy can be the direct result of top managers

benevolence and integrity values, and that these same

values also bring other benefits to the firm: they

facilitate building trusting relationships with stake-

holders, and thus improve corporate financial per-

formance. These arguments provide additional

insights into some findings of previous empirical re-

search in this area. Many studies have examined the

relationship between corporate social responsibility

and corporate financial performance. The over-

whelming evidence suggests that there is a positiverelationship between them (Griffin and Mahon,

1997; Margolis and Walsh, 2003; Roman et al.,

1999), which is often interpreted as evidence that

corporate philanthropy leads to high levels of financial

performance. However, there is a lack of theory to

clarify how these two should be related (Wood and

Jones, 1995). The managerial values model developed

here illustrates clear theoretical links among mana-

gerial values, corporate philanthropy, and corporate

financial performance, and argues that without

appropriate control for managerial values, a positive

correlation between corporate philanthropy andcorporate financial performance may suggest a spu-

rious relationship between the two but does not imply

causality.

However, the validity of the managerial values

model of corporate philanthropy and the implied

spurious relationship between corporate philanthropy

and corporate financial performance are ultimately

empirical issues. There are clearly challenges involved

in conducting empirical tests of the model and its

implications, given the complicated chains of causality

and the difficulty in obtaining measures of some keyvariables such as managerial values and stakeholder

trust. To overcome these potential difficulties, future

research would benefit from using fine-grained and

carefully designed primary data to measure the key

variables. For example, while managerial values are

perhaps the most difficult to measure directly (Ham-

brick and Mason, 1984), some background charac-

teristics of top managers, such as socioeconomic

background and religious beliefs (Weaver and Agle,

2002), may serve as possible proxies. Or, it may be


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possible to indirectly measure top managers values by

examining their communications, such as speeches

delivered to stakeholders (Sussman et al., 1983).

Moreover, since we argue for causal effects of mana-

gerial values on corporate philanthropy and corporatefinancial performance, future empirical studies that are

able to clearly demonstrate causality, for example,

through collecting longitudinal data and designing

appropriate methods that effectively control for alter-

native explanations, would be most desirable.

We hope that the arguments developed in this

article have emphasized the need for researchers

to take a more comprehensive perspective in

examining both the motives for corporate philan-

thropy and its relationship with financial perfor-

mance. When this has been done, the results shouldbe able to provide scholars and managers with a

fuller picture of corporate social behavior.

Notes

1Although the results of these studies are informative,

their implications should be interpreted with caution.

This is because corporate social performance generally

has a broader meaning than corporate philanthropy.

Among the four levels of corporate social responsibility

identified by Carroll (1979), i.e., economic, legal, ethi-cal, and discretionary, corporate philanthropy belongs to

the discretionary category.2 An exception is a recent study by Godfrey (2005),

who outlined a more complex theoretical explanation

for why corporate philanthropy may enhance share-

holder wealth.3 Of course, it is still possible that corporate philan-

thropy could sometimes simultaneously cater to a

managers taste for charity and has a positive effect on

financial performance.4 In this article, we use the term managerial values to

refer to values held by managers and thus applied to

managerial settings. Value as a general concept, how-

ever, can be held by any individual and thus applied to

much broader contexts than purely managerial settings.5 For example, based on the universal requirements of

human existence, Schwartz (1992) clusters values into ten

distinct types that serve different motivational purposes:

power, achievement, hedonism, stimulation, self-direc-

tion, universalism, benevolence, tradition, conformity,

and security. Further, those 10 values are grouped into

four higher order values: openness to change vs. conser-

vation, and self-transcendence vs. self-enhancement.

6 Indeed, if integrity means simply having ones

behavior consistent with ones values, then Hitler had

integrity. We thank an anonymous reviewer for helping

us clarify this point.7

Specifically, Lerner and Fryxell (1994) developed asurvey instrument to measure CEO community orienta-

tion as one of six CEO orientations toward generic

stakeholder groups. For the community group, four

types of corporate activities were identified: financially

supporting charitable and philanthropic activities, sup-

porting arts and cultural activities, financially supporting

colleges and universities, and responding to requests for

support from social service agencies.8 McFall (1987) terms it moral integrity.

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Jaepil Choi

Management of Organizations,

Hong Kong University of Science & Technology,

Clear Water Bay, Kowloon,

Hong Kong SAR, China,

E-mail: [email protected]

Heli WangManagement of Organizations,

Hong Kong University of Science & Technology,

Clear Water Bay, Kowloon,

Hong Kong SAR, China,

E-mail: [email protected]


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