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Disclosing of Corporate Philanthropy Practices by Australian Companies: An Exploratory Analysis.

Raja Adzrin Raja AhmadGreg Tower

Mitchell Van der ZahnCurtin University of Technology

Discussant: Teresa P. Gordon, University of Idaho

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An interesting descriptive study•Corporate Responsibility Reporting

▫Relatively new area of research▫Existing research doesn’t always address

corporate philanthropy▫No previous research in Australia

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Facets of the Field

Social Responsibility Reporting

Corporate Philanthropy

Reporting

Environmental Impact

Reporting

•Enhancing Human Asset•Supporting local communities•Creating shared value•etc.

Reporting about corporate philanthropy in Australia:256 or 18% of sample

Much more likely to be descriptive than numeric or monetary

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A little history: Milton Friedman, 1970• ‘The discussions of the "social responsibilities of

business" are notable for their analytical looseness and lack of rigor. What does it mean to say that "business" has responsibilities? Only people can have responsibilities. A corporation is an artificial person and in this sense may have artificial responsibilities, but "business" as a whole cannot be said to have responsibilities, even in this vague sense.’

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A little history: Milton Friedman, 1970• “What does it mean to say that the corporate

executive has a "social responsibility" in his capacity as businessman? If this statement is not pure rhetoric, it must mean that he is to act in some way that is not in the interest of his employers. For example, … he is to make expenditures on reducing pollution beyond the amount that is in the best interests of the corporation or that is required by law in order to contribute to the social objective of improving the environment. Or that, at the expense of corporate profits, he is to hire "hardcore" unemployed instead of better qualified available workmen to contribute to the social objective of reducing poverty.”

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On the other hand, Friedman admits that socially beneficial actions are often sound business• “To illustrate, it may well be in the long run interest of a

corporation that is a major employer in a small community to devote resources to providing amenities to that community or to improving its government. That may make it easier to attract desirable employees … or have other worthwhile effects.

• Or it may be that, given the laws about the deductibility of corporate charitable contributions, the stockholders can contribute more to charities they favor by having the corporation make the gift than by doing it themselves, since they can in that way contribute an amount that would otherwise have been paid as corporate taxes.”

• Milton Friedman 1970

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My personal bias?• I must have absorbed some of this Friedman-

style thinking at some point in my life•Corporate philanthropy that is inconsistent with

shareholder desires is just reducing the potential payment of cash dividends to shareholders!▫Give me my cash dividend▫I’ll decide which charity deserves or needs my

charitable gift

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Corporations can’t be altruistic•As Friedman points out, a corporation is an

artificial person under law▫But it is not a real person – we don’t put

corporations on trial for murder•The people who work for corporations make the

decisions ▫When they determine which charity gets a

corporate gift, they are giving away someone else’s money to get the “warm glow” of satisfaction that comes with philanthropy with no personal sacrifice

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On the other hand, social responsibility seems to be in the public interest

•Reducing pollution•Designing products to reduce waste•Treating employees well•Treating customers fairly•Responding to community needs and desires•Dealing honorably with vendors, customers, etc.•Managing resources wisely

Integrity of Management more

important than corporate

philanthropy?

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Back to the paper!•Beyond the “reification” issue, my second concern is with what gets defined as corporate philanthropy

• Again, this is not directed at just this paper – there seems to be confusion in the field!

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Inconsistencies in what is considered corporate philanthropy?• Quote from page 2 of paper:• Madden, Scaife, and Crissman (2006 p. 49) define

corporate philanthropy as “the voluntary business giving of money, time or in-kind goods, without any direct commercial benefit, to one or more organizations whose core purpose is to benefit the community’s welfare”. Scholars identify a spectrum of activities that fall under the banner of corporate philanthropy which include cash and non-cash contributions, inkind donations of products, employee volunteerism (i.e. the corporate employees are being allowed time away from their normal job for charitable work), sponsorships and cause-related marketing (Wymer, 2006).

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Questionable items

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Types of corporate philanthropy – questionable items• Employee giving is philanthropy of the employee • It is only when the company matches the employee’s gift

that it is really corporate philanthropy!▫ Still problematic for shareholders since the employee’s

choice may not be consistent with desires of shareholders▫ Still a good program since employees are arguably

stakeholders comparable to owners• Grants are tricky

▫ Some grants produce knowledge (e.g. patents) that directly benefit the corporate grantor

▫ Inconsistent language makes it possible that only some grants are actually charitable

• Cause-related marketing

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Myers (2009 working paper) Is Cause-Related Marketing More Marketing Than Cause?

• “CRM [cause-related marketing] has the potential to make charitable giving – the socio-economic stopgap between business abuse and government shortfall – not only ubiquitous, but easy (Eikenberry, 2009). In the form of CRM, charitable giving is now an exchange transaction (Berglind & Nakata, 2005). The rewards are no longer in heaven, but on earth, in our stomachs, on our faces.”

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From Classical Philanthropy to CRM•Traditional philanthropy was quiet.

▫“But when you give to the needy, do not let your left hand know what your right hand is doing…” (Matthew 6:2-4, NIV)

•Major philanthropists like Andrew Carnegie’s gifts of libraries were made AFTER they made their millions in business▫Not so quiet▫Monument building?

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From Classical Philanthropy to CRM

www.gozonew.com

•$0.01 for every card transaction•$1.00 for every new card issued•28% increase in sales•Spent $6,000,000 in advertising•Donated $1,700,000 million

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Other US examples of CRM1% of sales to protection of wildlife

$0.10 for every lid mailed in

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Other US examples of CRM$1 per bag toward fighting AIDs in Africa

100% of after tax profits goes to charity

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CRM billed as “win-win” situation for business and charity

•2008 Cone/Duke University Behavioral Cause Study▫ 85% of Americans believe CRM creates a better image▫ 79% of Americans will choose a brand supporting a cause▫ 9 out of 10 Americans believe businesses, NFPs, and

government should collaborate on social issues▫However, most Americans believe businesses do not

give enough information about their CRM efforts

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Opportunities and Abuses of CRM• Sources of negative

publicity for the business▫ contradictory causes▫ lack of candidness▫ controversial causes▫ excessive righteousness

• Sources of negative publicity for the NFP▫ guilt by association▫ decreased funding due to

apparent lack of need▫ selling out

• Mitigation is difficult▫ lack of metrics for

irresponsibility▫ advertising-to-donation ratio

1:1 = good 3:1 = bad?

$6,000,000$1,700,000= 3.5:1

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Opportunities and Abuses• Is corporate altruism oxymoronic?

▫Most managers choose the middle ground full support of increased profit full support of cause

▫Negative patterns Cherry-picking A market mentality Was Milton Friedman right?

(see Smith & Higgins, 2000). Do managers have the right to spend stockholder resources on causes

that don’t directly benefit stockholders? Do business executives have the right expertise or motives to decide

which NPOs are supported? Social distortions?

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Opportunities and Abuses• Telling evidence: How

corporations measure CRM effectiveness (Gourville & Rangan, 2004):▫ willingness to buy▫ likelihood of purchase▫ overall sales▫ goodwill

employees investors Public

“One thing we know for sure – consumers are paying more attention to cause messages, and as a result, are more likely to purchase. This is clearly great news for brand managers, as every percentage increase in sales can translate to millions of dollars in revenue.”

Duke Fitzsimons2008 Cone/Duke University Behavioral Cause Study

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Opportunities and Abuses• Confused donors? What public interest impact?

▫ Olson et al., 2003: Most consumers cannot calculate donations “percentage-of-profit formats are used more than five times as often

as percentage-of-price formats” Even accountants overestimate profits or base on price.

▫ Bower & Grau, 2009: Most consumers (mis)construe endorsements Assume NPO has endorsed the product The more passionate the consumer, the greater the mistake. Is there a placebo effect? (fake charity names generate same

response in some studies) Do businesses knowingly take advantage?

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Spirituality and Consumption

http://eventviews.files.wordpress.com

Pure Altruism

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Spirituality and Consumption

supplier-developedinnovations

customer interaction

reliability and accessibility

core products and services

partnership

Maslow’s Hierarchy as a model of consumer needs(Herrington, 1993)

Suppliers can “give the customer everything, and become a partner on the inside, rather than a suitor on the outside.”

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Spirituality and Consumption• The Three Waves of Branding (Pringle & Thompson,

1999)▫Rational – What does the product do?

save money make life easier

▫Emotional – How does the product make you feel? commoditization requires differentiation brands promote attitudes

▫Spiritual – What does the product stand for? performance and attitude are no longer enough coincides with American Express’ Statue of Liberty campaign

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Spirituality and Consumption• Do consumers actually self-actualize?

▫No metrics for progress toward self-actualization.▫Characteristics of the self-actualized (Brooker, 1976):

Not part of mainstream culture. “…unconventional at times, are ruled by laws of their own

character rather than by rules of society…” (Brooker, 1976)

Those who support causes have already self-actualized.

• CRM offer only an illusion of self-actualization.

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I already gave at the grocery store!•Where does this leave the NFPs?

▫Is being a tool of corporate marketing a necessary evil?

▫Will CRM ultimately reduce cash donations in support for charities?

“It is important to reiterate a final time that CRM markets social causes in a way that confirms, rather than challenges, people’s social preferences, producing funds without donators having to change or supplement their existing behavior. They are, however, offered the illusion of commitment.” (Smith & Higgins, 2007)