BA 4115

Business Ethics
Tugrul Atasoy

Chapter 10
Contributing to Charity
 Ch10 Contributing to Charity
• Exploring the Connection between Ethics and
Charitable Activities
• Understanding the Company’s Interests
• Giving and Receiving: Practical Benefits of
Philanthropic Acts
• Looking at Some Philanthropic Pitfalls
When America Online (AOL) redesigned and
refocused its online com- munities after
separating from Time Warner, it recruited a
number of business gurus to serve on the board
of directors for its Small Business Web site.
In August 2010, those business leaders weighed
in on the question of corporate charity. Most of
the leaders, including Virgin Group founder and
president Sir Richard Branson, advocated
strongly for corporate philanthropy. Branson
said:
“I think every single business should be a force
of good, or there’s no point in really going into
business . . . Anyone who’s in a position to make
a difference must try to make a difference.”
Of course, not everyone agreed.
Phil Town, a prominent investor and author who
also serves on the AOL Small Business board of
directors, argued,

“There is nothing so off-putting as businesses

doing PR under the guise of charity work.”

Guise? Wow! Someone cheating??

Corporate charity (also called corporate philanthropy
or corporate giving) is the act of businesses giving
some of their profits (or other resources, such as
volunteer time, products, or raw materials) to
nonprofit organizations.

Corporate giving is a fundamental part of doing

business in the United States.
Although other countries measure corporate
social responsibility in terms of promoting
human rights and other social justice issues, U.S.
businesses tend to equate charitable gifts with
good corporate citizenship.
 1. Exploring the Connection
between
Ethics and Charitable Activities
All too often, the public perception of corporate
giving is fairly cynical, and, unfortunately, that
cynicism isn’t always unwarranted.
Because:
Businesses benefit substantially from their
charitable activities through tax breaks, public
relations value, and an improved corporate
image, leading some people to believe that
companies engage in charitable activities solely
to gain those benefits.
On the other hand, the mere act of benefitting from
your good works doesn’t necessarily make doing
those good works unethical.

In fact, some people argue that, even if a company’s

main motivation is to polish its corporate image, it
deserves credit for providing help that charities may
not otherwise get.
The best, and generally the most ethical
corporate charity programs are:
✓ Aligned with the company’s core business:
Such alignment reduces the perception that the
company is donating its resources purely for
selfish motives.
✓ Part of a well-thought-out, long-term
philanthropy plan: Having a longterm giving plan
helps the company avoid missteps in its short-term or
one-time donations.
✓ Undertaken with the intent of being a good
corporate citizen: This intent makes the company’s
benefits from its charitable activities secondary to
the goals it’s trying to accomplish through those
activities.
Some people, and some businesses, define
philanthropy as a long-term charitable strategy and
charity as a one time donation of time, money, or
other resources.
However, because the goal is the same regardless of
which term you use, the goal being to contribute to
the overall well-being of the local or global
community, we use these terms interchangeably
throughout this chapter.
 2. Understanding the Company’s
Interests
Businesses can benefit in several ways from
doing charitable works.

Perhaps most important, philanthropy can

promote a company’s image as a good neighbor
and good corporate citizen, which, in turn, can
lead to improved sales and profits
After all, employees and customers like to be
associated with companies they can feel good
about.

(P.175: Read “Hitting the Target..)

Polishing the corporate image
Once upon a time, charitable giving was strictly
an individual activity.

Wealthy business owners often gave from their

own fortunes, but charitable donations in the
names of companies were fairly rare.
When companies did engage in philanthropy,
the causes they supported usually stemmed
from their owners’ personal values rather than
business-related motives.
In the last 30 years or so, however, companies
have embraced charitable giving as an investment
in their long-term growth and viability.

For businesses, corporate philanthropy is a matter

of enlightened self-interest: The altruistic actions
that companies take bolster their business
objectives and corporate image.
A good corporate image can be priceless in any
number of situations. Charitable activity can
improve a company’s image by:

✓ Building goodwill in the community and

among employees and customers: Goodwill is
the added value of a brand or company beyond
its tangible assets.
✓ Helping to differentiate the company’s brand
among competitors: Advertisers face the
problem of getting their client’s message out
above the “noise”. Because people are generally
cynical about corporate ethics, a company that
is really ethical stands out, especially in a sector
where the public is most skeptical about the
industry’s ethics in general, such as oil
companies or big banks.
✓ Fostering a reputation for good corporate
citizenship: Standing out as an ethical company
consistently over time gives the company a
reputation as an ethical leader.
Making employees and consumers feel good
People like to associate with others who affirm
their ideas of themselves, either the kind of
people they are or the kind of people they want
to be. Corporate philanthropy plays into this
natural desire for affinity by telling employees
and customers: “If you care about this cause,
you’re one of us.”
Research over the past two decades has shown
that employees are more motivated, and, thus,
morale and productivity are higher, when they
feel that their employer shares their values.

One of the best ways to demonstrate shared

values is by giving meaningful support to
charities that are related to the company’s core
business or that improve society in general.
(Read the last paragraph on p.176)
 3. Giving and Receiving: Practical
Benefits of Philanthropic Acts
Since the dawn of human philosophy, thinkers
have debated whether true altruism, that is,
putting the interests of others ahead of your
own without regard for any benefit you may
receive as a result, really exists.
Skeptics argue that every selfless act has an
inherent benefit for the actor, even if that benefit is
merely being able to feel virtuous.

Others claim that rare acts, like risking your life to

save another, are truly altruistic because you can’t
be certain that you’ll survive to enjoy feeling
virtuous (or any other benefit of your act).
From a business standpoint, the skeptics may be
right. Very few, if any, businesses don’t realize
some benefit from their charitable activities.
In fact, even if they don’t seek public recognition
(which rarely happens), businesses that contribute
money, goods, or services to charitable
organizations enjoy considerable financial benefits.
Consumers increasingly seek out products that are
associated with social or environmental causes,
thus boosting revenues for the companies that sell
such products.
 4. Looking at Some Philanthropic
Pitfalls
Supporting charitable causes should be a good
thing.
Even with the best of intentions, companies can
get into ethical hot water when they venture
into charitable giving.
Forcing corporate giving when stockholders
and employees aren’t onboard
Some business experts argue that stockholders
should have the right to vote on corporate
charitable gifts; others say implementing
stockholder voting systems would stifle
corporate giving.
Milton Friedman, the late Nobel Prizewinning
economist, is the best-known advocate of the
view that a corporation’s purpose is to increase
stockholder wealth and that managers are the
stockholders’ agents.
For those who follow Friedman’s philosophy,
corporate giving is problematic from the start.

They believe profits belong to stockholders and

that a company has no right to give even a
portion of its profits to anyone else.
However, others counter that investors know
about a company’s charitable contributions and
that some investors choose stocks based on the
company’s philanthropic activities.
So how do you make sure everyone is onboard
with a company’s charitable giving program?

In general, the easiest way to avoid controversy

with stockholders is to limit the company’s
charitable activities to those that are most
closely aligned with its core business, or those
that provide a clear benefit to society in general,
such as literacy or scholarship programs.
Unethical pressure from companies?

(Read p.179, last paragraph)

Employee-participation campaigns are great
ways to raise money for charity, but only if
they’re truly voluntary.
No one should feel that their job security or
advancement depends on their supporting the
company’s favorite charity, especially because
individuals may not share management’s
philanthropic priorities.
Profiting too much from corporate giving
Lots of companies use cause-related marketing
to incorporate their products or services into
their charitable giving. Basically, cause-related
marketing is a type of marketing in which
companies link specific products to specific
charitable efforts.
American Express started a campaign for the
restoration of Statute of Liberty in early 1980
saying they would donate to the cause 1 cent
each time their card was used, and spent 7
million dollars to promote the campaign, but
raked up only 1.7 million for the restoration.
Not a fantastic benefit to cost ratio, eh?
HOWEVER:
The campaign was certainly beneficial for American
Express, which saw a 28 percent increase in card
usage and a sharp jump in new accounts.
On the other hand, The ratio of promotion
expenses to actual donations for cause-related
marketing is often 2:1 or higher, which raises
ethical questions about this form of corporate
charity. In cause-related marketing, donations are
conditional, meaning that they depend on
consumers’ purchasing something.
And because the company benefits from the
purchases before any money goes to the chosen
cause, some ethicists (and even some nonprofit
groups that benefit from this type of marketing)
worry that cause-related marketing undermines
the basic altruistic (selfless) intent of charitable
giving and exploits social causes for financial
gain.
Direct donations, also known as unconditional
giving, don’t depend on revenue generation
associated with the cause. As usually the only
string attached to such giving is the request that
the donating business use its name, it is
considered ethical.
Of course, cause-related marketing isn’t
inherently unethical. According to research by
strategy and communications agency Cone,
consumers love cause-related marketing when
it’s an authentic part of a company’s brand
image.
Eight in ten consumers said cause-related
marketing makes them more likely to switch
brands, and almost 20 percent are willing to
spend more on products that are associated
with a social or environmental cause they care
about.
From an ethical standpoint, though, companies
should strive to raise more for the chosen cause
than they spend on marketing their involvement
with the cause.
Benefitting too much from tax breaks
Most charity-related tax breaks are intended to
encourage and reward philanthropic behavior.

But companies must walk a fine line between

availing themselves of the appropriate tax
breaks and appearing to “game the system.
Most charity-related tax breaks are intended to
encourage and reward philanthropic behavior.
But companies must walk a fine line between
availing themselves of the appropriate tax
breaks and appearing to “game the system.

(Read p.182, paragraph starting: In 2009, The

Boston Globe..)
Falling victim to the law of unintended
consequences
Like any other business activity, charitable giving
doesn’t always result in uniformly good outcomes.
In fact, giving to one cause or promoting a solution
to a specific problem sometimes creates new
issues.
(Read p.183, paragraph starting “For example, the
Bill and Melinda Gates Foundation, and then
Nestle infant formula..)
How do you avoid unintended consequences
with your charitable activities?
✓ Stick with what makes sense for your
business. Match your core business with
appropriate charities; in doing so, you’re more
likely to understand the needs and issues
associated with your charitable goals.
✓ Understand how the charity works. Meet
with a representative of the charity you want to
support and ask for a full briefing on what they
do, what challenges they have encountered, and
how they have overcome or intend to overcome
those challenges.
✓ Encourage critical thinking. Your charitable
committee should consist of a cross section of
your organization; diversity of experience
lessens the likelihood that the group will fall
victim to groupthink. Get committee members
to brainstorm potential problems with a
proposed charitable activity and explore ways to
avoid those problems.