Strategic Management: Formulation and Implementation

Philanthropy

Ireland and Johnson define corporate philanthropy as a transfer of a charitable nature of corporate resources to recipients at below marked prices.

There are conflicting viewpoints about charitable giving by business concerns. They may vary from an absolute "No," to a "Yes, under certain conditions," to a vary emphatic "Yes."

Milton Friedman states,

"Corporations have no money to give to anyone. It belongs to their workers, their employees, or their shareholders."

However, Friedman does make two exceptions.

First, he feels that closely held corporations, in which the managers are the owners, should be permitted to contribute directly to charity to decrease the tax bite.

Second, he approves of contributions to local institutions and arts (such as hospitals, universities, parks, and museums) when they provide marginal returns to the company greater than marginal cost.

Moreover, Friedman is opposed to real philanthropy:

"Real philanthropy is that which will cost the company more that it will add to its value in the short term or in the future."

John D. Rockefeller III, a well-know philanthropist, presents, another viewpoint. According to him, philanthropy is necessary in order to support the nonprofit sector of the market; this includes such groups and organizations as churches, museums, libraries, hospitals, private colleges and universities, and other private and welfare groups; it offers these institutions the freedom and independence they need to operate properly and efficiently.

Over the years, numerous studies have been conflicting in this area. The results are sometimes conducting, confusing, and difficult to prove valid or invalid. Therefore, each company and its individual shareholders must determine how deeply and in what type of philanthropy the company should become involved.

If the company is to be a good corporate citizen in today's world of expanded social responsibility it most certainty must have some positive involvement in this area.

Because the new paradigm of corporate philanthropy involves turning over the reins of a company's giving programs to professional managers, here are the six things that CEOs know should do:

1. Empower a philanthropy czar. Wise CEOs must empower an executive to bring about a long-term rapprochement between philanthropy and overall business strategies.

2. Support the czar's effort to find a company's "natural" causes. Every char should go through a careful process of interviewing the company's internal and external stakeholders to find a few causes that best reflect the values and aspirations of the corporate "family."

3. Oversee a feisty dialogue between philanthropy and business functions. The CEO must be willing to intervene when the philanthropy side is overwhelmed by short-term business considerations.

4. Oversee the decentralization of philanthropy. According to the new model, the czar must fight centripetal forces to bring philanthropy to far-flung divisions and subsidiaries, both domestic and foreign.

5. Make the parts add up to a larger whole. The CEO should guard against a do-your-own thing tendency that often emerges in decentralized business units.

6. Research, test, evaluate, and revise. The CEO should make sure that the same management disciplines that govern the company's business processes also govern its philanthropy.

After a decision to give has been made, a question remains: "Which internal and external agencies should receive money and how much?"

Morris and Biederman recommend that the following steps be taken in managing corporate contributions:


1. Align your gifts with your products and goals.
2. Put some distance between your corporate contributions effort and the CEO.
3. Choose the right organizational structure for your needs.
4. Pick a manager to give company money away.
5. Treat grant seekers like customers.
6. Set long-term budgets for contributions.
7. Expect to prepare for opposition.

One the above steps have been taken, then six rules given by Morris and Biederman can be followed to determine to whom the money should be given. This sex rules are:

1. Don't run your contributions program as a public relations experience.
2. Don't automatically renew grants to programs.
3. Don't get too involved in your grantees' day-to-day operations once you have written their checks.
4. Don't try to please everyone.
5. Take a chance on an unconventional cause.
6. Don't work in isolation.

Financial donations from company are difficult to calculate. According to a United Way of America report, philanthropic giving was supposed to increase from $48.2 billion in 1980 to $90.4 billion dollars in 1988. In spite if these hefty donations, only 9.1 percent of all U.S. companies give more than 2 percent of their net income to charity.

However, tody, more and more Canadian and U.S. companies are supporting movements for social change while advancing their business goals. These companies have become corporate citizens. They cultivate a broad view of their own self-interest while instinctively searching for ways to align self-interest with the larger good.

The new paradigm encourages corporations to play a leadership role in social problem solving by funding long-term initiatives, like school reform and AIDS awareness, that incorporate the best thinking of governments and nonprofit institutions.

In addition to cash, they are providing nonprofits with managerial advice, technological and communications support, and teams of employee volunteers. In those companies, philanthropic and business units have joined forces, to develop giving strategies that increase their name recognition among consumers, boots employees productivity, reduce R&D costs, overcome regulatory obstacle, and foster synergy among business units.

Overall corporate philanthropy is now being directed and more closely linked to overall corporate objectives. Moreover, the strategic use of philanthropy has begun to give companies a powerful competitive edge.

Because of their experience, Canadian and U.S. companies operating globally have the tools to shape breakthrough social initiatives that will allow thee to emerge as leaders of social change around the world and achieve a competitive advantage.