Disclosing of Corporate Philanthropy Practices by Australian

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Disclosing of Corporate

Philanthropy Practices by

Australian Companies:

An Exploratory Analysis.

Raja Adzrin Raja Ahmad

Greg Tower

Mitchell Van der Zahn

Curtin University of Technology

Discussant: Teresa P. Gordon, University of Idaho

1

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

2

Facets of the Field

Reporting about corporate philanthropy in

Australia:

256 or 18% of sample

Much more likely to be descriptive than numeric or monetary

Corporate

Enhancing Human

Asset

Philanthropy

Reporting

• Supporting local communities

Creating shared value

• etc.

Social Responsibility

Reporting

Environmental

Impact

Reporting

3

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.’

4

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.”

5

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

6

My personal bias?

I must have absorbed some of this Friedmanstyle 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

7

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

8

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

Reducing pollution

Designing products to reduce waste

Integrity of

Management more

Treating employees well

important than

Treating customers fairly

corporate philanthropy?

Responding to community needs and desires

Dealing honorably with vendors, customers, etc.

Managing resources wisely

9

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!

10

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).

11

Questionable items

12

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

13

Myers (2009 working paper)

Is Cause-Related Marketing More

Marketing Than Cause?

• “CRM [cause-related marketing] has the potential to make charitable giving

– the socioeconomic 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.”

14

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?

15

From Classical Philanthropy to CRM

16 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

Other US examples of CRM

1% of sales to protection of wildlife

$0.10 for every lid mailed in

17

Other US examples of CRM

$1 per bag toward fighting

AIDs in Africa

100% of after tax profits goes to charity

18

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

19

Opportunities and Abuses of CRM

Sources of negative publicity for the business

▫ contradictory causes lack of candidness controversial causes excessive righteousness

Mitigation is difficult

▫ lack of metrics for irresponsibility

▫ advertising-to-donation ratio

1:1 = good

3:1 = bad?

Sources of negative publicity for the NFP

▫ guilt by association decreased funding due to apparent lack of need

▫ selling out

$6,000,000

$1,700,000

= 3.5:1

20

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?

21

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 Fitzsimons

2008 Cone/Duke University

Behavioral Cause Study

22

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-ofprice 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?

23

Spirituality and Consumption

Pure

Altruism

24 http:// eventviews.files.wordpress.com

Spirituality and Consumption

Maslow’s Hierarchy as a model of consumer needs

(Herrington, 1993) partnership

Suppliers can “give the customer everything, and become a partner on the inside, rather than a suitor on the outside.” supplier-developed innovations customer interaction reliability and accessibility core products and services

25

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

26

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.

27

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)

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