Corporate Philanthropy: A Walk on the Dark Side

By now I have had the opportunity to talk with most of my colleagues on Team China 18.  We are quite unanimous in our excitement about the upcoming adventure, and there is a shared bond of understanding between us about what we would like this to mean:  to IBM, to the organizations and communities we will be working for, and to ourselves.

But a question has been nagging at my brain for the better part of a month now: if doing this is such a positive thing for everyone involved, why is it new and innovative?  If it benefits everyone as much as it seems to, why hasn’t it been established procedure for every major corporation worldwide?

With that in mind, I trolled the web to find people who thought that what we are doing is a bad idea.  And the web being the magical place that it is, it should surprise no one that I had little difficulty in finding some.  The main theme of this critique appears to be that corporate philanthropy is no more or less than direct theft and malfeasance of funds from shareholders.  Some specific examples:

On 21 July 2010, Jamie Whyte wrote an article in the Wall Street Journal entitled “When Corporate Theft is Good”.  He points out that were a corporate manager to give $100,000 to an outside party that has not provided the corporation with commensurate goods and services, in most circumstances that manager would be guilty of embezzlement.  But if the outside party happens to be the manager’s favorite charity, then for some inexplicable reason it is not only legal but encouraged.

Earlier the same year, Daniel Indiviglu wrote an article in The Atlantic criticizing Glaxo-SmithKline for donating a large body of anti-malaria research into the public domain.  As quoted by the National Conference on Citizenship in one of their featured discussions:

Indiviglu questioned the integrity of this decision, stating the intellectual property had been financed as an investment by the company’s shareholders. He made the argument that the “Glaxo management decided to take investor dollars and donate the profit that may come from it”—the profit that shareholders had perhaps invested in hopes of receiving. Ultimately, he states that without “explicit shareholder approval, [it is] unclear how this is different from taking investors’ money and misappropriating it.

My emotional reaction to this argument is immediate; I feel contempt for such rapacious small-mindedness.  But however much I may dislike it, I am forced to admit that the logic behind the position is not only sound but compelling.  The only possible refutation available to a corporate manager is that corporate philanthropy is a sound business investment – in other words, that an investment in charitable work produces more shareholder value than the cost of that work, at rates of return better than would be available if the money were spent some other way.

This is serious business.  Our headlines are awash with examples of corporate management squandering shareholder money.  Where is the evidence that we are not doing the same?  The good news is that such evidence abounds.  And since I assume that anyone reading this blog has an interest in the subject, I would encourage you all to acquaint yourself with the evidence, because the burden of proof us on us.

Without it, we are nothing more than thieves.

References:

Is Corporate Philanthropy the Same as Stealing? National Council on Citizenship, 23 July 2010

Making the Business Case for Corporate Philanthropy.  Harvard Law School Forum on Corporate Governance and Financial Regulation, 20 August 2011.

Photographs: Stanley Quan, Sox First

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2 thoughts on “Corporate Philanthropy: A Walk on the Dark Side

  1. Looking at this two other ways:

    What if the manager has other motivations for releasing this kind of intellectual property? If the manager has any personal gain at all from this release, it would have to be viewed under suspicion.

    What if another company leverages this IP to make huge profits, and in the process “elbows” the original company out of it’s market-share? Even with the best of intentions, and without personal gain, it is tantamount to a technology being [mis]appropriated by a foreign body and being released to the public without regard for copyrights, investment, ownership, etc. This is just my own opinion, of course.

    Then again, the FBI estimates US companies have been “robbed” of more than $13B USD over the past year from embezzled technologies.

  2. At issue with the Glaxo-SmithKline example is the consideration of the ultimate end use of the research. While they may have been able to use the research to bring a drug to market it is more likely that they made the strategic observation that the particualr market may not be able to afford to purchase any drugs and thus making the research publically available represented both a corporate strategy to limit risk and also a philanthropic act.

    GSK would generally not be considered a waster of profitable research…

    In a more general sense, any private organisation operates in an infrastructure environment partially funded by public money – money beyond that of their shareholders. While corporations pay taxes to contribute to the upkeep and increase of public goods, it is generally considered appropriate for them to find a philanthropic focus, partly for image, but also to actually contribute to improving the society in which they have been successful. It is never purely altruistic, and represents an opportunity to improve market conditions in some circumstances (contributions to educational or vocational programs for example).

    They key is to use corporate knowledge while preserving or increasing the capital value of that knowledge – this is somewhat different from handing out Intellectual Property rights.

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