Advantages & Disadvantages of Corporate Philanthropy
Corporate philanthropy is a company's planned program of charitable giving. Philanthropy has become more prominent in the early 21st century based on more expectations from the public that companies give back to the communities in which they do business. While society benefits when companies contribute, businesses have to consider the pros and cons to optimize business advantages.
Companies that are more cutting edge and assertive in their philanthropy can promote their efforts as part of their brand. After Microsoft announced its paid employee volunteer activities in Egypt, customer satisfaction scores grew from 61 to 91 percent, according to an August 2011 article by Matteo Tonello, the director of corporate governance for the Conference Board. Other companies develop philanthropy programs more as a preventative measure to avoid negative publicity or to address it. Tonello also indicated that corporate giving routinely increases after a company receives negative media exposure, suggesting they are trying to mend fences.
Corporate businesses can attract investors by giving to charities that gain favor with the public. Some people prefer to invest in businesses that support causes they believe in if the financial opportunities equal those available elsewhere. Charitable programs can also motivate business partners to get involved in joint ventures and other mutually beneficial endeavors. In some cases, philanthropy attracts new employees and customers who are directly impacted by programs supported. Tonello noted studies show employees are more attracted to companies with strong philanthropy programs and report higher levels of job satisfaction. A 2008 study by Cone, Inc. indicated 79 percent of retail customers would buy from the more philanthropic company if prices and quality were equal.
Corporations actually get a tax break from monetary gifts, which minimizes the net cost of philanthropy. According to the Better Business Bureau, corporations are able to deduct all contributions to public and private 501(c)(3) organizations, up to 10 percent of the company's taxable income. Most companies don't exceed this threshold in their giving, which means they get the full tax deduction on the amount donated to charities.
Corporate philanthropy means you give company money to charitable organizations or offer other assets or employee time for volunteer work. Critics of charitable giving suggest it is irresponsible for companies to give away large amounts of money that could be invested in business growth or distributed to company owners through dividends or earnings payments. Tonello indicated the biggest problem shareholders have is when executives invest company money in services they care about personally without consideration of how it impacts the bottom line.
Despite its intention of boosting a company's public reputation, company leaders indicated in a 2008 McKinsey Global Survey that they were highly uncertain of tangible benefits of philanthropy. Failure to meet social objectives with giving and inconsistent expectations across stakeholder groups were common concerns cited. If companies aren't seeing tangible financial results from philanthropy, it only heightens criticism of the expense from investors. Unlike direct marketing, which offers immediate and measurable sales or service results, brand benefits from philanthropy take place over a period of time.