Corporate Philanthropy: Corporate Finance

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Corporate Philanthropy: Corporate Finance

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Corporate Philanthropy: Corporate Finance

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Question:
Discuss about the Corporate Philanthropy for Corporate Finance.

Answer:

Introduction
Throughout the twentieth century, there have been debates over purpose of the business organizations. However, the traditional view of the business organizations reveals the fact that the purpose for the existence of business organizations is to achieve capital in order to produce and sell goods and services at profit and directing these operations towards the benefit of the shareholders (Benihoff, 2007). This traditional view of the business organizations has led to several debates and the business theorists and the reformers has emphasized upon broadening the organizational responsibilities so that they can embrace the economic together with the social goals.
Thus taking into consideration the tension that exists between the traditional view of the organizational purpose and its broadening responsibilities, the essay strives towards emphasizing upon the concept of corporate philanthropy taking into consideration the function and the contemporary landscape of corporate philanthropy.
Before directly jumping into the concept of corporate philanthropy, it is important gain an understanding of Corporate Social Responsibility (CSR). CSR tend to refer to the soft and voluntary self regulations that are generally adopted by the firms for the enhancement of the company’s aspects in context to the environmental and human rights issues and labor issues (Burlingame and Young, 2008). Thus CSR can be defined as the responsibility of the business organizations and the urge on their part to take actions that extends beyond their legal obligations and business or economic aims and objectives. So, within this framework of Corporate Social Responsibility, the concept of corporate philanthropy is considered to be a specific type of CSR activity on the part of the business organizations. It is generally looked upon as an act donation on the part of the corporations i.e. donating profits or resources to the non-profit organizations in either in the form of cash or facilities, services, property or advertising support (Albinger and Freeman, 2007). Again, there are some business organizations that form employee volunteer groups who are assigned to the project of corporate philanthropy.

Moreover, elaborating on the above concept of corporate philanthropy and reviewing the key trends and best practices in the social investments philanthropic giving by the business organizations, it is observed that philanthropy is evolving at rapid pace from the traditional approach of facilitating small and multiple grants towards the support of individual programs to a modern approach that is more thoughtful and engaged approach on the part of the strategic funders. Due to this transformation, the present day business organizations emphasize upon seeking a deeper level of engagement in context to the causes they are eager to support (Bae and Cameron, 2006). The major key drivers that have led to the shift from the traditional philanthropy can be looked upon as a belief on the part of the businesses that if they focus upon a single issue or set of issues, then it would lead to improved impact. It is also due to the desire on the part of the businesses to leverage more of their existing resources and work in collaboration with the other funders for deriving effective solution of the social issues. The change has also been due to the enhanced understanding on the part of the business organizations towards the importance of archiving sustainability in context to the both the social purpose sectors and the social purpose organizations. Again, in context to the corporate, there are also other drivers in addition to the above discussed drivers. Brown et al., (2006), put forward that the first deriver can be related to the increased expectation on the part of the employees of the corporations towards the involvement in corporate social investment and enhanced understanding of the realization of value by the corporations by aligning their social activities with their corporate purposes. Moreover, being more Australia specific, it is observed that there are two additional drivers for change. The first includes the funding environment of Australia that is very much constrained that demands alternative funding models. Campbell et al., (2009), revealed, the second driver include the move towards person centric approaches where the main focus of support is the individual needs that leads to funding in context to the wrap around services. Moreover, where in the international business environment, the evolution in corporate philanthropy is led by the non-corporate organizations; the corporate philanthropy in Australia is being led by both the non-corporate and corporate organizations and the corporate in Australia tends to play a major role in social investment (Johnson, 2008).
Emphasizing upon the best practices in corporate philanthropy, it can be said that there has been shift from traditional philanthropy to strategic philanthropy. Holmes and Sandra, (2010), put forward the fact that the strategic philanthropy guides the business organizations to direct their business principles and practices towards social investment activities. Thus under this practice, the corporate and non-corporate philanthropic organizations are making strategic investments on the basis of the theory change, they also strive towards evaluating and measuring the outcomes and base their funding on the outcomes and are keen towards making long term investments rather than planning to invest in something new. This can be illustrated with the example that the Lien Foundation in Singapore commissioned the Economist Intelligence Unit so that they can conduct their survey to rank 40 countries on the basis of the provision of the end of life care and the findings of the survey was broadly shared as the ‘Quality of Death’ index (socialventures, 2015).
The second practice involves the focus of the philanthropic organizations towards building the capacity for the organizations operating for social purposes to ensure a sustainable change an impact (Johnson and Orace, 2006). This can be illustrate with the example of Salesforce.com Foundation that worked as a traditional grant making foundation for several years and then finally in the year 2009, it started selling its software to higher education customers at a discounted rate (socialventures, 2015).

The third practice involves menaced focus upon the systematic change and issues against providing a part of a single problem i.e. implementing the place based solutions. Under this practice, the philanthropic organizations strive towards addressing the root cause of the social problems and so this led to a shift in the paradigm of funding one organization to providing support to the complementary initiatives by targeting a range of systematic and complex issues related to particular group of population especially in a specific geographic location (Godfrey et al., 2009). For example, Woodside Development Fund in Australia launched an initiative of bringing different organizations together to focus upon improving the early childhood development over 10 years (socialventures, 2015).
The fourth practice involves promoting collaborative working among the government, social purpose organizations and non-government funders. The concept of collaboration in philanthropy has emerged as a popular way of being more effective of philanthropic giving (Greening and Turban, 2009). For example, Edna McConnell Foundation in US has entered into partnership with other funders and also with a social purpose advisory organization for the transformation of the life trajectories of the vulnerable youths and those youths who are economically disadvantaged (socialventures, 2015).
The fifth practice involves enhanced alignment and integration of the social activities with the corporate business taking into consideration the shared value. Under this practice the philanthropic corporate are aligning and integrating their corporate affairs and the social activities that proves to be beneficial for both the external and the internal stakeholders and thus as a result tends to achieve their commercial out comes that include enhanced brand promotion, retention of the staff members and enhanced loyalty on the part of the customers in addition to the targeted social outcomes (Turban and Greening, 2006).. For example, the corporate involved in this practice include NAB, Lion and GPT group in Australia and other multinational companies like Nestle, Unilver and Southwest Airlines (socialventures, 2015).

The sixth practice involves impact investing on the part of the organizations that also includes the social impact bonds. Under this practice, the investor tends to invest their capital in an enterprise involved in generating social or environmental benefits and also financial results (Su and Sauerwald, 2015). So this facilitates in attracting both non-corporate and corporate philanthropic organizations. For example, Westpac Foundation and Commonwealth Bank in Australia made an investment of $10m Social Benefit Bond of the Benevolent Society so that the number of children in and out of the care home can be reduced in the year 2013 (socialventures, 2015).
The seventh practice involves increased operational transparency especially in online operations. In this context, most of the Australian entities strive towards sharing their financial reports and investment policies together with their vision and impact.
In context to the above discussed philanthropic practices adopted by both the corporate and non-corporate organizations, it has been argued by Wiliams and Barrett, (2000), that even though the corporate philanthropy practices on the part of the business organizations might not lead to tangible benefits, it is obvious that it facilitates in enhancing the brand image and reputation of the company. Campbell and Slack, (2007), also put forward the fact that the corporate philanthropic practices help the companies to attract the employees, retain the talent, enhances the morale of the employees, enhances the reputation of the company as a corporate citizen, attracts the customers and thus definitely leads to financial gains.

Conclusion
Thus from the above discussions, it can be inferred that corporate philanthropy is part of CSR practices on the part of the organizations that provides an opportunity to the corporations to promote and present itself as socially responsible corporate citizen. Moreover with the passage of time, there has been shift in the parading from social giving in form of cheques and cash to taking active participation in social issues by adopting the above mentioned practices. Moreover, taking into consideration the indirect benefits of corporate philanthropy in terms of enhanced brand image, reputation, employee morale and productivity and financial gain, it is advisable that the corporate philanthropy should be espoused upon by large number of corporations.

References
Albinger, H. and Freeman, S., (2007) . Corporate Social Performance and Attractiveness as an Employer to Different Job Seeking Populations. Journal of Business Ethics 28, 243-253.
Bae, J. and Cameron, G., (2006) . Conditioning Effect of Prior Reputation on Perception of Corporate Giving. Public Relations Review 32, 144-150.
Benihoff, M. (2007) The Business of Changing the World, New York: McGraw Hill.
Brown, W., Helland E. and Smith, J., (2006). Corporate Philanthropic Activities. Journal of Corporate Finance 12, 855-877.
Burlingame, D. and Young, D., (2008) Corporate Philanthropy at the Crossroads, Bloomington, IN: Indiana University Press.
Campbell, D. and Slack, R. (2007). Corporate “Philanthropy Strategy” and “Strategic Philanthropy”: Some Insights From Voluntary Disclosures in Annual Reports. Business & Society, 47(2), pp.187-212.
Campbell, L., Gulas C. and Gruca, T., (2009). Corporate Giving Behavior and Decision-Maker Social Consciousness. Journal of Business Ethics 19, 375-383.
Godfrey, P., Merrill, C. and Hansen, J., (2009). The Relationship Between Corporate Social Responsibility and Shareholder Value: An Empirical Test of the Risk Management Hypothesis. Strategic Management Journal 30, 425-445.
Greening, D. and Turban, D., (2009) Corporate Social Performance As a Competitive Advantage in Attracting a Quality Workforce. Business & Society 39, 254-280.
Holmes, Sandra, (2010) “Corporate Social Performance: Past and Present Areas of Commitment,” The Academy of Management Journal, 20: 433-438.
Johnson, O. (2008). Corporate Philanthropy: An Analysis of Corporate Contributions. The Journal of Business, 39(4), p.489.
Johnson, Orace, (2006) “Corporate Philanthropy: An Analysis of Corporate Contributions,” 39 Journal of Business: 489-504.
Lim, T. (2006). Measuring the Value of Corporate Philanthropy: Social Impact, Business Benefits and Investor Returns. SSRN Electronic Journal.
Marinetto, M. (2009). The Historical Development of Business Philanthropy: Social Responsibility in the New Corporate Economy. Business History, 41(4), pp.1-20.
socialventures. (2015). Giving that packs a punch: best practice in philanthropy today – Social Ventures Australia. [online] Available at: https://www.socialventures.com.au/sva-quarterly/giving-that-packs-a-punch-best-practice-in-philanthropy-today/ [Accessed 14 Sep. 2016].
Su, W. and Sauerwald, S. (2015). Does Corporate Philanthropy Increase Firm Value? The Moderating Role of Corporate Governance. Business & Society.
Turban, D. and D. Greening, (2006). Corporate Social Performance and Organizational Attractiveness to Prospective Employees. Academy of Management Journal 40, 658-672.
Wiliams, R. and Barrett, J., (2000). Corporate Philanthropy, Criminal Activity, and Firm Reputation: Is There a Link? Journal of Business Ethics 26, 341-350.

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