The Role of Gifting in Corporate Social Responsibility

Many large (and not-so-large) companies have embraced a measure of responsibility for social needs, based in part on the premise that the corporation owes its existence to the state, or society, and consequently should be a good citizen. Few would argue with this.

The term “corporate social responsibility” typically begins with a focus on such matters as economic, environmental, and social matters, and can extend into a wide range of corporate actions. Certainly a significant number of companies have long given attention to these matters, with an increase in recent years. While there are very different perspectives on the broad topic of corporate social responsibility—especially when comparing viewpoints in other parts of the world—and certainly sufficient fodder exists for a number of columns, here I focus on just one subset: charitable giving.

A Problem With Gifting?

Some of the most successful companies and those otherwise held in high esteem contribute to worthwhile charitable causes. And far be it from me to suggest that that’s not a good idea. But please read on.

Betsy Atkins, with whom I shared the podium some years back and have from time to time since been in contact and whom I respect as an experienced and enlightened corporate director, earlier this year had something to say on the subject. As reported in the New York Times, Betsy explains: “The notion that the corporation should apply its assets for social purposes rather than for the profit of its owners—the shareholders—is an irresponsible use of assets.” She contends that companies have an obligation to be responsible—that is, complying with all laws and regulations, creating quality products that are marketed in an ethical manner and presenting transparent financial information to shareholders. And that’s all.

Shareholders can, if they want, spend their own money to promote causes they believe in, she adds, but that should be an individual’s choice. “I do not believe that the investing public considers their for-profit public corporation investments to be part of their social charitable causes. The concept of corporate social responsibility is one that deserves to be challenged and examined carefully.”

An Individual Matter

I happen to agree with Betsy and have been making similar statements publicly and privately for a long time. Let me elaborate.

There’s nothing wrong with being a good citizen, however that’s defined, and indeed doing so can be important to a company’s success. Producing products that have inherent value, are safe, and are embraced by the marketplace is a worthy and important goal. Today many companies are “greening” their products, often to increase sales, market share, and profitability. Safe and desirable workplaces attract sought-after workers, companies with good community relations are embraced by their local society, and companies that reduce greenhouse gas emissions and other pollutants and waste are held in high esteem often with associated positive impacts. Investors see reduced risks in companies that provide clear and meaningful financial and related disclosures, and some in the investment community are moving to invest in green or otherwise socially responsible companies.

Then What’s the Issue?

Certainly all of these movements are positive for a number of reasons, including that socially responsible human relations, supplier relations, and environmental and other initiatives, done well, can have a positive effect on the company’s bottom line.

While I don’t hold myself out as an expert on the subject, I know something about it. For a number of years in my former firm I led a joint venture with SmithOBrien, a leading corporate social responsibility boutique firm, in providing corporate social responsibility services to our corporate clients. SmithOBrien’s CEO Neil Smith and I have since become good friends, and he continues to chew off my ear about why the right corporate social responsibility policies and practices make good economic sense for any company. He explains, for example, how eliminating harmful pollutants from a manufacturing process can actually lower production costs, how enhancing the workplace environment can improve worker performance, and so forth. I try to tell him when we’re enjoying some down time that we can talk about other things, such as our respective favorite baseball teams, the Yankees and Red Sox, but often to no avail.

But here, as noted, I want to focus on one particular issue—that is, the responsibility of a company to give away its assets. As with Betsy Atkins, I believe generally it should not.

There is, however, an important exception. Where donating corporate assets is deemed to lead to more revenue or higher profits or otherwise increase shareholder returns, then I’m all for it. Whether a gift is from product inventory or cold cash, if there’s going to be a return on that “investment,” then I say go for it. And there certainly are instances where gifts will accomplish those objectives, or at least provide a reasonable likelihood of doing so. It may initially be an indirect benefit, such as to open or cement relationships that will lead to more business, or otherwise provide a real return. As such, as long as they’re both legal and ethically sound, there’s nothing wrong with making such gifts.

A Slippery Slope

But there are instances where a CEO or other senior manager—or sometimes a director—has other motives. It may be to ingratiate oneself with a particular person or otherwise move up in a social circle. It may be to establish a reciprocal relationship, where I give to your charity and you give to mine. It may be a case of simply being altruistic, helping a favored cause. Or it might be to enhance a company’s reputation and general “good standing” in the community.

It’s only this last instance where a gift might be appropriate, and only where a determination is made that the enhanced corporate reputation will indeed provide a real economic shareholder benefit.

The Board’s Responsibilities

Boards of directors have a responsibility to ensure that the company’s resources are used wisely, and gift giving is no exception. Often this is an area where the board needs to give particular attention, in light of the frequent requests made of senior management and the typical initial response of saying “yes” to what seem to be and often are good causes. I’m not suggesting that every nickel needs to be watched and approved. But when the dollars become significant, or where pledges are made that call for significant ongoing contributions, then care must be taken.

Best practice is to have a clear, board-approved policy that details what gifts are appropriate and what gifts are not, with guidelines on dollar thresholds.

Yes, it’s important for corporations to be responsible citizens. But in terms of giving away the company’s money, it should be done with one thought in mind: to be responsible to the right party. In this case, the responsibility is to the shareholder. If a gift is likely to benefit the shareholder, than by all means open the corporate pockets. If not, then invest the money where there’s the best likelihood of shareholder return, and leave charity to the hearts and minds of the shareholders themselves.