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The pros and cons of corporate philanthropy and CSR

In Make Poverty Business we are critical of the notion of corporate philanthropy and make the familiar argument that businesses create most social value by focussing on profits.  But this does not of course mean that we are against all types of social engagement - quite the opposite.  We are in favour of strategic social engagement which shows a demonstrable effect on the bottom line, and we believe the most successful win-win interventions will be the ones which are closely linked to the core business and where the company provides expertise and resources in addition to money - we might call this enlightened self-interest rather than pure philanthropy.  When we criticise corporate philanthropy we are restricting our attention to "random acts of kindness" which simply give away shareholders' money without adding much corporate value,  in a way that is probably less effective than if the money was returned to shareholders who could then make their own choices about where to donate the cash.

Michael Porter and Mark Kramer have done a lot of good work on the stategic use of philanthropy to improve the competitive environment.   You can find an overview of their work and some useful resources here.   And Vinay Nair of Wharton Business School has rigorously examined the financial impact of corporate philanthropy - perhaps unsurprisingly he finds it is beneficial when it is closely linked to core business in high-advertising industries where consumer reputation matters, and irrelevant or a pure cost in low-advertising industries.  You can find a summary of the paper here

In similar vein a recent review has expressed surprise that such nice people as us are against the idea of corporate social responsibility.   In fact in Make Poverty Business we say "this book is not about apologising for your profits with glossy brochures or random acts of philanthropy in a programme managed by a group of specialists who are only tenuously connected to the core business. It isn’t about meeting standards, achieving best practice or ticking a series of compliance boxes, but about innovating to find new ways of dealing with the poor in order to create new sources of competitive advantage... This is not to say that all the activities currently conducted under the
heading of CSR are wrong and should be stopped, but simply that we should be much more rigorous about the business case and not be ashamed to talk about the core business and profits as the real sources of value to society". And we quote Patricia Peters, Institute of Directors, who says: "At the heart of the issue lies pressure from those NGOs to whom modern capitalism and profit-making are anathema. They have been remarkably successful at gaining the moral high ground (they are even dubbed a ‘civil society’) and in nurturing a distrust of business. This in turn has led business to distrust itself, producing a climate in which companies rush to embrace all aspects of the CSR agenda. The challenge now is to generate a new climate where business considers what the right elements to pursue under the heading of ‘good management’ are. If that cannot be achieved,  more regulation will inevitably move the equation from good management, within the control of business, to pernicious and delusional CSR."

All we are really saying is that we are in favour of clever, strategic philanthropy and CSR and not in favour of stupid, random, incoherent, superficial or hypocritical philanthropy and CSR.  That shouldn't be a very controversial position.  At the heart of many of these debates is simply a question of vocabulary and the fact that the notion of CSR has become so large and fuzzy that it's barely a useful term any more.  We argue in favour of many types of social engagement because they are profitable - such activities don't particularly need any extra political or ethical justification and are simply good management.  If you want to call this CSR or philanthropy fine, but we should probably reserve those terms for activities which are not related to the core business and which require some additional ethical justification not related to profit.  It is these latter activities that we believe to be often unsustainable and/or counter-productive. 

For a much cleverer version of this distinction, see Michael Porter and Mark Kramer's excellent Harvard Business Review paper of December 2006, "Strategy and Society: The Link between Competitive Advantage and Corporate Social Responsibility", which argues "The fact is, the prevailing approaches to CSR are so fragmented and so disconnected from business and strategy as to obscure many of the greatest opportunities for companies to benefit society. If, instead, corporations were to analyze their prospects for social responsibility using the same frameworks that guide their core business choices, they would discover that CSR can be much more than a cost, a constraint, or a charitable deed—it can be a source of opportunity, innovation, and competitive advantage."

And for the record, when we said that we would probably have CK Prahalad shot it was meant as an oblique compliment to CK rather than a threat.  Literary theorists might even call it a joke.  Here's the proper context from the book: "Sadly, it might seem like we’ve been beaten to it. C.K. Prahalad’s book The Fortune at the Bottom of the Pyramid: Eradicating Poverty through Profits has already set the agenda, with endorsements by Bill Gates and appearances on best-seller lists all over the world. If we weren’t so publicly committed to ethical business, we’d probably have him shot. You’d be well advised to read his book before starting on ours because he does the motivation, the ambition and the shining city on the hill. We’re more interested in replacing a few light bulbs down here in the valley."

Posted on Thursday, January 11, 2007 at 10:20AM by Registered CommenterPeter Wilson | Comments2 Comments | References10 References

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Reader Comments (2)

really good point. i do this subconciously with my nephew alot. i'll say stuff like: "wow, you are studying bar graphs in math!? it took me a week to figure them out but they are fun!" and i think it boosts his confidence to know that even his Aunt finds some things hard and that he doesn't have to feel bad when he struggles. i'm so glad i found your blog!
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Thursday, August 12, 2010 | Unregistered Commenterreplica corum watches
According to a recent McKinsey global survey, many executives doubt that their corporate philanthropy programs fully meet their social goals or stakeholders’ expectations. But an effective philanthropy program can deliver far more than simply enhancing your company’s reputation.

Top business leaders share their insights about proven, key strategies for ensuring an effective and sustainable corporate philanthropy program.

Business leaders in this video include:-

Pam Flaherty, President & CEO, Citi Foundation & Director of Corporate Citizenship, Citi Group

Deidre Lind, Executive Director, Philanthropy, Mattel

Adrian Lathja, CLO, Accenture

Tim McClimon, President, AmEx Foundation

Caroline Roan, VP of Corporate Responsibility, Pfizer & Executive Director of the Pfizer Foundation

Watch this insightful video @ http://bit.ly/fBp2GZ
Tuesday, January 25, 2011 | Unregistered CommenterPetrus Hansen

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