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Wednesday, August 27, 2014

Strategic CSR - Philanthropy

The article in the url below is a story about the level of charitable donations by FTSE 100 companies:
“The amount donated to charity by FTSE 100 companies – including cash, in-kind donations and the value of volunteered hours – has almost doubled, rising by £1.2bn since 2007, an average of 0.7% of pre-tax profits in 2012. It's a significant increase especially given the difficult economic factors in play during that time.”
The article appears in a newsletter published by The Guardian Sustainable Business Network ( In other words, The Guardian treats philanthropic donations as an important part of CSR/sustainability. It is unfortunate and counter-productive that this is the case—especially so since, essentially, the article also makes the case that such spending is not a very efficient investment for these firms. A big reason for this is that, apart from the nonprofit that received the gift, none of the firms’ other stakeholders are aware that these firms are spending their money in this way:
“When asked how many FTSE 100 companies make donations to charity every year, the average guess was just over a third. The reality is quite different – nearly all of the FTSE 100 companies (98%) – report giving every year. In 2012 all 100 reported making a donation.”
It is hard to understand why this situation persists. Why is philanthropy still considered a significant part of CSR? For some, no doubt, it is considered to be the primary component of CSR. But, this is ludicrous when you think through what it means. A common theme across definitions of CSR is the idea of “giving back.” In other words, how does the firm create value for society, broadly defined. It never ceases to amaze me that philanthropy should be considered by anyone to be the main vehicle in which a for-profit firm is supposed to “give back” to society. For-profit firms are efficient value-creating organizations. Now, to be sure, that value it not evenly distributed (and we can debate how effective they are at present and how effective they should be in an ideal world). But, nevertheless, for-profit firms create the most value for society as a whole when they focus on what they are good at, which is core operations.

The conclusion of the story below is that firms would benefit more from their donations if they just did a better job of communicating activity they are already doing (i.e., so that their donations become more widely known). What the article should have focused on is how much better off society would be if the firms just stopped giving charitable donations and, instead, invested that money in their core operations and product innovation.
Take care
David Chandler & Bill Werther
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New survey shows FTSE 100 companies have increased charitable giving
By Klara Kozlov
August 14, 2014
The Guardian