Philanthropy and Social Responsibility: Corporate Governance Essay

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Corporate Governance: Philanthropy and Social Responsibility

Corporate philanthropy is a form of CSR where a corporation extends monetary or non-monetary support to the community for the sake of improving its welfare and the quality of life. Despite its inherent benefits, corporate philanthropy still remains a subject of debate. This text examines the arguments presented by both sides, and examines how Wal-Mart's philanthropic program has been able to reconcile both views, and how the corporation has managed to maintain an effective giving program over the years.

Philanthropy and Social Responsibility

The role played by corporate giving and corporate philanthropy in society today is immense; but even so, the whole idea of corporate philanthropy still remains a subject of debate. Consensus is yet to be reached, particularly in regard to whether companies should engage more or less in charity programs. Proponents of organizational philanthropy hold that corporations should engage more in charity giving because it helps to improve the social welfare of the communities in which they operate. The opposing faction, on the other hand, while not disputing the fact that such giving improves social welfare, are of the opinion that organizations should only engage very minimally in corporate giving programs because such programs are unfairly geared towards furthering the interests of managers at the expense of shareholders. The two factions, however, find common ground when corporate philanthropy improves social welfare for the community and at the same time maximizes shareholder wealth. This report seeks to demonstrate how the giving program at Wal-Mart Inc. is structured to achieve this balance, and how engagement in the same has benefited the company.

What is Corporate Philanthropy?

Corporate giving/philanthropy is a form of CSR where a corporation extends monetary or non-monetary support to non-profit organizations for the sake of improving the welfare of the community within which it operates (Tonello, 2011). Monetary donations often come in the form of sponsorships, grants, or donations; whereas or non-monetary support will often take the form of services, products, property, use of the company's facilities, employee time, and so on (Tonello, 2011). The funds that go into corporate giving programs often come from individual donations and the company's contributions (Tonello, 2011). Towards this end, such programs are regarded and treated as expenses to the business (Tonello, 2011).

Why the Controversy?

Corporate Giving as an Opportunistic Undertaking by Managers

The agency theory postulates that executives (agents) are likely to act as to enhance or reinforce their own utility even when their behaviors are not in furtherance of shareholder interests, who in this case are the principals (Tonello, 2011). When managers seek to pursue interests other than maximize the wealth of the principal, an agency problem is said to have arisen. Agency problems are relatively more common in those areas of business characterized by little monitoring and huge expenditures (Tonello, 2011). Corporate philanthropy is one such area -- managers are the primary decision-makers on how the company's slack resources are to be allocated; and then there is some kind of tension (the halo effect), where even those executives who feel that corporate giving is a waste of company resources shun from questioning the spending decisions of management because after all, the company too reaps benefits from the same in the long-term (Tonello, 2011). With such little monitoring, a manager could make personal gain from corporate giving in a number of ways, which include; i) accolades, honors, and awards that elevate their social ranking, even if the giving program is funded fully using company money; ii) advancing their personal preferences by supporting charity programs of people close to them or those that seemingly share their ideological agenda; and iii) using corporate giving programs as a platform for gaining favor with members of the executive board (Tonello, 2011).

Corporate Giving as a Positive Business Strategy

In as much as they present unfair opportunities for managers to reap personal benefits out of company resources, researchers contend that corporate giving programs are still a common form of CSR (Caviola, et al., 2014; Amato & Amato, 2007). This is so because such programs are a valuable source of competitive advantage, especially if they are properly-designed and rightly-executed (Tonello, 2011). They can build the company's reputation and increase the recognition of its brand among consumers (Tonello, 2011). For instance, following the implementation of its community giving program, where it partnered with an online charity program to fund various educational programs in selected schools across the country, Crate and Barrel Inc. reported a 16% increase in sales (Tonello, 2011).

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In as much as we cannot attribute the entire increase to the corporate giving program, we can rightly argue that the company's improved reputation made some contribution to the same. Moreover, whenever a company engages in charity programs, it helps improve the well-being of the community; as a result, managers are able to build strong and healthy relationships with community leaders and government officials, and this essentially helps them reduce special interest group and regulatory obstacles (Council on Foundations, 2008). In addition, a company can use its corporate philanthropy program as a platform for improving "the economic conditions in developing regions with the long-term goal of enhancing the size and quality of their customer base" (Tonello, 2011, n.pag). Furthermore, a company that bears a positive reputation in regard to philanthropy would often find it relatively easy to attract and retain talented employees (Council on Foundations, 2008). Finally, corporate giving programs create avenues for creativity and innovation -- grants and donations to colleges and universities, for instance, provide opportunities for collaboration in research and development, as well as increased access to technical expertise and fresh ideas (Tonello, 2011).

In order for a corporate philanthropy program to be successful, these two views need to be reconciled so that the company's economic orientation aligns with its social orientation (Tonello, 2011). Milton Friedman stated that the primary or overall responsibility of any commercial entity is to make profit and not to look out for the social welfare of the community (Bowie, 2012). He postulates that the free forces of demand and supply will often adjust accordingly to allocate resources in a manner that maximizes societal welfare (Bowie, 2012). Corporate executives, therefore, only have a direct responsibility to shareholders; and as such, they have a duty to conduct business and make decisions that are in the best interests of shareholders. In so doing, they have to conform "to the basic rules of the society, both those embodied in law and those embodied in ethical custom" (Bowie, 2012, p. 2).

This plan adopts Friedman's view -- that although corporate philanthropy is an integral component of organizational success, the profit motive is the basic building block that undergirds all other aspects of business (Bowie, 2012). Towards this end, companies ought to engage in philanthropic programs just as long as such engagement does not hurt or strain company profits (Bowie, 2012). In addition, all activities are required to be in line with the law and the ethical framework of society, as demonstrated in Carroll's pyramid of corporate social responsibility in fig 1 below.

Fig 1: The Pyramid of Corporate Social Responsibility

Philanthropic responsibilities

Ethical responsibilities

Legal responsibilities

Economic responsibilities

(Source: Wei, 2013, p. 112)

Wal-Mart's Philanthropy Plan

Wal-Mart's CSR mission 'save money, live better' is defined across ten core areas -- giving, sustainability index, women empowerment, U.S. manufacturing, hunger relief, veteran, jobs and opportunities, and renewable energy; and is executed through a variety of long-term partnerships and grants, diversity inclusion, and healthier food (Wal-Mart Global Sustainability Report, 2013). Through its 'Everyday Low Prices' strategy, Wal-Mart strives to help people stretch their paychecks and offer their families better-quality life (Wal-Mart Global Sustainability Report, 2013). The company's 'Live Better' Initiative, however, stretches beyond the walls of its stores, into communities and societies around the world -- driving meaningful change by providing access to affordable commodities, empowering women, fighting hunger, and preserving the environment (Wal-Mart Global Sustainability Report, 2013). The Wal-Mart Foundation seeks to further this mission -- helping communities live better through philanthropy (Wal-Mart Global Sustainability Report, 2013). The philanthropy program mainly targets persons from low-income backgrounds (especially marginalized groups) with the overriding goal of nurturing innovativeness and responsible leadership (Wal-Mart Global Sustainability Report, 2013).

Programs

Educational Programs

The company commits itself to supporting educational programs that encourage youth from marginalized groups and disadvantaged backgrounds to work and excel in both school and after-school programs (Wal-Mart Global Sustainability Report, 2013). In 2013 for instance, the company awarded 85,000 grants to reinforce the work of not-for-profit organizations spearheading educational projects in selected low-income regions across the country (Wal-Mart Global Sustainability Report, 2013).

Health and Safety

Wal-Mart's philanthropy program demonstrates its commitment to improving the level of safety as well as quality of life for the communities within which the company operates (Wal-Mart Global Sustainability Report, 2013). Its core activities in this regard include controlling and ultimately eliminating hazards on the highways, at home.....

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