Corporate philanthropy - SUM: Sustainability Management Wiki

Authors: Marleen Christ, Nick Fischer, Lisa Gerdes-Röben, Joern Hoppmann, Ann-Kathrin Sieberns
Last updated: March 19, 2023

1 Definition and relevance

Corporate Philanthropy describes voluntary, charity-like activities, such as donations or sponsoring, that have a positive impact on society and, although being publicly portrayed as non-reciprocal efforts, often serve the company’s goal (such as improving its image, securing access to resources, or attracting employees).¹ ² The concept is often considered a part of or closely related to Corporate Citizenship.

Bruch and Walter (2005) distinguish four different forms of corporate philantrhopy that differ with regard to the degree to which related activities are tied to a company’s core business and meets the demands of societal stakeholders:³

„Peripheral Philanthropy displays a high degree of responsiveness to external market pressures, needs and expectations but is largely devoid of focus on organization’s core business.“
„Dispersed Philanthropy is the least effective and arguably most widespread of all four types of philanthropy as it mostly consists of loosely coordinated activities that fail to respond to stakeholders’ needs and fail to account for the organization’s core business.”
“Constricted Philanthropy focuses on the organization’s core business but fails to address the needs and expectations of its key stakeholders.“
„Strategic Philanthropy, being the most effective as well as regrettably the least utilized and comprehended type of philanthropy (Porter and Kramer, 2003), involves “synergistic use of organization’s core business and resources to address key stakeholders’ interests and to achieve both organizational and social benefits.”

_{The four forms of Corporate Philanthropy}

The general benefit of Corporate Philanthropy for firms lies in improving their competitive position by improving their relationship with critical stakeholders and improving local market conditions (e.g., by improving a firm’s image, enhancing the demand for products, etc.). For example, Porter and Kramer (2002), state: “Corporations can use their charitable efforts to improve their competitive context—the quality of the business environment in the location or locations where they operate. Using philanthropy to enhance context brings social and economic goals into alignment and improves a company’s long-term business prospects.” ⁴

Successful approaches to corporate philanthropy involve an active control of stakeholders’ expectations. Furthermore, philanthropic activities should be explicitly specified and should include exit options to avoid raising expectations incorrectly. IBM´s Reinventing Educations program is a prime example: the program defined a number of limits in its philanthropic activities and defined different exit strategies. In addition, the program was divided into different waves of investment. ⁵

2 Background

The first definitions of corporate philanthropy were published over 50 years ago. The first published definition by Johnson in the year 1966 defined the term “corporate contributions” as “the dollar value of donations deducted in corporate income tax return.” Two years later, in 1968, Schwartz started defining the term corporate philanthropy and from there on the name “corporate philanthropy” was used for many different definitions: In 1982 by Fry et al., in 1987 by Stroup and Neubert, in 2005 by Godfrey, etc. ⁶

The first concepts of corporate philanthropy were introduced in the 80s under the concept of corporate citizenship. ⁷ In historical as well as modern studies a central question can be extracted: is corporate philanthropy altruistic or for-profit? “While very few papers offer clear-cut answers, the literature features different rationales that revolve around this question.” In the papers revied by Gauthier and Pache, it is possible to sort different points of view on the term corporate philanthropy: there are existing studies/papers analyzing corporate philanthropy as a voluntary expression of the firm’s commitment to the common good, then there are papers and studies which regard it as a long-term, community-oriented investment and there are studies and papers with a marketing approach to corporate philanthropy. These different approaches can be found in the historical background of the debate and are often picked up in recent studies. ⁸

3 Practical implementation

To implement a working concept of corporate philanthropy the activities have to be professionally planned and controlled. The planning should be oriented on the company’s strategy and should consider the expectations of the different stakeholders (state (taxation, laws, e.g.), employees, customers, society, e.g.).

Strategic implementation of philanthropy requires a comprehensive measurement of the efforts. Therefore, Deutsche Bank AG developed a method to implement and measure the philanthropic activities of a firm, the ‘iooi method’. Iooi stands for input, output, outcome and impact and is applicable to every company, independently of its size or its field of business. ⁹

The structure and logic underlying the iooi method is closely related to the procedure of social impact analysis, in that it seeks to systematically understand and measure the impact of corporate philanthropic activities. However, in contrast to the social impact analysis, the iooi method also specifies the outcomes and impact a project has on the initiating company, which helps firms design initiatives that best contribute to corporate objectives.

3.1 Strategic alignment of corporate social commitment

For successful implementation of the planning and evaluation options described below, a company should strategically plan its efforts. Large companies in particular should define clear rules for donations, sponsoring and corporate volunteering and implement them bindingly throughout the company. On the one hand, these guidelines ensure that projects in line with the corporate citizenship strategy are supported. On the other hand, clear rules improve the efficiency of processes by providing preventive guidance. Such guidelines – documented in the form of a policy – are also a safeguard against unintentionally undertaking activities as a social commitment that could be interpreted as an unauthorized influence. Of course, such guidelines should be coordinated with corresponding guidelines (for example, internal budget allocation guidelines and anti-corruption guidelines) and corporate functions (for example, marketing). The introduction and implementation of defined processes and controls can support this. ¹⁰

3.2 Systemizing

A company should be clear about what the decisive reasons are for committing to a particular project. This facilitates internal company processes in the implementation of the commitment as well as cooperation with external partners. The iooi model offers categories for classifying the commitment of projects: Promotion of social issues that do not directly benefit the company, promotion of social concerns that also have a benefit for the company, promotion of social concerns that also have a benefit for the company. ¹¹

Assignment to these categories is essential for planning a commitment. Depending on the classification, different requirements arise in terms of scope, detail and precision when defining commitment goals, indicators, measurement methods, etc. ¹²

In the next step, it is important to classify which social and company-related goals are to be achieved and, above all, what the goal achievement is to be measured against. For this purpose, the model again offers categories for classification: Companies use money for their social commitment, but also other resources – such as working time and material resources: These expenditures are referred to as inputs. The services that are realized with these expenditures are called output. The effects achieved directly in the target group are the outcome, and the effects achieved in the longer term for social concerns are the impact. ¹³

3.3 Planning and controlling

For further planning and measuring it is advisable to use the planning and evaluation matrix for the iooi model:

*Figure 1: The iooi-matrix (own illustration according to ¹⁴)*

The iooi-matrix supports the planning of the engagement by working it from top to bottom – from the impact goal to the activities and expenses. The first step is to define the strategic objectives of the engagement that are intended to change society and the company (impact). The immediate operational objectives (outcome) are derived from the intended changing effects of the engagement. In order to achieve the operational objectives, suitable activities and measures are planned (output) and the resources required for them (input) are determined within the framework of the budget. For every step of the planning process, one needs to define suitable indicators and measuring instruments (see below). ¹⁵

The matrix can also be used for controlling engagement. Therefore, it has to be used from bottom to top. The matrix provides a basis for decision-making and auditing with regard to the resources to be used (input) and the implementation of the activities planned for the engagement (output). Depending on the scope and duration of the engagement, the targets (outcome to impact) provide orientation and, if necessary, indications of a need for readjustment. ¹⁶

3.4 Measuring instruments

Which measurement and evaluation tools are suitable depends largely on the indicators to be collected and evaluated, which are determined with the planning of the engagement. There are two ways for choosing the right measuring instrument:

Based on the defined indicator, suitable instruments will be sought or developed
Alternatively, indicators can be derived from tools already used by the company, the nonprofit partner or third parties in this field of engagement, that fit the engagement goal

Regarding company-related goals, such as reputation, customer loyalty or personnel development it is advisable to use the existing survey instruments. In the case of society-related goals, the question of existing or suitable instruments will be directed primarily at the non-profit partner and the scientific environment. Here, too, the priority should be to look for existing instruments. ¹⁷

References

1
Leisinger, K. M. & Schmitt, K. Corporate Responsibility and Corporate Philanthropy, https://www.un.org/en/ecosoc/newfunct/pdf/leisinger-schmitt_corporate_responsibility_and_corporate_philanthropy.pdf (2012).
2
San Diego Foundation What is Corporate Philanthropy? https://www.sdfoundation.org/news-events/sdf-news/what-is-corporate-philanthropy/ (2020).
3
Bruch, H. & Walter, F. The Keys to Rethinking Corporate Philanthropy. MIT Sloan Management Review 47, 49-55 (2005).
4
Porter, M. E. & Kramer, M. R. The Competitive Advantage of Corporate Philanthropy, https://hbr.org/2002/12/the-competitive-advantage-of-corporate-philanthropy (2002).
5
Bruch, H. & Walter, F. The Keys to Rethinking Corporate Philanthropy. MIT Sloan Management Review 47, 49-55 (2005).
6
Gauthier, A. & Pache, A. C. Research on Corporate Philanthropy: A Review and Assessment. Journal of Business Ethics, 343 – 369 (2015).
7
Kvatchadze, G. The Relationship Between a Firm´s Core Business and CSR: A study of the Baltic Sea Commitments. (Aalto University, Espoo, 2017).
8
Gauthier, A. & Pache, A. C. Research on Corporate Philanthropy: A Review and Assessment. Journal of Business Ethics, 343 – 369 (2015).
9
Bertelsmann-Stiftung. Corporate Citizenship planen und messen mit der iooi-Methode. Ein Leitfaden für das gesellschaftliche Engagement von Unternehmen. (2010).
10
Bertelsmann-Stiftung. Corporate Citizenship planen und messen mit der iooi-Methode. Ein Leitfaden für das gesellschaftliche Engagement von Unternehmen. (2010).
11
Bertelsmann-Stiftung. Corporate Citizenship planen und messen mit der iooi-Methode. Ein Leitfaden für das gesellschaftliche Engagement von Unternehmen. (2010).
12
Bertelsmann-Stiftung. Corporate Citizenship planen und messen mit der iooi-Methode. Ein Leitfaden für das gesellschaftliche Engagement von Unternehmen. (2010).
13
Bertelsmann-Stiftung. Corporate Citizenship planen und messen mit der iooi-Methode. Ein Leitfaden für das gesellschaftliche Engagement von Unternehmen. (2010).
14
Bertelsmann-Stiftung. Corporate Citizenship planen und messen mit der iooi-Methode. Ein Leitfaden für das gesellschaftliche Engagement von Unternehmen. (2010).
15
Bertelsmann-Stiftung. Corporate Citizenship planen und messen mit der iooi-Methode. Ein Leitfaden für das gesellschaftliche Engagement von Unternehmen. (2010).
16
Bertelsmann-Stiftung. Corporate Citizenship planen und messen mit der iooi-Methode. Ein Leitfaden für das gesellschaftliche Engagement von Unternehmen. (2010).
17
Bertelsmann-Stiftung. Corporate Citizenship planen und messen mit der iooi-Methode. Ein Leitfaden für das gesellschaftliche Engagement von Unternehmen. (2010).

1
Leisinger, K. M. & Schmitt, K. Corporate Responsibility and Corporate Philanthropy, https://www.un.org/en/ecosoc/newfunct/pdf/leisinger-schmitt_corporate_responsibility_and_corporate_philanthropy.pdf (2012).
2
San Diego Foundation What is Corporate Philanthropy? https://www.sdfoundation.org/news-events/sdf-news/what-is-corporate-philanthropy/ (2020).
3
Bruch, H. & Walter, F. The Keys to Rethinking Corporate Philanthropy. MIT Sloan Management Review 47, 49-55 (2005).
4
Porter, M. E. & Kramer, M. R. The Competitive Advantage of Corporate Philanthropy, https://hbr.org/2002/12/the-competitive-advantage-of-corporate-philanthropy (2002).
5
Bruch, H. & Walter, F. The Keys to Rethinking Corporate Philanthropy. MIT Sloan Management Review 47, 49-55 (2005).
6
Gauthier, A. & Pache, A. C. Research on Corporate Philanthropy: A Review and Assessment. Journal of Business Ethics, 343 – 369 (2015).
7
Kvatchadze, G. The Relationship Between a Firm´s Core Business and CSR: A study of the Baltic Sea Commitments. (Aalto University, Espoo, 2017).
8
Gauthier, A. & Pache, A. C. Research on Corporate Philanthropy: A Review and Assessment. Journal of Business Ethics, 343 – 369 (2015).
9
Bertelsmann-Stiftung. Corporate Citizenship planen und messen mit der iooi-Methode. Ein Leitfaden für das gesellschaftliche Engagement von Unternehmen. (2010).
10
Bertelsmann-Stiftung. Corporate Citizenship planen und messen mit der iooi-Methode. Ein Leitfaden für das gesellschaftliche Engagement von Unternehmen. (2010).
11
Bertelsmann-Stiftung. Corporate Citizenship planen und messen mit der iooi-Methode. Ein Leitfaden für das gesellschaftliche Engagement von Unternehmen. (2010).
12
Bertelsmann-Stiftung. Corporate Citizenship planen und messen mit der iooi-Methode. Ein Leitfaden für das gesellschaftliche Engagement von Unternehmen. (2010).
13
Bertelsmann-Stiftung. Corporate Citizenship planen und messen mit der iooi-Methode. Ein Leitfaden für das gesellschaftliche Engagement von Unternehmen. (2010).
14
Bertelsmann-Stiftung. Corporate Citizenship planen und messen mit der iooi-Methode. Ein Leitfaden für das gesellschaftliche Engagement von Unternehmen. (2010).
15
Bertelsmann-Stiftung. Corporate Citizenship planen und messen mit der iooi-Methode. Ein Leitfaden für das gesellschaftliche Engagement von Unternehmen. (2010).
16
Bertelsmann-Stiftung. Corporate Citizenship planen und messen mit der iooi-Methode. Ein Leitfaden für das gesellschaftliche Engagement von Unternehmen. (2010).
17
Bertelsmann-Stiftung. Corporate Citizenship planen und messen mit der iooi-Methode. Ein Leitfaden für das gesellschaftliche Engagement von Unternehmen. (2010).