New Models of Business in Society

Week 2: Corporate Philanthropy and Corporate Social Responsibility

Week 2 Syllabus
2.1 Corporate Philanthropy History 2.2 Corporate Philanthropy Current Issues 2.3 Corporate Social Responsibility 2.4 Corporate Philanthropy and Corporate Social Responsibility: Next Steps

2.1 Corporate Philanthropy: History

Carnegies two principles from The Gospel of Wealth and the tradition of noblesse oblige.
Principle of Charity: Requires the more fortunate members of society to assist the less fortunate Stewardship Principle (Christian bible): Requires businesses and wealthy individuals to view themselves as stewards or caretakers of their propertyhold money in trust for the rest of society, and use it for the purposes that society deems legitimate.*

Sounds pretty good, but maybe Carnegies motives werent so pure, since he thought that most people couldnt be trusted to do what was best for society. Carnegie was a complicated fellow who also believed, according to my friend Kip Tindall, the CEO of the Container Store, that if you, fill the other guys basket to the brim. Making money then becomes an easy proposition. So, even Carnegie understood the mutuality of business relationships and the connection between business and society as a whole.
*The Gospel of Wealth, Andrew Carnegie

2.2 Corporate Philanthropy: Carnegie not the only one

Andrew Mellon donated enough art to start the National Gallery of Art John D. Rockefeller gave $60 million to restore Colonial Williamsburg; single greatest funder of medical research Henry Ford created Henry Ford Health System in 1915; Ford Foundation was formed by his son in 1936 to improve the wellbeing of society it is now the third biggest charity in U.S. Milton S. Hershey founded the Milton Hershey School Trust in 1909 (endowed it with 486 acres & $60 million); M.S. Hershey Foundation in 1930s (endowed it with 5000 shares of Hershey Co)
http://www.philanthropyroundtable.org/almanac/great_men_and_women/hall_of_fame

2.2 Corporate Philanthropy

That tradition is carried forward today as well see in the next video. It should cause us to question whether this idea about business being only for shareholders has ever actually been followed.

2.1 Engagement Question

What do you think of Andrew Carnegies idea that those more fortunate need to take care of those who are less fortunate? How does that work in your society?

2.2 Corporate Philanthropy: Current Issues

According to Corporate Giving Standard (CGS) Survey for 2011: The sum of all the contributions was more than $19.9 billion in cash and product giving According to Foundation Center, there are over 108,000 foundations, corporate donors and grantmaking public charities Top 5 Foundations by Total Giving (as of 1/28/13): 1. Bill & Melinda Gates Foundation every person deserves the chance to live a healthy & productive life 2. AbbVie Patient Assistance Foundation helping uninsured access medicines 3. Pfizer Patient Assistance Foundation, Inc. prescription assistance 4. GlaxoSmithKline Patient Access Programs Foundation prescription assistance 5. Genentech Access to Care Foundation prescription assistance
(http://foundationcenter.org/findfunders/fundingsources/fdo.html)

2.2 Corporate Philanthropy: Current Issues

Where companies gave their money in 2011: Health & Social Services 28% Other 16% Education: K-12 15% Community & Economic Development 12% Education: Higher 11% Civic & Public Affairs 5% Culture & Arts 5% Disaster Relief 4% Environment 4%
http://www.corporatephilanthropy.org/pdfs/giving_in_numbers/GIN2012_finalweb.pdf

2.2 Philanthropy
The Bill & Melinda Gates Foundation, guided by the belief that every life has equal value has helped many people lead healthy productive lives. Warren Buffetts Promise, and The Giving Pledge for other wealthy people. The Carnegie Tradition is being carried on today.

2.2 Corporate Philanthropy Specifics

According to the Committee Encouraging Corporate Philanthropy (CECP) and The Conference Boards Corporate Giving Standard (CGS) survey, since 2001 corporate giving has reached more than $100 billion.
http://cecp.co/research/benchmarking-reports/giving-in-numbers.html

2.2 Corporate Philanthropy: Current Issues

ING with their for something better program donated 25M+ Euro (18M+$) for better education helping over 600,000 children in partnership with Unicef. Over 42,000 hours of employee work was volunteered.
(http://www.ingforsomethingbetter.com/)

Amgen has contributed over $180 to non profit organizations. In 2011 it contributed over $20M to complement Amgens dedication to impacting lives in inspiring and innovative ways.
(http://www.amgen.com/citizenship/foundation.html)

2.2 Corporate Philanthropy: Current Issues

In 1970, Milton Friedman, a Nobel Economist, argued that the only responsibility of a business is to earn profits. He argued against the idea of corporate philanthropy, stating that this was the role of government, and that private business should not be involved. This led in part to the popular idea in the last part of the Century that business was only about profits and the money. But, as I think it should now be clear, there is a long history of business seeing its role as contributing to making society better, through its philanthropy.

2.2 Engagement Question

What do you think of Milton Friedmans argument? Can philanthropy be consistent with the interests of shareholders, or should shareholders themselves decide if and where to donate money to charity?

2.3 Corporate Social Responsibility

The Origins of CSR. You can go back further in time, but the modern idea of CSR is usually taken to be a book by an economist, Howard Bowen Howard Bowen in 1953 says that:
The business(person) produces two categories of products. The first category consists of commercial goods and servicesthe second the conditions under which the production of these goods and services take place Bowen saw these conditions and their effects as social products of a business to be distinguished from its material products, hence giving rise to the origins of CSR.
(Good.et al 213)

2.3 Corporate Social Responsibility

In the 1960s and 1970s in the US, people began to take this idea very seriously. Large firms especially began to make what has become known as the business case for social responsibility. By being good citizens and paying attention to the social effects of their businesses, business leaders could gain important support from customers and communities, and avoid regulation which sought to constrain them. CSR was just good business. By focusing on the business case, companies could counter Friedmans argument that CSR was a waste of shareholders resources, and a usurping of their prerogative.

2.3 Corporate Social Responsibility

Much of the CSR work was done by issue. A company would take on racial discrimination or pollution or consumerism, and try to do better with respect to its own products and services. Many companies fought these ideas all the way since they were committed to what we have called the dominant story, thinking that they were separate from, or knew best for, society. People naturally began to talk about corporate social performance and its linkage (or not) to corporate financial performance. Was good social performance simply a matter of financially well off companies who could afford to be good, or did good social performance pay off on the bottom line? These questions have spawned a number of research projects even today they remain open questions.

2.3 Corporate Social Responsibility

Many have argued that CSR needs to be institutionalized through a set of principles agreed to by companies. This started in the 1960s with the Sullivan Principles articulated by Rev. Leon Sullivan to regulate whether or not a company should invest in South Africa under Apartheid. For Example lets look at the UN Global Compact
Human Rights Businesses should make sure they are not complicit in human rights abuses Labour The elimination of all forms of forced labour, child labour. Etc. Environment Promote greater enviroonmental responsibility Anti-Corruption Work against corruption, extortion and bribery
(http://www.unglobalcompact.org/)

2.3 CSR Example: SAP

In Latin America, the company helps girls gain the life skills to craft their own futures In Europe they focus on helping young entrepreneurs to build social businesses In Asia it provides computer access to help people compete for jobs. In Africa they focus on helping children attend school
(http://www.sap.com/about-sap/sustainability-corp-social-responsibility.epx)

2.3 CSR Example: P&G

Live, Learn and Thriveimproved life for more than 400 million children Pampers vaccinations program A partnership in China with P&G HOPE Schools in poverty stricken areas. Support for Feeding America oriented to childrens basic needs, contributing more than 3.2 million pounds of products, etc.
(http://www.pg.com/en_US/sustainability/social_responsibility/index.shtml)

2.3 Engagement Question

Does good social performance lead to good financial performance, or does good financial performance allow companies to have good social performance?

2.4 CP and CSR: Next Steps

Many companies have great CP and CSR programs, and they do a lot of good in the world. They make a mockery of the dominant model. Yes, some argue that they are doing this just because there is a link to profits, but Im not sure that matters so much in the real world, as it might to economic theorists. Yet, there is something missing here. Often times these programs are done as add-ons to the business models, without having too much overlap. Of course peoples hearts may be in the right place, but sometimes its as if business people think they need CSR and CP programs to make up for any bad things that their basic business model does.

2.4 CP and CSR: Next Steps

Should they get a pass on any ill effects of their business practices because they have a terrific CP/CSR program? By the way Lehman Brothers (now bankrupt, with its bankruptcy being one of the causal factors in the GFC) had a CSR program as well, and these programs do a lot of good. Goldman Sachs has been one of the most vilified banks in the GFC, yet you might be surprised to know that GS has had a CP/CSR program for some time.

2.4 CP and CSR: Next Steps: Goldman Sachs

The Office of Corporate Engagement Programs: - 10,000 Women is a five-year, $100 million global initiative to help grow local economies and bring about greater shared prosperity by providing 10,000 underserved women entrepreneurs with a business and management education, access to mentors and networks and links to capital. - 10,000 Small Businesses is an investment to help entrepreneurs create jobs and economic opportunity by providing greater access to education, capital and business support services. 10,000 Small Businesses is funded by Goldman Sachs and the Goldman Sachs Foundation. - Goldman Sachs Gives is a donor-advised fund, from which current and former Goldman Sachs partners can recommend grants to qualified nonprofit organizations. - Community TeamWorks is the global volunteer initiative that allows GS employees to take a day out of the office and spend it volunteering with local nonprofit organizations.
http://www.goldmansachs.com/citizenship/corporate-engagement/

2.4 CP and CSR: Next Steps

Problem is that CP and CSR really dont stray very far from the dominant story. It is still pretty much only shareholders or owners that really count. And, these models of business in society, say that business can discharge its obligations to society by working on social issues. They assume that we can clearly distinguish the economic aspects of business from the social aspects of business. Economics creates value, while social creates costs. The Separation Fallacy

2.4 Engagement Question

What are some companies that you consider socially responsible? Why? What is their underlying business model, and is it connected to their social responsibility?

Further Reading and Resources for Week 2

Misery Loves Companies: Rethinking Social Initiatives by Business, Joshua D. Margolis and James P. Walsh The Gospel of Wealth, Andrew Carnegie Conscience and Corporate Culture, Kenneth E. Goodpaster Social Responsibilities of the Businessman, Howard R. Bowen Strategy and Society: The Link Between Competitive Advantage and Corporate Social Responsibility, Michael Porter and Mark Kramer View Jeremy Moon, Professor of Corporate Social Responsibility at Nottingham University Business School speak about CSR:
http://www.youtube.com/watch?v=GodTH4CAGdc&feature=share&list=PLAA660438D94DDF53 http://www.youtube.com/watch?v=mJoIczZtXkA&feature=share&list=PLAA660438D94DDF53 http://www.youtube.com/watch?v=4nyjF0sRnyU&feature=share&list=PLAA660438D94DDF53 http://www.youtube.com/watch?v=z63pJl4tOt0&feature=share&list=PLAA660438D94DDF53 http://www.youtube.com/watch?v=p2TrS3vQUI8&feature=share&list=PLAA660438D94DDF53