Ethical Issues in Corporate Giving Debated

Corporations employ about 1,200 Americans full time to give money away to charities. Idyllic as such a career might seem, troubling issues vex many of these corporate contributions officers.

One such question is whether corporate giving is a moral obligation or just another marketing tool. And a corollary issue is whether “giving officers” are indeed corporate philanthropists entrusted with a duty to aid their fellow man or are just part of the advertising-promotion-marketing team trying to help sell products and services.

About 10% of the nation’s corporate-giving officers met here for one day this week, before the start of the Council on Foundations annual conference, and they heard sharply divided views on these questions.

In small groups, they examined a hypothetical case of a brewery seeking more sales by promising to give some of its revenues to charity. Such promotions, known as cause-related marketing, are part of a growing trend that mixes corporate sales with corporate giving.

The small group exercise was titled “Self Interest vs. Selfish Interests.”

One scenario involved the fictitious brewery donating $1 to an alcohol abuse prevention organization serving teen-agers each time a six-pack of its beer was sold. The beer company’s ad campaign would be directed to high school and college students.

Each of the small groups rejected that idea, but many of the giving officers indicated after their exercise that they accepted the notion that cause-related marketing can be legitimate.

Questions about whether corporations should give money to charities have been raised for decades by both critics and supporters. Not until 1953 did the U.S. Supreme Court explicitly rule that corporations could give to charities money that otherwise would be added to shareholder profits.

But now it is not just outsiders who are openly questioning corporate philanthropy’s place in American society. Many giving officers say that they want to develop a rationale and an ethical justification for American corporations giving away nearly $9 million per day or $3.1 billion annually. (Individual Americans give $59.5 billion, or nearly 20 times as much as corporations; foundations distribute about $3.5 billion per year, according to the National Center for Charitable Statistics.)

Jerry C. Welsh, executive vice president for marketing at American Express, strongly supported the idea of mixing marketing and charity in an address to the giving officers.

“Cause-related marketing,” Welsh said, is “good for the business. I believe that the best way to localize an appeal is through philanthropy. I mean, ‘This Bud is for you, Detroit,’ is an attempt to localize the appeal to Budweiser. How about, ‘This Bud is for you, Detroit, and if you drink it we’ll support the Detroit Symphony’? That, for me, carries ‘this Bud’s for you’ one step further.”

‘Good for Us’

“We began cause-related marketing not because we are altruistic--although in our more maniacal moments we like to think of ourselves as altruistic--but because cause-related marketing is good for us,” he added.

“We think it is a good thing to do from the point of view of what’s good for the country. We don’t talk about this much because people are suspicious of good motives . . . and the closer you get to New York you must remember the more good motives are suspect.”

But Welsh also said the benefits of cause-related marketing are uncertain, even though he said that American Express has publicly stated otherwise. “Most of the time we can’t prove just how good it is,” Welsh said, “but as long as we can’t prove it is (not good) we are going to do it. But when we talk to the press we act like we know exactly how good it is for the business, and that’s why we’re doing it.”

He said the American Express marketing campaign that promised donations for restoring the Statute of Liberty each time one of the company’s products or services was purchased was a tremendous success. It raised $1.7 million for the restoration project. “How did we hit upon it? We hit upon it accidentally. . . . (It was) one of the most successful programs we have ever done.”

‘Why Are You Doing It?’

Welsh said the central question in corporate giving is, “If you’re doing philanthropy why are you doing it?

“On the one hand the conservatives say, ‘You have no business doing that; give your shareholders that money; let them give the money away if they want; you have no right to give your shareholders’ money away.’

“The people on the other side say, ‘Now listen, not only do you want to give money away, you want to give lots away,’ ” Welsh said.

“We have got to come up with a rationale” for corporate giving, Welsh said, adding that “it may not be as mercenary as cause-related marketing, which no one needs to criticize because we are overtly saying it is marketing money. We have got to come up with a position that we can sell to the American people that will take this out of the shadows of self-doubt and self-consciousness. . . .”

But Robert L. Payton, president of the Exxon Education Foundation and a former college president and U.S. ambassador, offered a more jaundiced view when he addressed the audience.

“If you mix your philanthropic standards with the mainstream of your business activity, are the two compatible?” Payton asked, suggesting they may not be and that corporate giving is sometimes a thinly disguised way of benefiting the giver.

Payton noted that the first well-known case of corporate philanthropy involved American railroads 115 years ago. They made contributions “to the YMCA to build housing in which railroad employees and others in the community could live as the railroad was developed along the right-of-way across” the continent.

“Corporations are tending these days to be narrower in their range of interests, shorter term in their outlook and less enlightened than they were 30 years ago,” he said. “Corporate chief executive officers, as a group, are less influential in setting the broad public agenda of this society; and corporations, as they narrow their focus, are becoming increasingly out of touch with the underlying long-range trends in society, are less well informed, particularly about non-economic values.”

Effective Tool

He said corporate giving can be an effective tool to encourage executives, managers and workers to be involved in volunteer activities that promote a stable society, which is essential to long-term corporate profits. He quoted a General Motors vice president who said in 1926 that “you can’t have a healthy corporation in a sick society.”

But, Payton said, too many forces within corporations tend to view giving as a means to further their narrow interests within their company rather than furthering the corporation’s broader interest in a healthy society.

“Marketing and advertising, using corporate giving to increase sales and profits; public relations using corporate giving to enhance the company’s reputation and to build a reservoir of good will; community relations using corporate giving to deal with specific groups or audiences thought to be of particular importance,” all distort and diminish the value of corporate philanthropy, he said. Payton then posed a series of questions raised by using philanthropy to market products and services.

“How do you measure the success of cause-related marketing? By benefits to the company? How then does this affect your choice of causes? Presumably popular causes like the starving children of Ethiopia are good causes for a company to identify with; the problems of teen-age pregnant mothers are probably not a popular cause for a company to identify itself with.

“What is the effect if the marketing approach does in fact become predominant? Does it increase corporate giving? Does it increase the giving of other people?” Payton asked.

He said he doesn’t have the answers.