How Corporate Philanthropy Can Harm The Communities They Try To Help

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Abstract

Despite the numerous amount of study done on the impacts of corporate philanthropy and corporate social responsibility from a business’s perspective, not enough attention is being paid on the community’s perspective. Corporate philanthropy could potentially result in intentional and/or unintentional negative consequences for the target beneficiaries. This paper will first define corporate philanthropy before highlighting three possible ways of firms harming the community – threatening their livelihoods, destabilizing communities through corruption and fraud, and overly focused on programs with measurable impact.

Introduction

There is a wide body of literature that underlines the value of corporate social responsibility (CSR), and corporate philanthropy (CP), for businesses. Very few focused on the impacts of these activities on the communities they aim to help. As a result, more firms may be investing in CSR with the assumption that their target community will benefit from their actions. This paper will attempt to shed some light on how CSR, specifically CP, can be harmful to the communities they are trying to help. But in order to do that, one fundamental question needs to be answered – what exactly does CP entail? Unfortunately, there is no one uniformly agreed on explanation to this question – many authors offer different descriptions of CP and some even leave the term undefined. There is also a debate on the link between corporate social responsibility (CSR) and CP. Can CP be considered CSR and vice versa? And what does CSR mean? To determine the scope of this paper, I will first establish the definition of CP by looking at whether or not CP is a part of CSR. This will be done by analyzing a well-known definition of CSR. [1: Sharon McLennan & Glenn Banks, “Reversing the lens: Why corporate social responsibility is not community development” (2017), Corp Soc Resp Env Ma. 2019;26: pg. 117–126] [2: Arthur Gautier & Anne-Claire Pache, “Research on Corporate Philanthropy: A Review and Assessment” (2013), J Bus Ethics (2015) 126: pg. 343-369]

Defining CSR and CP

Despite the growing popularity and importance of CSR worldwide, there has yet to be a universally accepted definition of CSR due to the ambiguity of the moral foundation and lack of consensus on how various aspects of CSR should be balanced for decision-making. A quick Google search would show a myriad of definitions of CSR from various perspectives and sources. Thus, this paper will use one of the more popular definitions which was contributed by Archie Carroll, where he defined CSR to be a four-part pyramid that frames a business’s responsibilities to the community it is a part of. The following is a summary of the pyramid (starting from the bottom of the pyramid) [3: Richard Smith, “Defining Corporate Social Responsibility: A Systems Approach For Socially Responsible Capitalism” (2011), online: https://repository.upenn.edu/od_theses_mp/9] [4: Archie Carroll, “Carroll’s Pyramid of CSR: Taking Another Look”, International J of Corporate Soc Responsibility 1, 3 (2016), online: https://doi.org/10.1186/s40991-016-0004-6 ] [5: Archie Carroll, “The Pyramid of Corporate Social Responsibility: Toward the Moral Management of Organizational Stakeholders”, Business Horizons July-August (1991): pg. 39-48 ]

Economic responsibilities – businesses are required to be profitable and able to sustain themselves in order to provide the goods and services society needs.
Legal responsibilities – businesses are required to comply with the law and regulations that reflect society’s set of norms and fundamental notions.
Ethical responsibilities – beyond legal compliance, businesses are also expected to conduct themselves in accordance with the ethical norms adopted by their stakeholders.
Philanthropic responsibilities – businesses are desired to be good corporate citizens and give back to society, but it is usually up to the businesses’ discretion.

Distinctions between the four responsibilities, especially between legal & ethical requirements and ethical & philanthropic expectations, can be very tricky as the law is usually based on ethical premises, and actions fulfilling ethical responsibilities may be considered as a form of giving or philanthropy. Additionally, economic responsibilities have an underlying ethical principle of utilitarianism as to be profitable, businesses must take actions that produce the greater good for the greater number. Hence, these responsibilities tend to overlap. However, it must be noted that the pyramid is intended to be seen as a whole rather than focused on each part separately. Businesses should make CSR decisions that fulfill the four responsibilities simultaneously, rather than in some sequential manner. Therefore, whether or not the responsibilities overlap does not matter as firms have to carry out all four anyway. [6: OpenStax, “Utilitarianism: The Greatest Good for the Greatest Number”, Business Ethics 2.4 (2018), online: https://openstax.org/details/books/business-ethics] [7: Archie Carroll, “Carroll’s Pyramid of CSR: Taking Another Look”, International J of Corporate Soc Responsibility 1, 3 (2016), online: https://doi.org/10.1186/s40991-016-0004-6]

Based on Carroll’s definition of CSR, it can be concluded that CP is a part of CSR (correspondingly, CP by itself cannot be considered CSR and could stand on its own). On this basis, CP can then be defined to be all forms of business giving – be it cash and product donations, employee volunteerism, and any other contribution – that enhance a community’s quality of life. Companies usually conduct CP by giving to charitable organizations and non-governmental organizations (NGOs) or by setting up their own foundations and CSR departments. [8: Erin Cho et. al, “Corporate Philanthropy Affecting Consumer Patronage Behavior: The Effect of Reciprocity and the Moderating Roles of Vicarious Licensing and Strategic Fit” Sustainability 2017, 9(7), online: https://doi.org/10.3390/su9071094 ] [9: Arthur Gautier & Anne-Claire Pache, “Research on Corporate Philanthropy: A Review and Assessment” (2013), J Bus Ethics (2015) 126: pg. 343-369]

Ways CP Can Harm Communities

Corporate gifts may harm the community they are supposed to assist in various ways, whether intentionally or unintentionally: Directly Threatening the Community’s Livelihoods

When companies donate resources to a community without verifying the actual need (or with the intention of weeding out local competitors), it may create a situation of oversupply and unfair competition which may result in local businesses losing sales and profit. One example to illustrate the grave impact of oversupply is the death of many African countries’ textile industry in the 1980s by the hands of foreign second-hand clothes donation which greatly contribute to massive layoffs and unemployment. Some argued that the second-hand clothes have become an industry of itself and provided jobs for many Africans, but there are no reliable statistics to prove that the claim is true or if the job creation had a net positive impact on the community as a whole. Another example is the devastating Haiti earthquake in 2010 which displaced over 1.5 million people to relief camps. Many companies, along with NGOs, donated overseas solar panels to alleviate the energy shortage. As a result, a local solar panel manufacturer had his business severely disrupted, which led to a loss of income for the 62 Haitian employees in his company. After all, it is difficult to compete with free donations. It is worth mentioning that this case is unique as there was an urgent need for power in Haiti, so companies and NGOs may not have the time to conduct thorough market research. Still, if companies are sincere in helping communities in such situations, they should at least consult the local authorities first on how best to help. [10: Andrew Brooks, “Clothing Poverty: The Hidden World of Fast Fashion and Second-hand Clothes” (2015), online: https://www.researchgate.net/publication/281463089 ] [11: CNN Editorial Research, “Haiti Earthquake Fast Facts” (2010), online: https://edition.cnn.com/2013/12/12/world/haiti-earthquake-fast-facts/index.html] [12: Marianne Lavelle, “Solar Power Brings Light to Quake-Darkened Haiti” (2010), online: https://www.nationalgeographic.com/news/2010/3/100331-solar-light-haiti/] [13: “Poverty, Inc.”, directed by Michael Matheson Miller (5 December 2014), online: https://www.povertyinc.org/ ]

Destabilizing Communities Through Corruption and Fraud

Even though philanthropy is usually done out of goodwill, it can breed malfeasance and fraud instead. It is unfortunately not uncommon for people to make false claims or pose as intended beneficiaries, which diverts resources away from those who need them. One such case is the loss of around £775,000 of funds intended for Grenfell Tower fire victims in London to fraudulent claims. Corporate contributions can also be misappropriated or siphoned off by the authorities who are supposed to distribute them to the community. This is especially true if there are many intermediaries between donors and beneficiaries. For example, in Afghanistan, it was found that community development contracts given to large contractors are subcontracted to smaller and local ones, and by the time the money reached the local contractor and corrupt officials were paid off, there were not enough to build a road. Not only do the community fail to benefit from the donations, but they are also likely to be hurt by the very resources that are supposed to help them. Donations may be repacked and sold to the public, distorting prices and purchase ability. Corruption can also increase violence and crime which destabilize communities and cause them to feel vulnerable and insecure, fueling insurgency and further instability. One can say that the fault mainly lies in the corrupt individuals and not the companies. But at the same time, the companies play a part in enabling corruption and fraud by not exercising due diligence on the supply chain of their philanthropic actions. Understandably, corruption and fraud can be difficult to track and avoid, but corporations can still take steps to minimize it by seeking NGOs with credible anti-corruption mechanisms or establishing their own systems. [14: The Economist, “Defrauding the do-gooders”, The Economist International (23 November 2017), online: https://www.economist.com/international/2017/11/23/much-of-the-money-donated-after-disasters-is-stolen ] [15: Phoebe Southworth, “Grenfell fraudsters stole £775,000 from victims’ fund with bogus claims, new figures reveal”, The Telegraph (22 October 2019), online: https://www.telegraph.co.uk/news/2019/10/22/grenfell-fraudsters-stole775000-victims-fund-bogus-claims-new/] [16: Michael Moody, “A Hippocratic Oath for Philanthropists”, For the Greater Good of All: Perspectives on Individualism, Society, and Leadership 8: pg. 142-166] [17: SIGAR, “Corruption in Conflict: Lessons from the U.S. Experience in Afghanistan” (September 2016), online: https://www.sigar.mil/pdf/lessonslearned/SIGAR-16-58-LL.pdf] [18: Transparency International, “Conflict at the Bottom” (29 January 2019), online: https://www.transparency.org/news/feature/conflict_at_the_bottom] [19: Mario A. Aguilar et. al, “Preventing Fraud and Corruption in World Bank Projects” (May 2000), The World Bank, online: http://www1.worldbank.org/publicsector/anticorrupt/fraudguide.pdf]

Overly Focused on Programs with Measurable Impacts

“Impact measurement” is the newest buzz phrase among CP and CSR communities. Both corporate and individual donors are paying more attention to the impact of their giving, which is both good and bad. Impact measurements can result in good philanthropic programs receiving more funding and increasing the number of beneficiaries. However, it can also cause a bottleneck effect where only programs with proven effectiveness are funded while those with unmeasured success are disregarded. Poor impact measurement methods can also give misleading outcomes. Firms may end up creating or donating to programs that produce quick results and/or do not necessarily tackle the root issue. A 2010 study on Fortune 500 CP on education shows that most contributions made are one-off or lasted for less than three years as they would like to see progress and results before renewing their commitment. What those companies fail to realize is that education is a long-term investment – a single donation does not come close to solving the root cause of lack of education and its impact will thus be minimal at best. The short duration and inconsistency of funding and programs also make it difficult for NGOs and firms to create sustainable plans with real long-term impact. Although this may not harm the community per se, it might still deprive them of a better outcome should companies be less focused on quantifying the effects. Having said so, measuring impact is still beneficial for both parties if companies can collect the right data, develop the right system to analyze it, and improve the programs based on the learnings. They should also gain a deeper understanding of the social issue they are trying to solve before jumping on the impact measurement bandwagon. [20: Mary Key Gugerty & Dean Karlan, “Ten Reasons Not to Measure Impact—and What to Do Instead” (2018), Stanford Social Innovation Review, online: https://ssir.org/articles/entry/ten_reasons_not_to_measure_impact_and_what_to_do_instead#] [21: Hyunsoo Kim et. al, “The Ethical Issue of Contemporary Philanthropy: Unintended Negative Consequences of Philanthropy”, Management Review: An International Journal (2017) Volume 12 Number 1 ] [22: Justin van Fleet, “A Global Education Challenge: Harnessing Corporate Philanthropy to Educate the World’s Poor”, Center for Universal Education Brookings Working Paper 4 (April 2011), online: https://www.brookings.edu/wp-content/uploads/2016/06/04_corporate_philanthropy_fleet.pdf] [23: Mary Key Gugerty & Dean Karlan, “Ten Reasons Not to Measure Impact—and What to Do Instead” (2018), Stanford Social Innovation Review, online: https://ssir.org/articles/entry/ten_reasons_not_to_measure_impact_and_what_to_do_instead#]

Conclusion

The above list is certainly not exhaustive. There are other ways of how CP can potentially cause harm, such as creating dependency on corporate handouts, that warrant further study. The causes and implications of the harm need to be properly investigated with data to test its significance and severity. [24: https://johnsoncenter.org/giving-back-blog-types-of-philanthropic-harm/]

In a nutshell, before making philanthropic decisions, companies should weigh the positive and negative impacts of their philanthropic actions carefully from the community’s perspectives and not just theirs. An additional suggestion is to apply ethical reasoning to their decision-making process. For example, based on the utilitarian view, are they willing to exploit someone for the sake of the majority? Or based on the Kantian view, will they accept negative results as long as their philanthropic actions were done in goodwill? [25: Hyunsoo Kim et. al, “The Ethical Issue of Contemporary Philanthropy: Unintended Negative Consequences of Philanthropy”, Management Review: An International Journal (2017) Volume 12 Number 1]

Should firms choose to proceed with CP, they should bear in mind the various pitfalls illustrated above (as well as others not mentioned) and take precautionary measures. It would bode well for companies to do thorough research on the community they intend to help, such as delving into the community’s environment, social issues, and local regulatory bodies (including their legal system). If they intend to partner with NGOs or local businesses in the community, it will not hurt to look into their profiles as well, especially with regards to anti-corruption and fraud measures. Firms also need to remember that philanthropy takes time, commitment and patience for the community to reap its benefits.

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